In recent years, the Saudi Arabia has exploded onto the regional venture capital scene. According to this report from MAGNITT, “investments in Saudi Arabia-based startups has grown significantly faster than the average in MENA: the 17 countries in the region saw a 13% increase in total funding from 2019 to 2020, while Saudi Arabia’s startup funding grew by 55%. Furthermore, while the MENA region saw a 13% drop in the number of deals from 2019 to 2020, Saudi Arabia saw a 35% increase.”
Khaled Zaidan has worked as an investor in Saudi Arabia for the past 11 years and has witnessed the changing investment landscape. An early proponent of venture capital and startups, a mix of initiative, hustle, and investment savvy has recently landed him the position of Head of Alternative Investments at Watheeq Financial Services. Words on a page don’t always do justice to this type of thing, but I hope Khaled’s passion for the space, and excitement for his new role shine through in the interview below. I’m sure those of us that follow this sector in the region will be hearing more from him in the coming years.
Can you start by introducing yourself?
My name is Khaled Zaidan. I’m born and raised here in Saudi Arabia. I studied at Al-Yamamah University, majoring in Finance and minoring in Marketing. At school, we learned how to deal with the stock market, how to deal with equity, but the curriculum didn’t do a good job covering Private Equity, Real Estate, or Venture Capital (Alternative Assets). That is still missing today. Every finance graduate thinks that the only way to work as an investor in finance is equity trading and the stock market.
You’ve certainly discovered those other aspects of Finance. Can you walk me through your career after graduation until you joined Watheeq?
When I graduated, I worked with a startup company called Mu7alil, which was building a fundamental analysis platform for the Saudi stock market. Mu7alil was one of three competing platforms in the industry at the time along with Zawya (later acquired by Reuters) and Mubasher (still operating today).
Mu7alil had a unique product, but we didn’t find the right product-market fit in time. I worked with them for a year and a half, but by the end, there was no cash flow, and we couldn’t raise investment. My boss suggested my name to someone working at KASB Capital.
At KASB, I worked as an investment fund officer and grew to the level of Fund Manager with them. I managed one investment fund (Real Estate assets) with assets under management (AUM) of 220 million Saudi Riyal from the early stage of studying, developing the strategy, and daily fund operations. I also participated in structuring other funds with (AUM) of 400 million Saudi Riyal.
Furthermore, I led the REIT research team in KASB that assisted the Capital Market Authority in establishing the new rules of REIT’s in the Kingdom of Saudi Arabia.
After some time with KASB, I really wanted to start my own company. At that time, the startup phenomena hit the region. The stories of Careem and Souq.com caused investor interest in venture capital as a new type of asset. However, this asset type didn’t really exist in Saudi Arabia. Even with the money and capital here, we’ve been very late to certain types of financial markets. So, we mostly made “alternative” investments outside of Saudi Arabia.
At that time, if you went to any financial house in Saudi Arabia, you’d find that they all offered basically the same type of investments. I wanted to offer something different, and this led to Wakan Wealth. The idea was that we would help startups raise capital, especially at later stages. At that time, I believed that I could combine my experience as a fund manager with my startup passion and mindset to “speak both languages.” Maybe I was a bit young and naive. I launched Wakan Wealth, but we only lasted about four months. The project required a staggering cash flow. The startups wouldn’t pay retainer fees, so we were only working on success fees. At the same time, the later stage capital environment is very much “pay to play.” Basically, we ran out of money quickly.
Around that time, I had a very fortunate encounter. On a trip to the bank, I ran into the Head of Real Estate in KPMG, who I had met a few years prior. I told him about my company, and he offered me a job at KPMG. I rejected him then because I wanted to focus on Wakan Wealth, but he told me “nobody rejects working with KPMG.” Coincidentally, just weeks later, we voted to close down Wakan Wealth. I called him back to take the opportunity. I worked there for a year and eight months in Real Estate, Strategy, M&A, and with the deal advisory section.
By the end of 2019, I felt khalas, I need to continue my startup journey, but in a different vehicle. I needed to have my own fund. I quit my job with KPMG, which was paying well, to start Wakan Capital.
The “startup” costs for a fund total about $150,000. My partners and I planned to act as an advisor for a capital raise, and then use the fees to establish our fund. We started working with a FinTech company and a Logistics company, and in a small amount of time we’d collected a combined six-figures in investment for them. By December, we were ready to establish our own fund, and we started speaking to potential LPs. Most of them were in Saudi Arabia and we found them hesitant. They told us that we had to get regulated by the Saudi Capital Market Authority for them to invest in us. Plus, many still aren’t comfortable with the concept of investing in a VC fund.
Still, we felt like we had a big opportunity in front of us. We wanted to focus our fund on PropTech – more money has been spent on PropTech globally from 2015 to 2017 than was spent from 2010 to 2014 on FinTech. Real Estate itself is one of the world’s preferred assets, we all had a real estate background, and the region still doesn’t have a specialized PropTech fund.
To speed up the process, we started talking to larger financial institutions to “house” our fund. Eventually, Watheeq Financial Services agreed in March 2020. As we all know, Covid-19 hit and we went into lockdown. This slowed everything down, and we didn’t get our fund license until the end of 2020.
In January 2021, Watheeq’s CEO came to me and asked that we roll up our fund into Watheeq itself, and that we not remain a separate entity. That led to my current position today as Head of Alternative Investments at Watheeq.
What are the responsibilities of your new role with Watheeq?
I’m really excited to join Watheeq because I believe I’ll have the chance to accomplish what I was initially dreaming to do with my own fund. My first focus will be the “W PropTech VC fund,” which aims to invest 50% in the MENA region concentrating on KSA, and 50% globally.
