Venture into the unknown

Earlier this year, two of the Arab world’s most influential business leaders – Shehab Gargash and Tariq Baqer – decided it was time the region had a dedicated venture capital fund, which targeted promising Arab businesses. This week, the Alf Yad fund was finally launched, with Mohammed Sulaiman at the helm. Anil Bhoyrul talks to all three men about the fund’s ambitions, and whether venture capital is now the way forward in the Middle East.

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By  Anil Bhoyrul Published  September 17, 2006

|~|DSC_1964-200.jpg|~|Right: Tariq Baqer, Chairman of Young Arab Leaders. Left: Shehab Gargash, CEO of DAMAN. |~|Earlier this year, two of the Arab world’s most influential business leaders – Shehab Gargash and Tariq Baqer – decided it was time the region had a dedicated venture capital fund, which targeted promising Arab businesses. This week, the Alf Yad fund was finally launched, with Mohammed Sulaiman at the helm. Anil Bhoyrul talks to all three men about the fund’s ambitions, and whether venture capital is now the way forward in the Middle East. Mohammed Sulaiman is a man in a hurry. Everybody wants to talk to him, everybody wants his mobile number and everybody has a great idea for him. But calm, cool and collected, the chief executive of the newly formed Alf Yad venture capital fund is unswayed. “I’ll judge everything on merit. We are here to make money, a lot of money, not give people handouts,” he says. Whether he likes it or not, Sulaiman is likely to be a man in heavy demand over the coming years. The fund he runs, Alf Yad, is a joint venture between the Young Arab Leaders and Daman Investments. Each year for the next ten, AED 100 million (US$27 million) is being set aside for ten separate funds, that will be invested into Arab companies across the region. “That means that by 2015 we will have invested one billion dirhams (US$270 million) across the Arab world, giving Arab entrepreneurs the chance to really grow their businesses. This is something that could really make a difference to the Arab world and to Arab economies,” he says. The fund will specifically target existing businesses in the region that need extra capital, and have the potential to make 30% returns. Each year, beginning now, between four and six companies will be chosen, that are run by young Arab entrepreneurs. “It means that by 2015 we will have invested in up to 60 different companies, hopefully making them all huge success stories.” Alf Yad itself is being funded by 100 different individuals, each stumping up one million dirhams (US$270,000) each. Sulaiman explains: “It is not that we are totally excluding start-ups. It is just that we would prefer to develop existing businesses that have shown some sort of track record and potential for growth. I already have a short list of a few companies that I think will probably make it into the final list we choose. I want to be able to help them chase their dreams.” Sulaiman himself has a formidable team helping him – Daman boss Shehab Gargash and Young Arab Leaders chairman Tariq Baqer are both firmly behind the project, having come up with the idea themselves. Gargash – himself from a hugely successful business family – believes it is now time to help others. Or at least give them the chance. “What I really want to do with this is try to cross bridges, between entrepreneurs and investors. There are many excellent Arab business people out there, who have some very good ideas, but not enough money. And they don’t really know how to go about raising that money, especially when their businesses are still quite young. With the right backing, they can go a long way. The irony is that right now the Middle East is one of the best environments to be in for raising cash, but not enough Arab-led companies do that, or know how to.” Young Arab Leaders chairman Tariq Baqer is equally bullish, explaining: “It is about leadership from my point of view. We are starting just with the Gulf, but I would to see us cross borders into the West, and find young Arab businessmen there who have great ideas. With money behind them, they can all become leaders. What I want is to see, a few years down the line, for us to have created a whole new generation of Arab leaders. I think this fund will go a long way towards doing that.” In theory the fund should be a great success. However, the idea of venture capital funding in the Middle East is not that far progressed – and the European example isn’t always one of company bosses being helped to “chase their dreams.” More than often, venture capitalists but into poorly performing companies, kick out the management, install their own teams and turn the business around into profitability – before selling it on for a huge sum. Sulaiman says this will not happen with Alf Yad. “I am aware that sort of thing happens in Europe but the difference is that this is not a start-up fund, or some kind of salvage fund. Those kind of funds invest on people’s promises. We will be looking for a lot more than a promise. We think there is enough scope to make money for our investors, while at the same time helping to