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Arab News
18-04-2025
- Business
- Arab News
How Saudi entrepreneurs are navigating the shift to public markets
RIYADH: As startups approach the critical stage of an initial public offering, one of their biggest challenges is the transition from a fast-paced, founder-driven company to one that must meet the rigorous demands of public markets. This shift often requires a fundamental change in mindset — particularly in areas such as governance, financial discipline, and regulatory compliance. The journey from a nimble startup to a publicly traded company is a transformative one, and it is a challenge many companies in Saudi Arabia's rapidly evolving startup ecosystem will soon face. Historically, strategic acquisitions were the primary exit strategy for startups seeking liquidity. However, with an increasing number of late-stage companies reaching scale, IPOs are rapidly emerging as a viable — and increasingly attractive — option. As the Kingdom's entrepreneurial landscape matures, the path to public markets is becoming a more prominent choice for startups looking to grow beyond their founding teams and tap into the capital needed to expand. 'Many startups struggle in this arena because what worked in their early years — fast decisions, aggressive growth, and loose structures — won't hold up under public scrutiny,' said Mohammed Al-Meshekah, founder and general partner of Outliers, an early investor in Saudi Arabia's Tabby, now valued at $3.3 billion and on track for an IPO. Speaking to Arab News, Al-Meshekah said that 'the right investors work with founders to institutionalize their company without killing its agility.' He added: 'This means tightening financial discipline early, not as a last-minute fix, ensuring reporting is clean, unit economics are sustainable, and capital allocation is intentional.' Mohammed Al-Zubi, managing partner and founder of Nama Ventures, which backed Saudi unicorns Salla and Tamara — both preparing for public listings — echoed this sentiment, saying that the best approach is to build with IPO-level governance long before it becomes necessary. 'This means structuring financial reporting properly, ensuring compliance frameworks are in place, and building a leadership team that can transition into a public company environment,' Al-Zubi told Arab News. Regulatory hurdle Regulatory compliance is another hurdle, particularly in regions where high-growth technology startups must navigate frameworks originally designed for traditional industries. 'At the same time, there's an opportunity to evolve regulatory frameworks in the region to better support high-growth companies,' Outliers' Al-Meshekah said. 'Many existing standards were designed with traditional industries in mind, which naturally differ from the structure and scaling needs of technology-driven businesses,' he added, noting that regulators must strike a balance between ensuring market stability and enabling companies with global potential to list locally. 'Striking this balance could position Saudi Arabia and the region more broadly as a leading destination for high-growth IPOs, attracting not just companies built in the region but those from around the world looking for a strong public market to scale.' Investor alignment also plays a key role in a smooth IPO transition. 'Startups that have investors who prioritize short-term gains over sustainable growth often face challenges when transitioning to public markets,' Al-Zubi said. 'Those backed by long-term partners who guide them toward disciplined execution, regulatory readiness, and scalable operations are the ones that make the leap successfully.' IPO as the new exit strategy Al-Zubi said that just five years ago, IPOs were not considered a viable exit path for startups in the region — with strategic acquisitions seen as the only clear exit strategy. 'While acquisitions provided liquidity, they often left a lot of money on the table because startups were being acquired before realizing their full potential,' he said. Today, Al-Zubi noted, the dynamics are changing. 'IPOs are now the dominant exit strategy, and we're seeing more late-stage startups actively preparing for public markets. Companies like Tamara and Salla are proof that regional startups can scale to IPO readiness, and as capital markets continue to evolve, this trend will accelerate.' However, acquisitions and secondary sales will continue to play a role, particularly in industries where global players are looking for entry points into the Saudi market. 'With IPOs now a real option, founders are no longer forced to sell prematurely,' Al-Zubi added. 'Instead, they can scale further, capture more value, and exit at a much higher valuation through public markets.' Al-Meshekah agreed that IPOs will become an increasingly important part of the exit landscape but noted that they will complement acquisitions or secondary sales, not fully replace them. 'As more Saudi startups mature, we'll see a broader mix of exit strategies, with IPOs becoming a key path for companies that can sustain independent growth. But the best companies aren't built for a single outcome; they create lasting value with optionality, whether through an IPO, acquisition, or secondaries,' he added, pointing to historical trends in the US to illustrate how dynamics evolve in maturing ecosystems. 