Driven By Growth: Saudi Arabia Sees A Rise In Support For Startups And Entrepreneurs From incubators and accelerators, to co-working spaces, education programs and funding, the Kingdom of Saudi Arabia (KSA) is seeing a surge in the number of organizations to support entrepreneurs.
By Megha Merani •
Opinions expressed by Entrepreneur contributors are their own.
You're reading Entrepreneur Middle East, an international franchise of Entrepreneur Media.
The number of incubators and accelerators across the globe has multiplied by nearly five times over the last decade– up from 560 back in 2009 to 2,616 in 2018, according to a report published by global consultancy Roland Berger earlier this year.
But 2018 was different, the study says. For the first time since the phenomenon struck, and famously became credited for Silicon Valley successes the likes of Uber, Dropbox, and Airbnb, the growth of the number of slots has stagnated.
Researchers attribute the stagnant growth to the "maturing ecosystem" for startups, mostly in the US and Europe, which means that founders seem to be now in "less need" of services offered by incubators and accelerators. They also have more alternatives in the form of corporate venturing and private equity firms in search of the next unicorn.
In the Gulf Arab region's largest economy however, the boom is just beginning. From incubators and accelerators, to co-working spaces, education programs and funding, the Kingdom of Saudi Arabia (KSA) is seeing a surge in the number of organizations to support entrepreneurs- with an opportunity to learn from international models as well as customize them for the greater good of the up-and-coming regional ecosystem.
Mustafa Nabelsi, Country Director, AstroLabs KSA
UNPRECEDENTED SUPPORT
"The startup ecosystem landscape in Saudi Arabia has never been better," says Mustafa Nabelsi, Country Director, AstroLabs KSA. "There's a boost in all possible angles. The government is providing unprecedented support for startups in terms of regulations, funding, and opening up new sectors. VCs are injecting more and more funds into startups, and, culturally, people are more welcoming in general, which leads to more brilliant Saudis moving towards having their own startups."
AstroLabs, a Dubai-based co-working community and learning academy for digital technology companies, received its incubator license from the Saudi Arabian General Investment Authority (SAGIA) in December 2018, becoming the first international incubator in the Kingdom. The license permits AstroLabs to act as a SAGIA partner and help tech startups expand to Saudi with expedited licensing procedures and no capital requirements.
"In response to the growing demand, we decided to open a Riyadh office," Nabelsi says. "There is strong global demand from startups wanting to expand to Saudi and also from local-born startups… Just last month, we announced our Forward KSA Accelerator, and we had hundreds of applications. As an ecosystem enabler, AstroLabs is working closely as a partner of SAGIA to help international scalable startups set up in Saudi, and expand their market reach. This is a win-win situation, as these successful startups will have a positive impact on the economy, job creation, and they will benefit from being in the largest market in the region as they scale their businesses."
"AstroLabs has helped more than 45 international startups expand to Saudi so far, Nabelsi adds. "And this is just a small fraction of the requests we have been receiving."
In 2016, Saudi Arabia's Crown Prince Mohammed bin Salman announced Vision 2030, a package of economic and social reforms designed to diversify the economy away from its dependence on oil, attract foreign investment and create jobs for citizens. Raising the current contribution of small and medium-sized enterprises (SMEs) to the GDP from 20% to 35% by 2030 is listed as a top priority for the Gulf state's prosperity.
In line with Vision 2030, the government established Monshaat, Saudi's Small and Medium Enterprises General Authority in 2016, to regulate, support and develop the country's SME sector, and to create and regulate incubators and accelerators. A report by Wamda Research Lab (WRL) in 2017 noted that the number of entrepreneurship support organizations in Saudi, including incubators, accelerators, co-working spaces and funds, nearly tripled, growing from 13 between 2006 and 2010, to 36 between 2011 and 2015.
Older players include Badir Technology Incubators and Accelerators Program, created in 2007 by the King Abdulaziz City for Science and Technology. Since its launch, Badir has established multiple business incubators across the Kingdom, serving hundreds of startups. Incubation programs include a biotechnology incubator in King Fahd Medical City, Riyadh, and a technology incubator in partnership with Saudi Electricity Company.
