Tawaref Series: navigating Saudi expansion

Tawaref Series: navigating Saudi expansion

In today's interconnected global economy, tech entrepreneurs are continually exploring new frontiers to expand their businesses and harness fresh opportunities. Saudi Arabia has emerged as a compelling prospect for these entrepreneurs, boasting a rapidly advancing economy and a strategic geographical position. However, making strides into a new market demands careful evaluation of challenges and considerations. 

As we embark on this series of articles, our intention is for these pieces to become the definitive resource for venture capitalists, accelerators, angel investor groups, founders, and startups seeking to venture into Saudi Arabia.

The forthcoming article will delve into the rationale behind expanding into Saudi Arabia, the ideal timing for market entry, as well as the critical factors that influence this decision. Additionally, it will provide guidance on effective networking strategies for tech entrepreneurs aiming to establish a foothold in the Saudi market.

Why come to Saudi Arabia in the first place?

1. Expansion imperative: As indicated in our previous article, Saudi Arabia boasts the largest economy in the Middle East, making it an essential market for the growth of any startup in the region. Given the characteristic of small economies in the Middle East, it is unlikely for a startup to achieve unicorn status by being confined to one country. 

Notably, no unicorn or "soon-icorn" (soon-to-be unicorn) has emerged in the region without expanding to Saudi as part of their journey. Successful examples include Careem, Tabby, and, more recently, Tamara. In essence, Saudi Arabia is often the initial country for expansion for startups in the region.

2. Government and blue-chip projects: Internationally, the mention of "Saudi Arabia" typically sparks thoughts of grand-scale projects. This reputation is tied to the Saudi brand equity and encompasses ventures such as NEOM, the Red Sea, Al Ula, Expo 2030, the 2034 World Cup, and the ecosystem of the Public Investment Fund (PIF). As HRH Prince Mohammed bin Salman aptly described, it represents the new Europe. 

Virtually every startup we engage with expresses a desire to be involved in the Saudi vision. We frequently receive inquiries on how to participate in NEOM. This is the primary motivation for startups to enter the Saudi market.

For most blue-chip companies and firms owned by the PIF, although not a legal requirement, engaging with Saudi-based companies is preferable for credibility, customer experience, and easier government procurement processes. We found many startups were able to join a government project within 24 months of landing.

3. Countless incentives: The decision to enter Saudi Arabia is not solely about premium residency, or mega-projects or a "take it or leave it" proposition. The country has recently established numerous hubs and benefit programmes for startups. We intend to publish a separate article to illuminate the extensive range of benefits, which more than 80 per cent of international startups are currently unaware of. For instance, a quick visit to the Mazaya portal by Monsha’at reveals a service marketplace offering coupons and discounts for SMEs, providing a glimpse of the numerous perks available.

Additionally, the renowned Saudi programme Relocate, which operates under the umbrella of the National Industrial Development and Logistics Program (NTDP), offers support for scaleups looking to relocate to Saudi Arabia with funding of up to SAR5 million. 

In essence, apart from government projects, the current landscape presents an enticing opportunity for startups. We foresee these incentives continuing to be available at least until 2030, although it goes without saying that they may not be permanent.

4- Premium residency for entrepreneurs: For the first time, Saudi Arabia has unveiled its Premium Residency suite of programmes, encompassing golden visa real estate investment, independent means, active investor, talent, and experience-based categories. 

The aim of the premium residency is to attract highly skilled individuals and investors to contribute to Saudi progress by providing them with flexible choices for housing, settlement, and employment. Over time, SAPRC has improved its systems to provide a range of amenities to its target groups through electronic channels and facilities, collaborating with other government agencies within the ecosystem.

When is the ideal time to establish a presence in Saudi Arabia? 

This is a key consideration for regional startups looking to enter the Saudi market. Determining the right timing for expansion can be challenging, especially for businesses based in neighboring GCC countries. It raises the question of whether to operate from an offshore location or to establish a physical presence in Saudi Arabia. What are the advantages and disadvantages of each approach?

The answers to these questions depend on various factors, such as the industry of the startup (e.g., fintech, healthtech), the stage of development (seed stage vs. later stage), and the level of funding. Ultimately, the underlying question is a matter of weighing the costs against the benefits. 