really grow a business.” He adds: “One of the key things is, at least for our investors, a decent exit strategy. Our backers will be tied in for at least five years, with another five-year extendable period. After five years, if the company that we have invested in is doing well and we decide to take out our stake, then there will be many different sorts of funding available to them, including through bank loans and IPOs.” Daman boss Shehab Gargash is equally confident that the Alf Yad fund will be remembered for creating opportunities. He says: “Right now there is a tremendous opportunity that has been created by short term growth. I have seen all across the region how privately owned firms have found themselves in far more competitive environments that ever before. A lot of these are run by entrepreneurs with great ideas, but they don’t always have the financial backing they need. These are the kind of people we will support. They need a platform for growth, and by creating a fund that understands their needs, we can reach that growth.” The key question though is whether the fund can find the right companies to back – or whether it will end up investing in poorly run enterprises needing cash for survival. Young Arab Leaders chairman Tariq Baker has no doubt it will head in the right direction, saying: “I can’t make it any clearer. We are not here to give handouts. Performance is of the up most importance.” Alf Yad isn’t of course new to the venture capital market. Within the region, the private equity market has risen 41% since 1998 with investments currently totaling $1 billion. Investment levels are expected to more than double to between US$2.1 and US$2.6 billion. Just last month, Gulf Capital Group announced that it aims to establish itself as a leading mid-market adviser for the energy, telecommunications, media, technology and financial sectors in MENA and Asia, following approval by the Dubai Financial Services Authority (DFSA) to operate as an authorised firm from the Dubai International Financial Centre (DIFC). Omar Rana, Managing Director of Gulf Capital Group, says the firm will focus on using its strong proprietary relationships to deliver corporate finance advisory services to mid-market clients, including family-owned businesses and private equity funds. “Our senior management team has an exceptional track-record, advising governments, multi-nationals, SMEs and family businesses in over US$10 billion worth of deals. We aim to use our relationships with institutional and ultra high net worth clients to deliver value to private equity teams with proven track records and focused investment strategies. We will work with the general partners of leading private equity and venture capital funds to provide sophisticated investors with unique investment opportunities,” he explains. Business support specialist, HFI-Ventures International, meanwhile, has formed an alliance to drive forward a new Corporate Finance Programme aimed at energy industry companies seeking finance to expand in new markets. The company currently holds six investment mandates to source US$80 million of funding for international clients and the new partnership will continue to focus on investments ranging from US$6 million to US$30 million. HFI-VI will lead the initiative in Dubai with AEF concentrating on UK opportunities. Founder and Managing Director of Alternative Energy Finance Ltd, Tim Peara explains: “The UAE is one of the world’s fastest growing economies and is firmly established as a strategically important investment centre. We’re delighted to have such a well-placed partner as HFI-VI to originate and help to raise capital for exciting new companies and we are equally keen to take new investment ideas to our London and European investor base." All of which leads to the obvious conclusion that the region’s stock markets are no longer the best places for investment – far better sticking your money into a venture capital fund. Despite recent gains, the Dubai Financial Market has lost 50% of its value since February. In the past year, Qatari stocks have dropped by 30%, Saudi shares by 33% and Kuwait’s market is down 15%. Daman boss Shehab Gargash won’t, however, be drawn on whether venture capital funds are now a better proposition that traditional stocks. “That question is a different subject for a different time. But generally speaking, I always say to my clients that they should have a basket of investments, including both the stock market and venture capital funds.” So over the next ten years, Gargash and Baqer – with Mohammed Sulaiman at the head of their fund – are hopeful of providing investors with 30% returns, while at the same time helping grow Arab companies and economies. Sulaiman, ever confident, is certain that success will come. “There is a lot to be done to get there, and we have to think carefully how to get there. My background is in economics, and I have seen how venture funds operate abroad, especially in the US. We all know that if you don’t get it right, you have nothing. But we will get this right. Very right.” For now, few can doubt him.||**||

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