Badir also runs an Inventions Transfer Accelerator to activate patents through a variety of services with an aim to accelerate the implementation, development and marketing of inventions within six months. Badir states that it is now focusing on further expanding its innovation and entrepreneurial hubs across the country in order to achieve its KPIs of creating 600 startups and 3,600 jobs by 2020.
Mohamed Nawito, Incubator and Accelerator Program Manager, Wadi Makkah
QUALITY AND FOCUS
"The Kingdom needs more incubators and accelerators with stable long term funds, as the numbers of entrepreneurs is increasing exponentially, and the market has a lot of gaps to be filled," says Mohamed Nawito, Incubator and Accelerator Program Manager, Wadi Makkah, an incubator, accelerator and VC program, focused on technology investments.
"Tech startups are not only a great investment but also support the economy in job creation and delivering quality innovative solutions as well. Due to the increase of seed investment programs in the last years, we can see a number of [startups] with stable income and high recruiting power in different place in the kingdom."
But there's still space -and a need- for a "lot more" high quality and clearer focused accelerators and incubators, says Osama Alraee, Director of Entrepreneurship at Misk Innovation. "The earlier incubators and accelerators in Saudi started in around 2011, and they were new concepts at the time," he explains.
Osama Alraee, Director of Entrepreneurship at Misk Innovation
"So, while they added a fair amount of value to the ecosystem, it was a learning curve for them too. Unfortunately, because of this initial learning phase, entrepreneurs are under the misconception that accelerators and incubators haven't quite got all their ducks in a row, and that their value-add is weak. But this is not true today. On the contrary, some of the local accelerators and incubators have grown to contribute significantly to the ecosystem, in addition to many new international players entering the market. Now, we need more education and awareness to help change these former perceptions, and motivate entrepreneurs to join these initiatives."
Related: On The Fast Track: Saudi Arabia's Entrepreneurship Ecosystem
It is this understanding that led Alraee and the Misk Innovation team to go with a different approach when it came to building their own programs in this field. Last year, Misk Innovation -a branch of the non-profit Misk Foundation, founded by the Crown Prince to empower young people in Saudi Arabia and around the world to be active participants in the knowledge economy- launched Misk 500 Startups Accelerator, a partnership with U.S.-based early-stage venture fund and seed accelerator 500 Startups that offers up to SAR200,000 in funding.
The program's second cohort received more than 500 applications from across the Middle East and North Africa. Misk also runs a growth accelerator powered by Seedstars and VisionVentures with up to SAR375,000 up for grabs, which had received more than 300 applications for its latest cohort. Besides having these programs attempt to elevate the discourse around accelerators and incubators in Saudi Arabia, Alraee highlights that Misk Innovation also held a bootcamp for local accelerator managers to enable knowledge-sharing in this domain.
Bahar AlHarbi, founder and Managing Partner, Startups House
But private incubators and accelerators are not as commonly known among the public, says Bahar AlHarbi, founder and Managing Partner, Startups House, an incubator and accelerator in King Abdullah Economic City that works with businesses from early to growth stages. "The concept needs more targeted awareness," he echoes. Startups House offers multiple sector-agnostic programs including a Market Entry Program that facilitates access for foreign startups into the Saudi market, a fee-based incubation program, an in-kind services for equity pre-acceleration program and an investment-for-equity acceleration program.
Startups House's programs are inspired by Vision 2030 aiming towards a linear ecosystem, with its accelerator program average ticket size at about SAR100,000, co-matched with another SAR100,000 by Saudi Venture Capital Company. "In total, startups should expect SAR200,000," AlHarbi says, noting a growing interest among college students and fresh graduates to work and signup for training at startups. But in addition to funding, AlHarbi says, startups have a "serious need for incentives" such as social security subsidies and the activation of employee share ownership plans in order to retain talent.
