Saudi Arabia recorded $240 million in venture capital (VC) funding in Q1 2024, indicating a 42% year-on-year decline, according to a new report.

The ‘Q1 2024 KSA Venture Investment’ study, issued by the kingdom’s Small and Medium Enterprises General Authority (Monsha’at) and research firm MAGNiTT, revealed that while total VC funding dipped across the MENA region in Q1 2024, Saudi Arabia continued to lead, with 35 deals recorded in the first three months, led by the Salla app’s $130 million pre-IPO fundraise.

The report further revealed that 65% of total VC capital deployed in MENA was routed to Saudi-based firms.

“While the $240 million invested in Q1 maintains the kingdom’s dominance, it did reflect a considerable quarterly drop of 70% on Q4 2023, along with a 42% y-o-y drop. This downturn mirrors the broader trend across the MENA landscape,” said Philip Bahoshy, Founder and CEO, MAGNiTT.

“While funding saw a downturn, the deal flow in Saudi Arabia remained nearly flat, posting a modest 13% decrease on Q1 2023. Digging deeper, it becomes evident that while the overall funding has diminished, the kingdom’s entrepreneurial ecosystem continues to attract investors. The disparity between the decrease in funding and the relatively stable deal flow underscores a shift towards smaller average ticket sizes, reflecting a recalibration rather than a retreat in investor sentiment.”

SMEs flourish

According to the report, a “favourable business environment combined with strong government support for SMEs has unlocked significant flows of private sector capital for small businesses across Saudi Arabia.”

Total credit facilities provided to micro and SMEs in the fourth quarter of 2023 reached $73.5 billion, according to the report, indicating a 20.4% y-o-y uptick. This was split across $68.9 billion in credit facilities provided by banks, with the remaining $4.6 billion provided by private finance companies.

(Reporting by Bindu Rai, editing by Seban Scaria)