At one point, Kuwait was at the forefront of the startup ecosystem in the GCC, producing some of the region’s most robust companies and exits, most notably food delivery platform Talabat, which was acquired for $170 million by Delivery Hero. Founders in the country enjoyed strong government backing, with access to capital and talent, but in the past few years, Kuwait’s ecosystem has waned, lagging behind its more active neighbours.
The entire Middle East and North Africa (Mena) region was transformed after the Covid-19 pandemic in 2020, which elevated the tech and startup scene to a new level. VC investment grew across the board, yet in Kuwait, the pandemic’s impact was less pronounced. Of the $3 billion raised by startups in Mena in 2022, Kuwait’s share of that was just $25.7 million, down from $41.7 million in 2021. Meanwhile, its more comparable neighbours like Qatar and Bahrain raised $36.7 million and $124.7 million, respectively last year. So far this year, Kuwaiti startups have only managed to raise a little over $5 million, compared to $13 million raised by Bahraini startups and $14 million raised by Qatari startups.
Limited access to capital
Kuwait’s economy still depends largely on its oil exports. Diversifying its economy was one of the objectives of the government of the late Emir Sheikh Sabah Al-Ahmed Al-Jaber Al-Sabah, who launched a KWD2 billion ($6.5 billion) Kuwait National Fund (KNF) to support small and medium-sized enterprises in the country, which, along with Kuwait Industrial Bank (KIB), are the only two governmental entities financing startups with loans. The SME Fund finances up to 80 per cent of an SME’s capital requirements, capped at KWD500,000 ($1.6 million) for companies that are headed by a Kuwaiti national and employ 1-50 Kuwaitis.
According to Batoul Khuraibet, the founder of the KNF-funded gifting e-commerce platform Tdalal, when seeking funding from the KNF, founders are required to give 20 per cent of their startups as a guarantee to the bank until they pay the loan.
“It is exhausting to run a business under these circumstances; I have to give 200 per cent of my energy to make my business work and to pay back the loan,” Khuraibet says, adding that the alternative is venture capital firms (VCs) in the country whose funding strategies can be difficult to decipher.
“Some VCs base their decisions on the age of the startup in the market; if it exceeds five to 10 years, they may consider funding it. They want a 100 per cent success rate,” he says.
One fintech founder who asked not to be named says funding early-stage startups is less attractive for investors who are looking for great exit opportunities.
“Acquiring capital has never been an easy job for any startup in the world, especially the early stage ones,” he says. “You have to talk to individual angels, corporations, and families and not rely on one source of funding.”
A lot of startups end up resorting to family and friends instead of going through the “not very straightforward” process of raising funds from VCs, according to Ameen Nadoom, co-founder of Ruba, a buy-now-pay-later solution for the education sector.
While limited access to capital is a common complaint among Kuwaiti founders, Abdullah Alateeqti, co-founder of automotive marketplace Motery, believes that VCs in Kuwait listen when startups pitch industries that fit their thesis.
“The secret is to fill a gap in a certain space, provide a seamless solution to a profound problem, and then funding will find its way to your startup,” Alateeqti explains. “Some investors may show interest in your startup, and some may not. And some investors might have had bad experiences in certain industries, and sometimes they have different plans to diversify their portfolios.”
There are three main sources of funding in Kuwait - private equity, the public market, and VCs.
“When you look at retail investors, they like to put their money into public markets in Kuwait; they feel their money is more safe when being invested in listed companies in the Kuwaiti equity market,” says Hassan Zainal, founder and managing partner at Kuwait-based Arzan Venture Capital. “However, there are only 150 companies listed on the Kuwaiti stock market, which is less than other GCC markets.”
Most of the investment capital in the country is focused on the real estate sector “since the appreciation of the land value always goes up, making the yield attractive for investors and less risky,” he adds. “The activity taking place in the private equity space is very minimal. You see family offices owning legacy assets and either continuing to grow them or selling them.”
According to Zainal, the VC space is not as active as it ought to be.
“One of the main factors that make the VC space strong is the ability to raise funds, which basically comes from either government-mandated investment or family offices and corporations,” Hassan explains, stressing that when the government prioritises VC funding, like in Saudi Arabia, the UAE, and Bahrain, the whole ecosystem can be disrupted.
But in Kuwait the majority of government investments go to foreign venture capital firms “since they look for big ticket sizes, bigger than the ones provided by local or regional VCs”.
Meanwhile, the family offices in the country “do not like to play blindfolded; therefore, they invest in other asset classes that carry more stability and a clearer future,” says Zainal.
On the other hand, the corporates in Kuwait are not playing the role they are supposed to play in developed markets, according to Zainal; they act as early-stage investors to avoid risks, while they should play the role of the potential acquirer of startups.
“They [corporates] do not really understand the difference between early stage, growth stage, and strategic investments. So their activity in Kuwait is also minimal,” he says.
One of the negative impacts of the Iraqi invasion in 1991 was how anxious successive Kuwaiti governments became with regards to reforming its laws and regulations.
Kuwait is one of the few countries in the GCC that still prohibits foreigners from owning businesses and real estate. It still requires a national partner with a majority ownership to launch a business on its soil. Setting up and establishing a business is also a cumbersome process, taking more than one month in many cases.
“They [the government] don't want to open Pandora's box,” says the unnamed founder. “Hence, they are very wary about the changes they make.”
Meanwhile, Mohammad Almutawa, founder of e-commerce marketplace Bzaaarz, believes one of the biggest challenges is the lack of tech talent in the country due to the hurdles imposed by the government on acquiring talent from abroad.
“It is quite a lengthy and complicated process to issue work permits and documents for expats; therefore, we hire remotely-working calibres overseas, like in Egypt and India,” he says. “These hurdles have hindered people from aspiring to launch their own businesses or join tech startups, preferring to stick to their safe government jobs.”
Of the 1.45 million Kuwaiti nationals, fewer than 17,000 are registered as business owners and entrepreneurs, most of whom are self-funded according to Almutawa.
“Neither the laws nor the infrastructure support them to grow and thrive in a healthy ecosystem,” he says. “And due to complications in launching their own businesses, people prefer to stick to their highly-paid government jobs.”
Kuwait’s culture still favours public sector jobs. In fact, more than 373,000 Kuwaitis are employed in the public sector, while only 76,000 work in the private sector, a disparity that Zainal believes is caused by the government itself.
“Parliamentarians are always tending to uphold raising government employees’ salaries to motivate people to re-elect them, not to enrich the private sector,” he says.
Kuwait is one of the richest countries in the region, with a gross domestic product (GDP) of $106 billion and a GDP per capita of $32,000. And yet, Kuwait is disconnected from the growth registered by its neighbouring GCC countries, unattached to the international startup platforms. Due to the lack of international tech events and forums taking place in Kuwait, its founders and entrepreneurs have few opportunities to engage with international peers and investors. The number of incubators and accelerators in the country is also very low. This lack of infrastructure, bureaucracy and insular governmental approach has led Kuwait to fall behind other GCC markets according to the unnamed founder, “but it is not set for failure. They are advancing slowly, but they are in the right direction.”
Despite the challenges that both startups and VCs face, there is still a sense of optimism in the community.
“The learning curve in Kuwait is quite steep; it is a small market compared to other GCC markets, which does not stage a good setup for growth. However, startups that succeed in Kuwait typically succeed elsewhere,” says Nadoom. “We have high purchasing power with many untapped sectors and a nation hungry for digital services.”