It’s a common scenario: Saudi entrepreneurs complain about the lack of investment and venture capital put into startups, while investors claim they don’t know about promising tech projects.
SMEs make up 99 percent of the total private enterprises in Saudi Arabia. But they contribute only 20 percent of GDP and 4 percent of employment.
They then have a hard time finding funding.
“Most investments are in the real estate and private equity market,” said Firas Almohasen, business analyst in Takamol Holding, a Saudi quasi-governmental organization.
To try to tackle this gap Takamol Holding launched two programs: Musharaka and Deal Directory. The first aims to lower the risks of investing and the second wants to link investors with companies ready for investment.
A joint risk
Launched in June 2014, Musharaka (‘sharing’ in Arabic) started with 1.5 billion Saudi riyals (US$400 million), to develop SMEs and provide job opportunities.
They plan on achieving that by encouraging investment in these companies in the early stage, by reducing the risks of investors - whatever you invest Musharaka will match it.
Musharaka sets the standards for accepting investors, based on number of jobs to be created, their sector and the level of funding they require.
Those that join the program include different investment funds (such as VC funds, private equity funds and mezzanine funds), investment companies, family investment groups and holding companies investing in SMEs.
Musharaka opened the doors for the first wave of applicants last year; 14 funds applied but only seven were accepted. This year, it launched the second wave at the start of March, 16 applied and it is likely that this number will increase until the application deadline of April 18.
While they were unable to disclose more details on the deals created after the first way they did say that one had been successful and three were ongoing.
A program inspired by another
It was while working with Musharaka that Almohasen would hear complaints from investors about the lack of startups qualified for investment. But the truth is, “there are so many but investors don’t know about them,” he said.
This led to the creation of Deal Directory.
After companies register in Deal Directory, they are asked to provide information about their field of work. The financial solutions team at the Takamol-owned 9/10ths accelerator analyses this information and finds the possible growth potential and checks their finances, innovative business model and clients, in addition to the possibility of expansion.
Those deemed not yet ready for investment will be directed to seed funding or introduced to an accelerator.
A startup that is chosen is then matched with investor applications per the specific standards. If it doesn’t receive investment the platform sees to it that the company learns something new, like what they need to do in order to get investment.
There are over 200 startups registered on the platform, along with over 30 investors.
“We want to gather lots of feedback and opinions in the Saudi ecosystem, because educational factors are extremely important in an ecosystem like ours,” Almohasen said.
The parent company
Takamol acts as the empowering arm of the Ministry of Labor and Social Development to build a sustainable labor market, with units focusing on certain problems.
Out of the units working in Takamol, Doroob focuses on digital education in partnership with MIT; Ajeer works on solving the problems of recruiting companies, and remote working to link job owners with people looking for jobs, especially women and people with special needs.
According to Almohasen, Takamol aims to provide 14,000 job opportunities in the next 10 years. They value their impact by the number of jobs resulting from their projects, not to mention the increase in Saudi women participating.
Feature image via 9/10ths.