After that, we have two more funds in the pipeline to take companies to IPO. Inshallah, we will announce the first one by June and the second by August. My situation now is better than at Wakan. I’m already regulated by the Capital Market Authority. I’m working with a financially licensed company in Saudi Arabia. I’m working with strong partners who already have their own capital and relationships. On top of it all, I have the flexibility to choose my own assets.
What’s your pitch to startups as to why should they work with Watheeq?
Watheeq has a great network of LPs and fund managers. We have a veteran team, with a wide range of investment experience, and a huge network across the globe.
We want startups to see that we have capital, knowledge, network, and that we’re ready to help them by opening doors for business development or their next capital milestone. Watheeq is one of the few financial institutions in Saudi Arabia owned by technical people, who used to be fund or asset managers. That’s what makes us unique. You are not dealing with a regular investor, you are not dealing with an employee of a fund, you are dealing with a partner.
What are some specific startups, or sectors that you’re excited about, and why?
For the W Proptech VC Fund, we have one company coming from the US in ConTech (construction technology) sector. We have another company from Switzerland in hospitality tech. The founders and teams are amazing. We have three more companies here in Saudi Arabia, and we’re also doing due diligence for two companies in Egypt.
There’s definitely a missing opportunity in this sector. The Real Estate people and the Technology people still aren’t really talking as much, and as profoundly as they should. For an exciting startup opportunity, we have to depend on Real Estate people who recognize a pain point in the sector and take the initiative to start a tech company, or vice versa.
To help find these unique situations, we’re signing up venture partners for our fund. They’ll create pipelines in the geographies that we want to invest in. We don’t have an office outside the region, and when we invest, we would prefer to follow other investors. If the same opportunity arose in our region though, we would be open to being the lead.
I am also excited about other sectors, including FinTech, supply chain management, logistics, agritech, and other emerging sectors.
How are you thinking of building a team around pursuing alternative investments?
My deal with Watheeq allows me to hire employees for each fund. For W PropTech VC Fund, for example, in order to run it best, I think I’ll need three employees other than me.
Watheeq has given me the flexibility to give my employees a salary and carried interest in the investments. This ownership in the investment success is a great motivating factor. It’s also unusual for a financial institution here in Saudi Arabia. They usually only give salary and bonus, no carried interest or management fees. Our structure will make us unique.
When you’re talking to companies outside of the MENA region, how do you feel like they respond to money from the region?
The reputation is that people who can’t raise money from their local ecosystems come to us, which means that we would be getting less attractive companies. This doesn’t reflect reality though – if we have good venture partners and we work with great firms in other markets, then we will get top level deals. Once you get the deal flow, the most difficult thing is timing. With the best opportunities is that you only get a few days to invest.
The startups themselves see value in us for two main reasons. One is the money, and the other is the market gateway. Startups are going to get the most out of our relationship if they’re looking for both of those things. In the MENA region, Saudi Arabia is the hottest country in business development. Many startups would love to have their operations here, whether as a head office, or as a branch.
What about inside the region? How does Saudi Arabia fit into the broader ecosystem?
If we look at the MENA region, the best two markets to operate your company are Egypt and Saudi Arabia. Egypt produces the entrepreneurs, but many are relocating to Saudi Arabia for funding and market reasons. Startups are going to follow the money and for the last ten years, that meant going to Dubai. Now, there’s starting to come here.
Beyond that, each country has its own characteristics. In Jordan, I think there’s a funding gap, which is leading most Jordanian startups to come to the Gulf. Bahraini startups tend to service the Saudi market, because the Bahraini market is very small itself. In Kuwait however, it’s a different story. Even though it’s a small country, they have a growing hub, money-wise and mindset wise.
In North Africa, the big market is Egypt, Egypt, Egypt. Many companies there have no need to look elsewhere for a market. I’m really excited about Algeria. They have more than 30 million people, and their tech is at an early stage, so it’s good to enter that market as soon as possible. I’m excited about Oman and Tunisia as well. You don’t hear too much about them yet, but I think there’s potential there too.
How has Saudi Arabia become more supportive of startups in recent years?
The Saudi government aims to increase the percentage of GDP from “subject matter expertise” to to 30% by 2030. As I mentioned, they established two funds – Saudi Venture Company and Jada – to invest more in the Saudi market and Saudi companies. They want to attract companies from outside to open here. To give you another example – before recent regulatory changes, you had to pay one million Saudi Riyal in fees to open a new company here. Now, you can do it for less than ten thousand.
I want to learn more about your personal motivations. What keeps you motivated?
I love what I do. When you feel that you work on something that you love, and something that will benefit you across all aspects – educationally, personally, financially – this is all you can wish for. When I was working in my own company, I would wake up at 6am and go to sleep around 1am. Right now, I sleep maybe 3-4 hrs per day. Why? Because I’m enjoying it, quite simply. That’s me. That’s my personality. I love to read, analyze, help, strategize, and open doors.
Do you have any inspirations or role models?
When it comes to the MENA region, I like the mindset of Samih Toukan. He’s the godfather of all tech companies in the region. He can think about the future before it happens. He managed to build something in the region before society recognized its value. I really respect that.
My dream is to build Sequoia Capital, MENA-version. That’s my inspiration as a firm.
Another individual I admire – and I know there are some people who don’t like him – is Sean Parker, one of the co-founders of Facebook. He would join a company and literally put his heart and soul into making it a success. He’d do anything. I want to take that mindset and do it with our portfolio companies. I usually tell any portfolio company, “I’m not the type of investor just to give you cash. I’m the type who will join you and come to your office and help you the next day.”