Fundraising in Saudi Arabia and the GCC: What can we expect from 2025?

As we enter a new year, it is befitting to shine the spotlight on some of the regions that are poised to be the big talking points within the global private markets industry, and there is no doubt, that Saudi Arabia and the GCC is one of such regions. In the coming weeks we will be speaking to local private market leaders about what's shaping different parts of the industry in the region, how international investors can approach the area and how it differs from more mature markets such as Europe and the US. This week shining the spotlight on fundraising in the region. Read our conversation with Zainab Al Sharif, Partner, Plus VC (+ VC), where she shares her thoughts on the state of the market, how to get started as a GP and how Saudi Arabia is predicted to grow.

What is the state of fundraising in the GCC as we look forward to 2025? What are some of the biggest challenges currently?

The GCC fundraising landscape in 2025 presents a mixed picture. While the venture capital (VC) asset class exhibits strong tailwinds, driven by growing opportunities and an increasing number of exits facilitated by the Saudi stock market, several challenges persist. Some of the key observations are:

• VC Momentum: The GCC is witnessing a surge in VC activity, fueled by successful IPOs and secondary market exits in Saudi Arabia. This positive trajectory is expected to continue throughout 2025, attracting significant investor interest,
• Impact of Interest Rate Hikes: The recent rise in interest rates has impacted risk assets, including VC investments. However, it is anticipated that investor sentiment towards riskier assets will gradually improve as the year progresses.
• Shifting LP Priorities: A notable trend is the evolving investment objectives of Limited Partners in the region. Many LPs are now prioritizing shorter-term returns, which may necessitate adjustments in investment strategies and potentially lower overall VC returns.
• Domestic Focus: A significant portion of capital originating from Saudi Arabia is increasingly directed towards domestic investments, reflecting a growing emphasis on supporting the local startup ecosystem.

Challenges in the region:

• Evolving LP Expectations: The shift towards shorter-term return expectations among LPs presents a significant challenge for VC firms, which typically require longer investment horizons to generate substantial returns.
• Competition for Capital: As the GCC's startup ecosystem matures, competition for capital from both domestic and international investors is intensifying.
• Talent Acquisition and Retention: Attracting and retaining top-tier talent, including experienced fund managers and investment professionals, remains a critical challenge for the GCC's burgeoning VC sector.

Despite the challenges, the GCC's fundraising landscape in 2025 is poised for continued growth. The region's burgeoning startup ecosystem, coupled with supportive government initiatives and a growing appetite for risk among investors, creates a fertile ground for VC investment. However, navigating the evolving preferences of LPs and effectively addressing the challenges of competition and talent acquisition will be crucial for long-term success.

How does this market stand out compared to for example Europe and the US?

The GCC's VC fundraising landscape, while promising, exhibits distinct characteristics compared to Europe and the US:

GCC vs. Europe:

• Performance: European VC has not consistently demonstrated top-tier performance, leading some investors to view it as less attractive.
• Regulation: The regulatory environment in Europe can be more complex and stringent, potentially deterring some investors.
• Focus: The GCC, particularly Saudi Arabia, is actively fostering a domestic VC ecosystem, prioritizing local investments and potentially offering more favorable conditions for regional players.

GCC vs. US

• Funding Cycles: The US has witnessed significant fluctuations in VC funding, with periods of high activity followed by sharp declines. This cyclical nature is less pronounced in the GCC, which is still in a relatively early stage of development.
• Fund Size: The US market is dominated by larger funds, while the GCC has a greater proportion of smaller funds, particularly those below $100 million.
• Investor Base: The GCC is witnessing a gradual shift towards institutionalization, with larger institutions and family offices increasingly allocating capital to VC. This trend mirrors a similar shift observed in the US mirrors a similar shift in the US.

Key differentiators

• Government Support: The GCC region, particularly Saudi Arabia, actively supports its VC ecosystem through government initiatives, regulatory frameworks, and dedicated funding programs. This level of government involvement is less pronounced in Europe and the US.
• Regional Focus: The GCC's VC landscape is characterized by a strong regional focus, with a significant emphasis on supporting local startups and fostering a thriving domestic ecosystem.
• Growth Potential: The GCC's relatively nascent VC market presents significant growth potential, offering attractive opportunities for investors seeking to capitalize on early-stage investments in a rapidly developing region.

What is your best advice to GPs looking to raise capital in the region?

My best advice for a GP looking to raise capital in the GCC is to prioritize building genuine, long-term partnerships with LPs. Here's a breakdown of why this approach is crucial:

• Shifting Landscape: The fundraising market in the GCC, like many others, is dynamic and evolving. Building transactional relationships may not be sustainable in the long run.
• LP Focus: LPs are increasingly sophisticated and focused on long-term value creation. They are seeking partners who align with their investment objectives and demonstrate a commitment to responsible investing.
• Building Trust: Genuine partnerships are built on trust and mutual understanding. By demonstrating a deep understanding of each LP's specific needs and preferences, GPs can build stronger relationships and increase their chances of securing capital.
• Tailored Approach: A one-size-fits-all approach to fundraising is unlikely to be successful. GPs must tailor their communication and investment strategies to resonate with each LP's unique requirements.
• Emphasis on Impact: In today's environment, LPs are increasingly interested in investments that generate both financial and social impact. Highlighting the potential for positive impact can be a powerful differentiator for GPs. By focusing on building genuine partnerships and demonstrating a deep understanding of LP needs, GPs can navigate the challenging fundraising environment and secure the capital necessary to drive successful investments.

Looking ahead, what do you think will be the biggest sources of growth and value creation in Saudi Arabia in 2025 and beyond?

Saudi Arabia is undergoing a significant economic transformation, driven by Vision 2030, a comprehensive plan aimed at diversifying the economy away from oil dependence. Several key sectors are poised for significant growth and value creation in the coming years

• Technology: The rapid pace of digitization and technological advancements is creating numerous opportunities across various sectors. This includes fintech, e-commerce, artificial intelligence, and cloud computing. Saudi Arabia is actively investing in these areas, aiming to become a regional technology hub.
• Renewable Energy: As part of its sustainability goals, Saudi Arabia is investing heavily in renewable energy sources, such as solar and wind power. This sector is expected to experience substantial growth, creating new jobs and attracting foreign investment.
• Tourism: The development of tourism infrastructure, including luxury resorts, cultural attractions, and entertainment venues, is a key pillar of Vision 2030. The tourism sector is expected to contribute significantly to economic growth and job creation.
• Infrastructure: The development of modern infrastructure, including transportation, logistics, and telecommunications, is crucial for supporting economic growth. Saudi Arabia is investing heavily in infrastructure projects, creating opportunities for construction, engineering, and related industries.
  
  These sectors are likely to drive a majority of the returns in the Saudi Arabian economy in the coming years, as the country continues to diversify and modernise.