More also needs to be done to shift mindsets on both the benefits and realities of working at a startup, Misk's Alraee adds. "It's hard to find the quality startups, especially for the growth stage companies in Saudi," he says. "Many entrepreneurs underestimate the value the program will bring to their startup and their careers, even if the startup fails later. They are not willing to commit full-time even after receiving SAR375,000 and some over value their startups, which leads them to negotiate too much on the valuation, and refuse to compromise to enter the program."
Meanwhile, as the concept of co-working begins to pick up in Saudi, AstroLabs' Nabelsi says "there still remains a bias for closed offices and isolation." "We are always preaching the benefits of a more collaborative approach to work, where the exchange of knowledge between individuals and companies occurs on a continuous basis."
Forward KSA startup workshop
"THE OPPORTUNITIES ARE ENDLESS"
In 2016, the Business Incubators and Accelerators Company (BIAC), a subsidiary of the Saudi Technology Development and Investment Company (TAQNIA), was established by royal decree to focus on setup, operation, and management of business incubators and accelerators, as well as other entrepreneurship support platforms in line with the Kingdom's Vision 2030. The initiative includes supporting the launch of the first business accelerator specialized in supporting and developing the works of projects in the Hajj and Umrah sector, such as those related to crowd management, travel and transportation. The company also collaborated to host a healthcare innovation hackathon at Princess Nourah University in Riyadh last year.
In addition, Saudi Arabia's Public Investment Fund (PIF), the kingdom's sovereign wealth fund, set up a four billion Saudi Riyal fund (US$1 billion) to provide access to capital for SMEs. "The opportunities are endless in the Saudi market across the sectors," Misk's Alraee says. "Saudi is going through a deregulation across many sectors and industries, creating opportunities for disruption. Industries to watch include education, tourism, logistics, retail, e-commerce, healthcare, fintech, construction, legal, and govtech."
His advice to startups is to consider joining an accelerator full-time when they get to the interview stage. "Get to know the program really well," he says. "Understand what it will cover so you can clearly see how it will support your startup and help you take it to the next level." Based on this understanding, Alraee recommends joining "only if you have a 100% will to commit" to the program and then agree on the valuation of your company accordingly. "Also, once you've joined the program, focus on experimenting what you have learned from the workshops and the one-on-one mentor sessions, and network with other co-founders and investors," he adds. "Some of the founders grow 2-4x during the program, while others grow 20-50xyou grow as much as the work you put in the program."
Other notable platforms in the Gulf state include Blossom, Saudi Arabia's first and only female focused accelerator, and Wa'ed, Saudi Aramco's Entrepreneurship Center that offers a range of support services for the local economy, including debt and equity funding, business development training, mentorship, and business incubation. The Kingdom's first fintech accelerator program, provided by Monshaat in partnership and the National Commercial Bank, was also launched in July.
But what will truly shift the youth mindset exponentially is having many success stories of startups that made it, says AstroLabs' Nabelsi. "Startups that started from nothing, and grew to astonishing numbers- the more of these stories we help building and creating in the region, the more inspired the youth will be. That will eventually turn this economy into a digital one."
Earlier this year, Saudi-based wholesale grocery platform Sary announced that they have raised seed funding and while the size of the investment was not disclosed. Sary is among the startups that were part of Saudi Telecom Company (STC)'s InspireU initiative to incubate and support ICT and digital innovation startups. InspireU provides seed funding up to SAR100,000, mentorship, office space and logistics support, along with STC Infrastructure. STC's VC fund, established in 2011, was among the initial institutional investors in homegrown ride hailing app Careem that was acquired by Uber for a record setting $3.1 billion.
Meanwhile, as AstroLabs plans to grow its community in the Kingdom fivefold, Nabelsi believes incubators and accelerators across Saudi should align to work together. "The number of startups emerging monthly is high, and they all need support," he says. "That's why I believe there's no competition between accelerators and incubators but an opportunity to collaborate and serve as much of the market as possible. Although there's a commercial gain expected, but also we all serve the greater good of taking this ecosystem to the next level."
