If we are to identify the next Silicon Valley of the world, I would highlight "Saudi Arabia 2.0." It is "2.0" because the traditional Saudi Arabia is rapidly transforming into a technology hub for the MENA region. Numerous factors are playing a significant role in this paradigm shift.
I recently had a meeting with a Managing Partner of a venture capital firm who is managing a fund of nearly half a billion dollars. He expressed the challenges of raising funds due to the declining startup ecosystem in San Francisco and New York City.
At first glance, this decline could be attributed to the downfall of Nasdaq and the New York Stock Exchange. However, I have identified several deeper issues contributing to this gradual collapse over the years. Regardless of the specific reasons, this decline has created a void -- one that Saudi Arabia has the potential to fill with proper planning and methodical execution. Let me explain this point by point.
There is a common myth about Islamic banking -- that it merely changes the term “interest” into “profit.” But in reality, the two are not interchangeable. According to Investopedia, interest is the monetary charge for the privilege of borrowing money, typically expressed as an annual percentage rate. Profit, on the other hand, is based on the margin of the product sold by the bank.
When profit is the basis, banks become inherently more cautious about their investments. A healthy economy grows from healthy businesses where jobs are created. Strictly adhering to Sharia-based banking principles can serve as a functional strategy for avoiding non-performing loans (NPLs), as can currently be seen in Bangladesh.
Now, let's come to the point. Venture capital firms do not charge interest; they rely entirely on equity in the startups at various stages -- from seed funding to exit through IPO or merger/acquisition. VCs knowingly take high risks with their investments because 9 out of 10 startups fail.
Why do they fail? That is an entirely separate discussion, thoroughly explored by Tom Eisenmann in the Harvard Business Review. However, the key takeaway is that VCs operate in a manner that aligns closely with Sharia-compliant finance.
When Saudi Arabia enters this domain, we should focus on promoting these “halal” VCs and raise investment for our own startups. Unicorns such as bKash and ShopUp are already well-known within the industry. At gatherings like those at Harvard Business School, these startups are familiar names.
Recently, we've witnessed the rise of Chinese startups such as DeepSeek AI, based in Hangzhou. However, I would still prioritize Saudi Arabia due to its capacity for innovation and alignment with Islamic finance.
Under its Vision 2030 strategy, Saudi Arabia is creating a global environment for startup founders and investors. For instance, the Saudi Venture Capital Company (SVC) alone manages a $3 billion fund for tech startups. Nabeel Koshak, the CEO of SVC, has stated: "If we compare 2018 to 2023, it was only $60 million of deployed capital in 2018; it reached $1.4 billion in 2023 -- almost 21 times the amount deployed in Saudi Arabia."
Another strategic advantage Saudi Arabia holds is language. As an Arab nation, it is well-positioned to lead the entire MENA region's startup industry and build what could be the next Silicon Valley -- Silicon Valley 2.0.
Abdullah Al Kais is a Foreign Legal Consultant, The State Bar of California and a graduate student at Harvard University.
