Out of all the markets that comprise the GCC, Kuwait rarely attracts the same level of interest or attention as its more dominant neighbours. Saudi Arabia, with its vast population and high gross domestic product (GDP) per capita has become the focus of almost every company looking to scale, while the UAE offers a platform to reach the wider regional market.

Amid these powerhouses, Kuwait, with its modest population of just four million, has managed to nurture one of the more robust entrepreneurial ecosystems in the GCC.

Some of the Middle East’s biggest exits have originated from this oil-rich country and its government is keen to encourage more, as it recently announced a $200 million fund for investments in technology companies.

Kuwait’s watershed moment came with the acquisition of Talabat in 2015. Most startup founders and investors in Kuwait will mention Talabat as an inspiration or a moment that piqued their interest in entrepreneurship.

Founded in 2004 and spearheaded by Abdulaziz Al Loughani, Mohammed Jaffar and Khaled Al Otaibi, Talabat is now the Middle East’s largest online food ordering platform. Germany-based e-commerce company Rocket Internet acquired Talabat for $170 million, which at the time was the largest technology exit in the Middle East and North Africa (Mena) region, surpassing the Yahoo and Maktoob deal.

Delivery Hero, a Rocket Internet company, then went on to acquire Carriage, another online food ordering platform for about $100 million. These two exits remain among the most prominent in the region, while the success of startups like Boutiqaat an e-commerce platform valued at up to $300 million indicate the potential for even larger exits in the future.

But it has taken time and effort for Kuwait to reach this stage, part of which was driven by the National Fund for Small and Medium Enterprise Development, a KD2 billion ($6.58 billion) government fund launched in 2013.

“Any entrepreneur today in Kuwait is very fortunate with the amount of services and alternatives, there weren’t any Wamdas 10 years ago, there was no real community engagement. The key building blocks of the ecosystem were not there, whether it is the legal, mindset or infrastructure,” says Al Loughani. “Today any founder has plenty of options for getting funding, training, development or mentoring.”

When Al Loughani first started out with Talabat, only 23 per cent of the population had access to the internet and according to him, much of the company’s growth was “pure trial and error”. Today, 99.8 per cent of the population has access to the internet according to Internet World Stats, while the mobile penetration rate exceeds 200 per cent according to telecoms research firm, Budde.

Kuwaiti consumers these days are more aware and more technologically savvy.  

“What has changed is that a lot of the phobia and myth around tech has dissipated,” says Burhan Khalid, a mentor at Sirdab Lab. “I have seen people with zero technical knowledge go out and learn and now they’re the primary developers for the team.”

Khalid helped launch one of the first coding bootcamps in Kuwait, the Google Developer Group, teaching people how to code, many of whom then went on to found their own business he says.

“Investors have also changed,” says Khalid. “The acquisition of Talabat was a big turning point, it made investors realise it’s not just a website, it’s not just a hobby, there is some serious money to be had, there was a lot of foreign interest, so what else is out there? All of sudden a lot of people wanted to be angel investors but what they were really trying to figure out is – how can I get involved in the next big cash exit?”

Where exactly this next big exit will come from remains to be seen. For many founders, Kuwait is a comfortable test market, a place to validate an idea quickly and then scale to the rest of the region. It is a set up that has worked for several startups in Kuwait, who have managed to develop ideas that are attractive to markets beyond their own borders.

 “Consumer spending is very high, banks are very well capitalised, that has contributed to an increase in the consumer purchasing spend,” says Al Loughani. “Add to that how cheap access to the internet is, how savvy our consumers are and more than 50 per cent of the population is below the age of 30 – these all add up to why consumers spend a lot of time online in Kuwait.”

The digital and telecoms average revenue per user (ARPU) is higher in Kuwait than the UAE, making it a lucrative market for digital services.

“A lot of that is locally driven, on the consumer side there is a much higher and faster adoption rate than the rest of the GCC and that helped Kuwait create consumer-facing exits,” says Al Loughani. “The other part is execution. I don’t mean to brag but if you go to the rest of the GCC, you will rarely find locals really executing and scaling their business, Kuwaitis are very hands on.”

Prior to the discovery of oil in 1938, Kuwait was a trading and tax-driven economy, with some of the oldest merchant family businesses in the GCC. This culture has been passed on to the younger generation and as Kuwait was the first country in the GCC to establish a stock exchange and to send students abroad to study, it provided them with early exposure to a globalised world, something that is more readily visible in its culture compared to the rest of the GCC countries.

But there is not much innovation, many of the startups are copycats of successful business models seen in other parts of the world. One of the reasons is the lack of skills, particularly technical skills in Kuwait.

 “It is a small market and I believe the startup cost is very high,” says Sulaiman Al Sumait, partner at Wethaq, a financial advisory firm. “The cost of location and getting good calibre talent – even if you are going to pay a premium, is not easy.”

For Saud Almekhyal founder of InstaSalla, an e-grocery business, it is the early-stage financing that is an issue.

“It is very hard to find the funding in the beginning, you have to find it in your own pocket,” he says. “Sometimes you need smart money and smart investors and here in the Middle East it is very hard to find these people.”

While Kuwaiti citizens are entitled to a basic income from the government which can help to cushion the financial limits of becoming an entrepreneur, particularly in the early days, the situation is even more difficult for expatriates in the country who require sponsorship from a local citizen to establish a company in Kuwait.

According to Al Loughani, the bigger gap in funding comes at the later stage, from Series A onwards. Most founders go to the National Fund as it is a cheap source of finance, but it is the cheques worth $3 million and above that are difficult to find.

Access to finance however, might improve as the Boursa Kuwait, the country’s stock exchange announced plans in 2018 to set up a venture capital market to support startups. This level of commitment to startups from state organisations is an indication of the cultural and institutional shift towards entrepreneurship in the country.   

As Almekhyal explains: “When my father was young, if you had camels you were a millionaire. He sold all his camels to buy land and the people said he was crazy. They said he sold his camels for sand. After a few years, the land was worth millions. He had the vision and right now I want to do the same.”