The winning and losing sectors in Saudi Arabia
The winners: lucrative sectors which received funding in Saudi Arabia
According to a recent report by Magnitt and the Saudi Venture Capital Company, startups in Saudi Arabia have seen a 102% year-on-year increase in funding in the first half of the year to USD 95 million, despite the Covid-19 pandemic. In addition, the number of deals in the first half of the year, increased by 29% to 45. Ecommerce companies received the most funding in Saudi Arabia, at 67%, yet the total deals in this sector decreased from 2019, by 15%.
The top three deals recorded in Saudi Arabia the first half of 2020, include Jahez, the food delivery app, which raised USD 36.5 million, in Series A funding, Nana, specialized in grocery and delivery services, raising USD 18 million in Series B, and Noon Academy, capturing USD 13 million in funding in Pre-Series B. These figures are impressive given the difficult economic climate.
Success stories in the MENA Region that grew despite the pandemic, would definitely include Souq.com (which is the biggest e-commerce site in the Middle East, and one of Amazon’s biggest acquisitions in recent years), mumzworld.com and Sprii that facilitated the needs of consumers and mothers from the comfort of their homes.
Edtech, due to school closures and a fast-paced digital adoption of online learning has also been a winner. Noon Academy’s deal stands testament to that, raising USD 13 million. Other industries that were quick to adapt and respond also came out on top, such as healthtech – and more movement is expected in this sector.
The most active investors and angel investors were both Saudi-based as well as regional entities, including Misk 500 MENA Accelerator, 500 Startups, Impact46, KAUST, OQAL, and SVC.
The losers: sectors that saw a drop or halt in funding
Despite these promising numbers recorded on a national scale, many investments that were in the pipeline were delayed or stopped. Take the Haj and Umrah sector, which has been the most impacted, along with travel and the entertainment industry, particularly investments in big events.
Data analytics and business intelligence as a sector has also witnessed a drop in funding, falling from second place to 12th place this year. Reports have shown that agriculture has disappeared from the list of deals and funding, in addition to delivery and transport has also dropped in terms of deals.
The pandemic heavily impacted other businesses emerging from the MENA region, such as Careem, which had to lay off hundreds of employees during the crisis. Businesses in the hospitality, hotel and airline industry, were hit hard by the crisis.
What can innovative companies do moving forward?
Entrepreneurs should ultimately review and assess the sectors that are winning and growing. As knowledge is power, and trends shape futures, entrepreneurs need to stay up to speed with market changes and dynamics. In addition, they must be nimble and agile and revisit their business models on a more frequent basis.
In terms of existing funds, entrepreneurs now have to be more diligent than ever, with cost cutting and bootstrapping being highly recommended. Seeing that VCs will not be dispensing investments more willingly during these times, entrepreneurs need to ensure their funds in hand last longer. The decrease in funding will definitely impact the livelihood of entrepreneurs themselves, as many of which are already struggling and self-financing their operations. Cost-cutting and prioritizing expenditure is highly recommended.
In addition, entrepreneurs should not depend on existent supply chains, rather localize them and enhance them where possible. Before COVID-19, the focus was on the efficiency and globalization of supply chains, which was the norm. Supply chains of companies in every industry were more global and very scattered. Post COVID-19, investors and companies are testing the mobility and resilience of supply chains, which have been greatly impacted by the closure of airports and businesses. There is now a more solid case to localize supply chains even if it will cost more. This is an opportunity however for startups and tech companies to start integrating and localizing their supply chains
The best measures taken by entrepreneurs / companies include:
- Becoming more agile and nimble
- Building closer relations with creditors
- Delaying dividend distribution
- Reexamining and prioritizing project pipeline and finances
- Focusing on vital projects and delaying non vital projects
- Embracing digital transformation, to reduce costs and increase efficiencies, which is no longer a luxury, but a necessity
- Outsourcing non-core functions to reduce fixed costs
Many companies have also reinvented themselves and found ways to overcome challenges, and deliver goodwill services to clients efficiently. In Saudi Arabia for example, supermarket chain Danube, shifted from in-store shopping to online shopping, and was able to increase its market share.
The restrictions brought on by the COVID-19 pandemic showed that having strong online presence is deemed vital, specifically for high growth companies that are in the technology sphere. This includes companies specialized in e-commerce, delivery services, edtech, healthtech and fintech. The importance of having an alternative electronic platform, even for companies in the retail sector, allows for less business disruptions during crisis periods and business continuity plans to be automatically implemented in case of closures. Investors are keen to test the functionality of electronic platforms, their user-friendliness and seamless end to end service, which can entice repeat customers / purchases. On this note, Saudi Arabia’s internet penetration and uptake of digital platforms can facilitate the shift for companies to move online, and fast.
Stay tuned for more updates, or read the full report in Arabic, on Harvard Business Review Arabia here.