As Saudi Arabia channels over $40 billion into national AI initiatives, Riyadh-based investment firm Merak Capital has released a new industry report that cuts through the hype, offering a clear framework for where venture capital can be most effectively deployed across the AI ecosystem. The report, “Venture Capital Guide to Artificial Intelligence,” argues that the biggest opportunity for investors lies not in foundational models, but in the application layer where AI is used to solve specific business problems.
Quick Facts
- VC opportunity lies in the AI application layer
- Kingdom commits over $40B to AI initiatives
- AI firms hit $1B revenue in just 2-3 years
- 90%+ of AI startups adapt existing models
Navigating Saudi Arabia’s $40 Billion AI Push
The report arrives as the Kingdom accelerates its Vision 2030 agenda, designating 2026 as the Year of Artificial Intelligence and committing massive capital to establish itself as a global AI leader. While public sector investment scales rapidly, Merak Capital’s guide addresses a crucial gap for private investors: how to identify and back ventures that create tangible economic value from the AI boom. Global data underscores the urgency, with investment in AI-first companies topping $110 billion in 2024, a 62% year-on-year increase.
“Saudi Arabia is establishing itself as a global pillar for AI infrastructure,” said Abdullah Altamami, Founder and CEO of Merak Capital. “In publishing this report, we highlight the opportunity to build on this foundation by backing the businesses that will translate AI into real economic value.”
The Application Layer: Where the Real Value Is
Merak’s analysis shows that more than 90% of AI startups globally are not developing their own foundational models. Instead, they are adapting existing technologies for specific use cases. This trend shifts the competitive advantage away from pure model development and toward execution, domain expertise, and proprietary data. The firm argues that the most significant returns for VCs will come from companies in the application layer—those building high-quality products deeply embedded in customer workflows and reinforced by compounding data loops.
“As the race for AI accelerates across foundational model providers and cascades through the rest of the stack, venture capital investors must focus on allocating capital where the risk-reward profile is in line with the asset class’s size and return characteristics,” explained Abdulelah Alshareef, Principal of Venture Capital at Merak Capital. “The largest opportunity in early stage investment now lies in building the data and application layers, where foundational models are a utility, innovation is driven by proprietary data, and moats are built through high-quality products.”
A New Era of Company Building
The report also highlights a dramatic compression of company-building timelines. While cloud-era businesses typically took seven to eleven years to reach $1 billion in revenue, leading AI-native companies are achieving the same milestone in just two to three years. This acceleration signals a fundamental shift in how quickly value can be created and scaled in the technology sector.
“Saudi Arabia has the capital, the policy momentum, and the ambition to lead in artificial intelligence,” AlShareef added. “The next phase is channeling venture capital into the right parts of the ecosystem, where it can drive sustainable growth and long-term value creation.”
About Merak Capital
Merak Capital is a Saudi-based multi-strategy investment firm focused on opportunities across multiple stages and industries. Licensed by the Capital Market Authority, the firm manages over SAR 3.5 billion across 10 funds spanning venture capital, private equity, credit financing, and real assets. Merak partners with visionary founders and enterprises driving transformation, unlocking new markets, and enabling sustainable growth.
Source: Zawya