'If we look to the US as a reference point, IPOs once dominated venture-backed exits, accounting for over 80 percent in the 1980s, before dropping to 50 percent in the 1990s and falling below 10 percent in the past 25 years,' he said. 'It's natural for IPOs to lead in a developing ecosystem, with M&A following as incumbents acquire innovation to stay competitive.' Role of investors post-IPO While going public is a significant milestone for any startup, it marks the beginning of a new phase rather than the end of the journey. The transition from a venture-backed private company to a publicly traded entity brings new challenges, requiring founders to shift their focus from high-growth execution to long-term financial discipline and shareholder management. 'Going public isn't the finish line. It's just another phase of a company's evolution,' Al-Meshekah said. 'The role of investors at this point shifts to long-term stewards, helping ensure a successful transition into the public markets without losing what made them great in the first place.' He warned that one of the biggest risks post-IPO is 'short-termism' — the pressure to prioritize quarterly performance over long-term value creation. 'Early-stage VCs who've been with the company since its inception play a key role in keeping the leadership grounded in its original vision while adapting to the new expectations of public shareholders,' Al-Meshekah said. He added that the best companies 'balance financial discipline with the agility to innovate, resisting the urge to optimize for near-term stock price movements at the expense of long-term market leadership.' Al-Zubi highlighted how the investor base also changes once a company reaches public markets. 'Every stage of a startup's journey requires a different set of investors with specialized expertise,' he said. 'Early-stage VCs play a critical role in getting a company from idea to scale, but once a startup reaches the public markets, the baton must be passed to public equity investors and institutional funds that are better suited for this phase.' At this stage, a startup is no longer judged solely on its growth potential but also on its ability to deliver sustainable profitability, shareholder value and robust governance. 'Early-stage VCs, whose expertise lies in navigating uncertainty and scaling startups, must step back and allow the company to be guided by those with deep public market experience,' said Al-Zubi. That doesn't mean early investors disappear entirely. 'Some remain involved through board positions, but their influence naturally diminishes as new stakeholders, financial structures, and operational expectations take priority,' he explained. Al-Zubi emphasized that founders must embrace this transition and surround themselves with the right advisers. 'IPOs are not just exits — they're a shift to a new way of operating, and founders who understand this transition will be the ones who thrive in the public markets.' Al-Meshekah echoed this sentiment, noting that successful tech IPOs share common traits. 'They don't just scale their existing product; they expand into new markets, deepen customer relationships, and build sustainable competitive moats,' he said. 'Early investors who stay engaged can provide continuity, supporting founders as they navigate this shift while maintaining the principles that drove their early success.'
Arab News
05-04-2025
- Business
- Arab News
How early-stage startups build for public markets
RIYADH: For startups aiming to go public, the path from early-stage to initial public offering is marked by critical transitions that simultaneously test the founders and the business itself. While many young companies achieve rapid initial traction, only a select few manage to scale sustainably and navigate the complexities of public markets. Investors who specialize in early-stage funding play a crucial role in shaping a startup's foundation, ensuring that it is built for long-term success rather than short-term growth. 'The journey from early-stage to IPO isn't linear. It's a series of hard transitions that test both the founder and the business,' said Mohammed Al-Meshekah, founder and general partner of Outliers, an early investor in Saudi Arabia's Tabby, now valued at $3.3 billion and on track for an IPO. 'The startups that make it aren't just chasing trends; they're solving real problems with deep, contrarian insights that others overlook,' he said in an interview with Arab News. Identifying IPO-ready startups Early indicators of a startup's potential to reach the IPO stage often lie in the strength of its founding team, market opportunity, and ability to scale efficiently. Mohammed Al-Zubi, managing partner and founder of Nama Ventures, which backed Saudi unicorns Salla and Tamara — both preparing for IPOs — believes that leadership resilience is one of the most defining factors. 'The most critical factor is the founding team — their complementary skill sets, resilience, ability to adapt, and long-term vision define the company's trajectory,' he told Arab News. 'Markets change, challenges arise, but strong leadership ensures a startup can navigate uncertainty and sustain growth,' he added. Beyond leadership, Al-Zubi emphasized the importance of market opportunity and execution. 