Building exit pathways in the Gulf as secondary transactions and advisory licences pave the way for artificial intelligence companies

In a single week, regional markets saw four concurrent investment and regulatory announcements across Saudi Arabia and Egypt. While none explicitly bore the artificial intelligence label, together they address the liquidity gap that determines whether tech startups survive past their early funding rounds. These moves comprised a partial exit by a Saudi fund manager, the launch of a dedicated secondary transaction fund in Riyadh, the acquisition of a private equity manager by an Egyptian advisory firm, alongside regulatory licensing for a Saudi platform arranging private market transactions.

On the transaction front, Khwarizmi Holding announced a partial exit from Egyptian logistics company Bosta at a reported net multiple of nearly 3x, through an investment position built across three rounds starting from the seed round. This marks the sixth exit for the firm's portfolio following Tamara, PosRocket, Fatura, Meltoo, and Qawafel. The firm has returned capital to its first fund's investors twice in less than five years, without disclosing the buyer, the total transaction value, or the size of the sold and retained stakes. In parallel, Pinnacle, part of the Watar Partners network, launched a Saudi fund investing across primary rounds and secondary transactions. The fund draws on a growing base of mature and profitable companies in the Kingdom set against limited exit routes compared to developed markets, creating a gap between the maturity of the startup ecosystem and its liquidity infrastructure.

In Cairo, Exits MENA signed a multimillion-dollar deal to acquire Avanz Capital Egypt in partnership with its local management, following initial approval from the Financial Regulatory Authority. The entity will be rebranded as Exits Manara, maintaining the existing fund of funds while planning a second fund targeting mid-sized Egyptian exporters. The company cited World Bank data showing that small and medium enterprises in the region receive less than a tenth of total bank credit, compared to more than a fifth in high-income economies, against a regional financing gap estimated at 123 billion dollars by CGAP. This disparity makes relying on bank lending impossible for software companies that lack tangible collateral.

Current funding structures confront applied artificial intelligence companies with long growth cycles and rising compute costsThese companies build their models for years before generating tangible revenue, bearing data hosting and processing costs that scale with expansion ambitions, while their returns depend on slow government procurement cycles. While sovereign initiatives and large national champions secure direct mega-funding, the middle tier of artificial intelligence companies, which develop Arabic processing tools, document verification, and risk assessment models for banks, hospitals, and ministries, remains too large for early-stage capital and too small for direct sovereign backing.

Activating secondary transactions allows companies to be priced without forcing a full sale or an early public listing. This mechanism helps activate employee stock option plans to attract machine learning talent and retain them locally rather than losing them to foreign markets. It also enables fund managers to demonstrate actual cash distributions rather than paper valuations, while giving family offices an incentive to commit to ten-year investment vehicles. In this context, Riyadh-based platform Ory received a license from the Capital Market Authority to conduct arranging and advising activities, enabling qualified investors to access Sharia-compliant private market transactions systematically from early stages through pre-IPO.

Building a liquidity network faces challenges tied to weak disclosure and the risk of steep transaction discountsAnnounced transactions feature opaque figures, such as the absence of Pinnacle's fund size and track record, and the lack of detailed valuations for the Bosta stake, alongside the need for regulatory scrutiny to separate advisory functions from investment decisions in the Exits merger. Risks also emerge from early secondary transactions being priced below previous funding rounds, which could pressure the valuations of artificial intelligence companies founded at the peak of compute cost optimism. However, repairing this financial infrastructure remains the essential condition to support the absorption of nearly 300 million young people expected to enter the regional workforce by 2050.