Emerging technologies to watch from the Middle East’s largest tech VC fund

Want to identify the most important technology trends in the Middle East? One way to do it is to follow the money — the venture capital money.

Saudi Technology Ventures (STV), the region’s largest technology venture capital fund, led record-breaking funding rounds over the past year for new companies in fields like fintech, logistics, e-commerce, and cybersecurity. A common thread among them is offering streamlined applications designed to cut costs and increase efficiency for individuals and businesses.

The venture capital industry, with STV leading the way, is the driving force behind Saudi Arabia’s tech innovation ecosystem, supporting emerging-tech companies and bringing them to scale. Digital transformation and economic diversification are key parts of Saudi Arabia’s Vision 2030 ambitions, resulting in the recent introduction of far-reaching economic and labour reforms that aim to stimulate the flow of tech talent into the country in order to reduce economic dependence on oil.

By the third quarter last year, Saudi investment in start-ups had already amounted to  more than twice as much money than in all of 2020, and the IT solutions sector led the pack with 39% of all capital deployed into local companies, according to Magnitt’s KSA third quarter 2021 venue investment report.

Leading the pack with the highest investment growth was fintech, with STV committing funding to several fast-growing start-ups.

Fintech thrives in Saudi Arabia

“The fintech ecosystem in Saudi Arabia is thriving, with the industry growing rapidly in the past few years,” says Mazhar Hussain, head of digital science and innovation at KPMG Saudi Arabia. “Fintech innovation will drive improvements in many aspects of the capital markets, including easing the accessibility to investors and companies, reducing the cost of conducting business through automation, and improving overall information security and data governance.”

In addition to fintech, STV committed lead funding for SpiderSilk, a company in another growing tech industry: cybersecurity. “Cybersecurity remains a focus area for investors,” Hussain says. “Data privacy is now a sector-wide priority. Companies need to develop a solid framework of best practises and infuse those practises to create a sustainable and effective data protection strategy. Businesses that pro-actively manage and protect personal data will come out ahead of their competition.”

Business executives interested in benefiting from the region’s growing tech start-up ecosystem can benefit from strategic pairings with emerging companies, sharing knowledge and discovering new business opportunities through direct corporate partnerships, or by investing in companies or venture funds directly, according to venture capital industry executives.

“There are three main questions CIOs/ CEOs need to ask themselves,” says STV COO Luca Barbi. “Which emerging digital players can disrupt my core business? Which can offer me better services and could replace my current providers? With whom I can develop a win-win partnership?”

Many enterprises are comfortable doing the same thing that they’ve done for years and can sometime be sceptical about new players with limited track record, Barbi says. “However, if they’re open to doing their due diligence and testing out new technology solutions, the gains can be tremendous.”

What’s next for STV: a fund worth $1 billion

Saudi Technology Ventures (STV) was established in 2017 with a $500 million anchor investment from Saudi Telecom Company, the region’s largest telecom operator. STV has participated in approximately one-third of start-up funding rounds in Saudi Arabia and 20% of Middle East deals across the region.

Landmark deals include early investment in companies like Careem — acquired by Uber Technologies for a staggering $3.1 billion in 2019 — and Unifonic, a communications platform that received $125 million from SoftBank Group’s Vision Fund 2 last year, the largest round of funding for a Saudi start-up to date.

Today, STV is the Middle East’s largest independent technology venture capital fund.  To promote the growth of emerging tech companies with more advanced funding rounds, CEO and ex-Google executive Abdulrahman Tarabzouni wants to raise enough money to double the fund’s size to $1 billion.

Last year, STV invested in a broad spectrum of different sectors, from deep-tech AI (Intelmatix) to e-commerce holding groups (Opontia). “While we are focused on the Middle East and North Africa, we are sector-agnostic. Our portfolio includes successful companies in a range of industries including fintech, edutech, e-commerce, supply, and food and beverage,” Barbi says.

Highlights from STV’s start-up portfolio

Here are a few stand-outs from STV’s 2021 deals:

• Tabby: A “buy now, pay later” payments company. Tabby allows users to buy online through 4 interest-free payments and earn cash back.“Tabby has shown the fastest growth in terms of revenue. BNPL is a successful play globally, proven to be valued just as much in the Middle East as in other parts of the world. Now Tabby has a long list of merchants from both global and regional brands and is quickly becoming a powerful aggregator of e-commerce shops,” Barbi says. The company has received $132 million in funding.
• Sary: A B2B food and beverage supply marketplace. Sary digitises the supply chain, connecting FMCG wholesalers, suppliers, and manufacturers to retailers, who can view inventory forecasts, send digital invoices, and gain access to credit. The platform plans to expand to provide other financial services users need. “Today, it is a platform that reinvents the supply chain, and started providing the users with online credit tools that they need to finance purchases; maybe tomorrow it will provide them with additional services and expand its offering to adjacent segments,” Barbi says. Sary has received US$112 million, the first Saudi start-up to close Series C funding
• Trukker: A digital freight platform. Trukker links transporters, companies, and consumers to instantly book logistics services with features like digitised document processing, demand and supply matching in real time, and cargo tracking. “Whereas in the west, you might have two-three large industry players, in the Middle East, you have thousands of truck drivers and brokers, and people have to pay brokerage fees to several large players. Trukker is trying to modernise that process and offer a more cost-effective and efficient solution,” Barbi notes. The company has received US$44.4 million in venture funding.
• Sabbar: An-demand staffing platform.Sabbar helps companies source, hire, train, and pay workers in the retail space as well as in the entertainment and hospitality industries. For Saudi businesses that are subject to specific staff requirements related to Saudization policies, Sabbar helps companies hire qualified local staff and allows them to take necessary training, all on-demand. Funding has reached $5.5 million.

The pandemic continues to push digitalisation

The COVID-19 pandemic has accelerated the growth of digital businesses that STV is keen to invest in, particularly in the e-commerce sector. “The pandemic has impacted our business significantly — in a positive way. During this time, people were forced to shop, learn, transact, work, and procure a number of services online. Such ‘unusual’ behaviours over time have become established habits that will remain after the pandemic,” Barbi says. Digital point-of-sale payments doubled in Saudi Arabia between January 2020 and 2021 in addition to increases in contactless payments, a McKinsey report found. As part of the country’s 2030 Vision, Saudi Arabia aims to increase payments made online to 70%.

“The technology sector can create a new company in a very short time frame and significantly contribute to diversify the Saudi economy from oil,” Barbi says.

In addition, the majority of the Saudi population is under 30, and is comfortable consuming a wide array of digital products and services. “Customers’ expectations have been reset to a level that is unmatchable for the traditional businesses,” Barbi says. Ordering groceries, taking education and training courses, even consulting with doctors, are increasingly done online.

This year, Barbi predicts that some of 2021’s top emerging technology, particularly fintech, will continue to attract investors:

“I believe that Saudi Arabia in the next five or 10 years will really surprise the world. A lot of things will develop very quickly with the right drivers,” Barbis says. “Not only in terms of economic development, but moving towards solving the world’s biggest challenges when it comes to innovative solutions that will sustain and improve quality of life.”