'Companies that successfully go public are solving large-scale problems with high demand and room for expansion,' he explained. 'A startup must not only show early traction but also demonstrate an ability to scale efficiently.' Financial discipline is another critical factor in determining whether a startup can reach the IPO stage. The journey from early-stage to IPO isn't linear. It's a series of hard transitions that test both the founder and the business. Mohammed Al-Meshekah, founder and general partner of Outliers 'Investors and public markets look for companies that can balance aggressive growth with financial stability,' Al-Zubi said. Al-Meshekah agreed, saying: 'The real test isn't early traction, but instead whether the company can transition from hacking value to scaling growth, then from growth to real profitability.' He warned against chasing vanity metrics or unsustainable growth, stressing that 'those who navigate these shifts deliberately are the ones that go the distance.' According to Al-Meshekah, a startup that is truly ready to scale 'isn't forcing growth; it has customers pulling the product, a repeatable engine for acquisition, and a clear path to sustainable unit economics.' Founders who succeed are not just fixated on their solution but are 'obsessed with the problem,' he said. The Outliers' founder added: 'They adapt relentlessly, attract top talent, and shift from scrappy execution to scaling with precision.' Al-Zubi believes that the startups that reach IPO 'embed financial discipline, governance, and strategic decision-making from the early days.' He added: 'The best founders don't just raise capital; they surround themselves with investors who challenge their thinking, push them toward scalability, and help them anticipate challenges before they arise.' While leadership, market fit, and financial discipline lay the groundwork for a potential IPO, Al-Meshekah argued that the role of venture capital extends far beyond funding. 'VCs too often think their value lies only in capital and advice. But advice is cheap, and capital is a commodity,' he said. 'Effective venture capital is not simply placing bets; they truly shape a startup's foundation with active, hands-on partnership at the most critical moments.' Furthermore, Al-Zubi explained that venture capitalists who were once founders hold even greater value because they have the right empathy. Navigating key inflection points on the path to IPO As startups mature, they encounter critical inflection points that shape their ability to scale and eventually go public. These moments require strategic adjustments, from shifting organizational structures to strengthening financial discipline. Venture capital firms play a crucial role in guiding founders through these transitions, ensuring that their companies evolve in a way that supports long-term growth and IPO readiness. 'The first major inflection point is shifting from finding product-market fit to scaling effectively,' Al-Meshekah said. He said that many startups get early traction, but that real scale comes only when there is genuine demand pulling the product. 'At this stage, the right investors are in the trenches with founders as thought partners in their go-to-market motion, customer retention strategy, and organizational structure to build an effective growth engine,' Al-Meshekah added. Beyond early scaling, startups must transition from founder-led operations to structured organizations capable of managing complex growth. 'What worked at 20 employees won't work at 200,' Al-Meshekah said, adding: 'This is where hiring, leadership structure, and internal processes become make-or-break factors. A strong investor helps founders recruit exceptional leaders, align incentives, and avoid cultural dilution as the company grows.' Al-Zubi said that the first critical stage is post-seed and early growth, where founders must transition from proving product-market fit to building a repeatable, scalable business model. 'This is when foundational decisions on hiring, expansion, and customer acquisition set the stage for long-term growth,' he said. Al-Zubi explained that the next major inflection point comes in the scaling phase, when companies move from early-stage agility to structured, process-driven growth. 'This is where operational efficiency, governance, and financial discipline become key,' he said. 'If a company isn't thinking about these factors by this stage, its ability to scale beyond a certain point is limited.' As companies approach an IPO, the emphasis shifts toward financial sustainability and governance. 'Many companies sprint toward scale without ever proving they can operate efficiently at scale,' Al-Meshekah said. 'At this stage, founders optimize margins, strengthen capital discipline, and shift the business model toward long-term value creation. Investors focus on bringing institutional governance and institutional processes.' Al-Zubi agreed that IPO readiness is not just about preparing financial statements in the final stages but about embedding public-market discipline early. 'Startups that integrate strong governance and financial transparency early on find this transition far smoother than those that scramble to meet public market expectations,' he said. 'IPO readiness isn't about a single moment — it's about how a company has been built from Day 1.'
