Money is still going into GCC fintech, but to far fewer companies. Funding held at about 600 million dollars in the first half of the year while the number of deals fell by half, and three big rounds took nearly 70 percent of startup capital in September. Arjun Chopra, Partner at Khwarizmi Ventures, an early stage fund backing technology startups across the GCC, explains why this concentration is a sign of a maturing ecosystem rather than a warning. He also covers what it means for early stage founders, why Saudi Arabia is pulling ahead, which areas of UAE fintech are crowded, and how AI is changing what investors look for in a founder.
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Why GCC Fintech Funding Is Flowing to Fewer and Bigger Companies
Fintech funding in the GCC is concentrating into fewer and bigger deals. What is driving that?
It is a clear sign of a maturing ecosystem. Over the past five to six years there have been many tailwinds in fintech: changing regulations, investor appetite, and strong founders tackling many different fintech models. Now a few of these companies have proven that they can scale, with proven profitability, distribution and unit economics. So there are very large rounds going into some of those companies, and these growth stage rounds are attracting a lot of capital in hopes of future liquidity events.
Deal numbers have fallen sharply while a few large rounds dominate. What does that mean for early stage founders?
It is a clear sign that deals are still happening. At the same time, investors are being more selective, given the macroeconomic situation and given that fintech is now a much more mature market, with many models already built by good companies. So early stage founders need to find the right opportunity within fintech and find a wedge into a market that has not been tackled yet and will be hard for the emerging winners to tackle. At the same time, remember that there are investors with long term conviction in these markets who are still backing early stage founders.
Saudi Arabia took most of the capital in September. Why is it pulling ahead?
The headline is that Saudi is the biggest market in the region, so in terms of size it is ahead of everyone else in the GCC. There is one more important point. One of the large rounds in September was by Tabby, and over time Tabby changed its headquarters from the UAE to Saudi, given access to capital and potential exit events down the road. So even though Tabby started in the UAE, it moved its HQ to Saudi, and that attracted a lot of capital in September. Saudi is pulling ahead for many reasons, but it does not mean companies from other markets will not be successful going forward.
You invest at seed and Series A. What do you look for in a fintech founder?
The traits we look for at early stage are broadly consistent across sectors. We look for founders who are smart and ambitious but, very importantly, who have a key insight or knowledge into the problem or market they are trying to solve. It also helps if they have the self awareness to understand what they need to complement themselves and can build very strong teams around them to scale the company. Within fintech, a lot of models have attracted capital and we have quite a few portfolio companies there, so now we are looking for someone to differentiate and come in with a wedge that has not been tackled before.
In the UAE, where do you see the gaps and where is it getting crowded?
Historically there were quite a few companies, for good reasons, since there was a big gap in SME lending, so we have seen quite a few SME lending companies come up. We have one that announced a round in September, operating across both the UAE and Saudi, so that is a space where mature companies already exist. The other is wallets. We saw quite a few consumer fintech companies come up and offer wallets, and now, with digital banks and with the likes of Revolut reportedly getting licensed, it is quite crowded and it is going to be tough to expand. In terms of opportunities, we are quite excited about the automation of financial operations, especially as AI comes into play. We think this is possible both by offering software and through what is typically called a roll up, where you start acquiring traditional services companies, add an automation layer to make them more efficient, have synergies across them and keep their clients.
How is AI changing what you look for in a founder, and the markets in general?
The impact is massive. The product development cycle is becoming very fast, so where you really differentiate is through founder judgment. If everyone eventually has the baseline ability to build any product they want, it comes down to what relationships you have that will let you distribute the product, what commercial judgment you have to take the right decisions for the business, and access to talent to build the right team. We weigh more of our decisions on those points than on the product, where we think the moat might be more limited now. One more thing we think about is this: if one or two years down the line AI tools become five or ten times better than they are today, does your business improve or start to struggle? If it improves, maybe because you have a data moat that compounds over time, that can be very powerful.