STV Founder And CEO Abdulrahman Tarabzouni Aims To Help Create The Next Digital Giants Of The Middle East With over US$800 million in capital, STV backs and scales the region's most exciting and disruptive technology companies, primarily focused on growth-stage technology.

STV is a venture capital(VC) firm established in 2018 in Riyadh, and it is currently the largest privately-held technology VC investment firm launched in the Middle East to date. With over US$800 million in capital, STV backs and scales the region's most exciting and disruptive technology companies, primarily focused on growth-stage technology. 19 out of STV's 29 portfolio companies, and more than two-thirds of STV's deals are inked with startups that have significant operations in Saudi Arabia.

STV believes there is a strong and increasing dichotomy between digital supply and digital demand in the MENA region; the areas where supply has yet to meet demand are referred to as "white spaces." The company then identifies these white spaces, and invests in companies that it believes will become the leaders in these segments and future market champions. In pursuit of its ambition to build and scale the region's top technology companies, STV remains series- and tech-sector agnostic. STV is currently raising its second fund to replicate the same investment strategy of the first fund.

We spoke to STV founder and CEO Abdulrahman Tarabzouni about the state of venture capital in Saudi and the greater MENA region. Tarabzouni has had a colorful career in tech both in the region and abroad. He worked with Google in its formative years in the region, where he started its "Emerging Arabia" operation, and built it to become Google's second fastest growing region globally for a few years. Today, Google's team in the region number in the thousands. After working to develop Android and Google's mobile business in Russia, Eastern Europe, and Middle East, and Africa, he ran global new business development as an executive at Google's global headquarters in Mountain View, California. There, Tarabzouni came to conclusions that would help him embark on his VC journey.

"Spend a little time in Silicon Valley, and you realize the formula for success isn't rocket science, it's quite straightforward actually," he says. "It's capital, plus a concentration of very smart people, and a supportive ecosystem." Tarabzouni says that he had a very strong conviction from the very beginning that the Middle East region should build its own technology, champion its own talent, fund it with local capital, and nurture and develop this ecosystem with selective outside support. "At STV, we essentially gathered a syndicate of people who believe in this mission," he adds.

Tarabzouni remembers vividly looking at the ecosystem and fund allocation strategy in its early days in 2017-18. "We felt that we were bullish at the time," says Tarabzouni. "We were originally planning on raising a few billion dollars for our first fund, but you have to remember that at that time, the entire MENA region had $800 million or so being invested into it each year. So, we decided to raise a $500 million fund, and we had a global investment strategy at the onset, because, quite honestly, we didn't think the local markets could absorb this much capital."

How pleasantly surprised Tarabzouni and his team were then, when they realized quite quickly that the region could absorb the capital. Their investment thesis went from geographically-agnostic, sector-agnostic and stage-agnostic to, exclusively MENA-focused, looking predominantly at growth-stage startups, while identifying a few early-stage opportunities, and a focus on B2B and B2C software-as-a-service (SaaS) companies. Today, Tarabzouni and his team seem particularly enthusiastic about investing in local startups across the region. He juxtaposes the US market to the MENA market. "In the US, VCs optimize for returns because there are a plethora of (startup) options to choose from. In the MENA region, we can not only do that, but also can absolutely transform and create value in some markets with the implementation of some of the most basic digitization efforts. Of course, we focus on generating returns for our limited partners (LPs), but it's the opportunity to transform entire economies that excite us every day."

Hearing Tarabzouni speak, you begin to realize that there are major opportunities to bridge the gap between the region's potential, and where the region is today. Technology and technology startups is a major amplifier, with them having the ability to transform communities, cities, economies, and societies in very exciting ways. On the types of investments STV is looking at, Tarabzouni explains, "There are three waves in which we as investors can invest. First, there is the 'copy-cat model' wave, which is the development of the Amazons, Ubers, Instacart, and Deliveroos of the world, but customized to the local market. The second wave is the 'indigenous innovation' wave; this is where you have hyper-local use cases and culturally adapted bolt-ons or adjustments to the copy-cat model. The third wave is seen when indigenous use cases become exportable. The beauty of the Saudi market is that we have seen all three waves take place in Saudi almost simultaneously."

When it comes to the biggest pain points Tarabzouni sees on the horizon, he replies, "Talent. Helping our startups hire C-level execs is one of the biggest ways in which we are supporting them today." Today, as the startup ecosystem is still too young, especially in Saudi Arabia, there are limited experienced techies that have graduated from one successful startup exit to mentor or become part of the second generation. And because of the cost of living and limited supply of top tech talent in Saudi Arabia, it is often cheaper to hire data scientists in parts of Europe than to hire them at home. Though we live in a globalized world where hiring data scientists out of market seems reasonable, it's not the most sustainable or healthy approach for the ecosystem's holistic development. On this, Tarabzouni remarks, "Remote work can work, but given how different markets in MENA are, you really do need to have data scientists to be on the ground to understand consumer behavior."

With regards to STV's own playbook, Tarabzouni says that he and his team are looking to create the next digital giants of the Middle East, and in order to do that, they need to assess who is going to win the Saudi market. "The startup in its sector that wins the Saudi market will be the regional incumbent, and that's who we are looking to back." After they back the Saudi winner, they expect the Series B check to be used towards mergers and acquisitions and consolidation across the MENA, and then pre-initial public offering (IPO) and list on the Saudi Tadawul exchange. "Saudi's market that has scalability paired with its healthy capital markets make it core and critical to MENA startup success stories," he notes.

When we ask Tarabzouni to provide his top three pieces of advice for startup founders today, he doesn't skip a beat, and lists the following:

1. Know what you're getting yourself into. "Startups are hard, and they are a long-term play. You've really got to have passion for the work, and for the problem you are trying to solve for, so that you have the stamina to outlast your competitors."

2. Not all dollars are created equal. "Founders need to be intelligent about the dollars your raising, and who you're putting into your cap table. Your choice of whose investment you take is, at the end of the day, your choice. And who your investors are can either make you, or break you."

3. Tackle a big hairy problem. "Swing for a home run. Make sure that the problem you're trying to solve is big enough that you and many others can chew on it for many years. Too often, we see startups playing too small, with limited scalability options."

Finally, Tarabzouni reflects on what's to come. "It is important to emphasize how truly exciting the next seven-year vintage for the MENA is," he says. "On a relative and risk-adjusted basis, the MENA is a better per dollar investment return on investment than most of the rest of the world for venture capital. There is so much room to grow, there is an exciting investment alpha in tech that needs to be captured here, and we at STV believe that 45 new unicorns will emerge out of the MENA region in the next seven years."

Learn more about the most prominent venture capitalists in Saudi's startup ecosystem by checking out the report, The Evolution of Saudi Arabia's Startup Ecosystem 2010-2022.

This article was originally published on Lucidity Insights, a partner of Entrepreneur Middle East in developing special reports on the Middle East and Africa's tech and entrepreneurial ecosystems.