While many startups express a strong interest in entering the Saudi market, they often grapple with uncertainty regarding the perfect timing, if such a thing even exists. What we have discovered is that the concept of "perfect timing"  is influenced by a combination of multiple factors:

Factor # 1 Frequency of visits to Saudi Arabia before establishing a physical presence

Successful entrants typically make at least one to three trips to Saudi Arabia on a business visa to familiarise themselves with the country, participate in events, engage with clients, and cultivate relationships. Although the advice of legal professionals, VCs, and CSPs does help to explore the market, there is no substitute for immersing oneself in Saudi on a business trip, spending several weeks, if not months, in Riyadh to explore the lucrative B2B and B2G markets. Our recommendation is to plan visits during Q1 or Q4, as these quarters are the most active in the region and in Saudi—summer visits are discouraged to avoid disappointment.

Factor # 2: Existence of pre-existing work or business relationships prior to formal entry into Saudi Arabia

Establishing such relationships is vital, given that Saudi Arabia is an open market, allowing for business contracts to be executed from the home country. We always advise startups to secure two to three B2B contracts, even through subcontracting, before fully committing to Saudi Arabia. The presence of two to five real clients in Saudi before entry has proven to be an advantageous script. Happy business clients serve as valuable sources of lead generation for newly established startups.

Factor # 3: Funding

Expanding to Saudi Arabia often becomes a key decision influenced by venture capital. It is worth noting that for many startups, the decision to expand to Saudi is driven by VC considerations, rather than solely by the startup's initiative. 

Typically, raising more than $1 million in the region, with a focus on market expansion, implies an automatic move to Saudi. For some startups, the inclusion of expanding to the kingdom in pitch decks has been identified as a critical factor in attracting investor interest.

Factor # 4 Cost consideration 

Operating in Saudi Arabia entails significant expenses in comparison to jurisdictions not tied to the US dollar. For a startup with only one non-Saudi founder (i.e. one iqama fee), the annual cost of legal operation typically amounts to approximately $8,000 to $10,000, excluding operational expenses such as rent. Premium Residency could reduce this cost by $2000-$3000. 

Despite Saudi Arabia being a major revenue arm for many multinational companies, startups need to grasp the financial implications of operating in the country. The cost of living for non-GCC based founders is generally higher than in their home countries. In essence, operating in Saudi Arabia represents a high-stakes game, characterised by high costs and potentially high revenues. It demands a substantial investment for an early-stage startup, but with astute management, the expansion can justify its costs. 

How to create networking strategies in Saudi Arabia

Upon arrival for exploratory visits, it is essential to capitalise on the diverse and extensive communities for which Saudi is renowned. The kingdom, much like other Middle Eastern cultures, thrives on networking.  Who you know holds equal significance to what you do. 

Underestimating the value of networks should be avoided at all costs. Adopt a broad perspective: Consider whether your university or alumni group has a presence in Saudi. Identify professional networks that you can tap into, such as the Project Management Professional (PMP) group, Entrepreneurial Organisation (EO), angel investor groups, alumni associations of prestigious institutions, and sector-specific professional bodies. 

Active local hubs that you should not miss include Misk hub, code community, the garage. Additionally, take advantage of opportunities to participate in conferences like LEAP, FII, or various technology conferences in Saudi Arabia. Unless you are from the energy sector, wherein a focus on the Aramco/SABIC ecosystem in the Eastern Province is essential, direct your attention primarily to Riyadh. It is important to note that over 80 per cent of the entrepreneurial ecosystem is concentrated in the city of Riyadh.

Tawaref’s expertise

Venturing into a new market, such as Saudi Arabia, presents tech entrepreneurs with both opportunities and challenges. By understanding the unique considerations for operating in Saudi Arabia, entrepreneurs can make informed decisions and successfully navigate the market. This article is written by the Tawaref team, Tawaref is a Startup Incorporator in Saudi that aims to provide insights into the rationale for starting a company in Saudi Arabia, a framework for decision-making, the importance of comprehensive planning, navigating the Saudi Arabian market, and leveraging government initiatives and support.

By implementing these insights, tech entrepreneurs can position themselves for success in the Saudi Arabian market and benefit from Tawaref's expertise in capitalising on the vast opportunities it offers. 

Thank you

Please check your email to confirm your subscription.