Venture into trouble

The Gulf show beware when choosing venture capitalists. Many years ago I had a rather silly idea of starting my own publishing business. It was poorly funded, badly run and very quickly ran out of cash.

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By  Anil Bhoyrul Published  September 17, 2006

|~||~||~|The Gulf show beware when choosing venture capitalists. Many years ago I had a rather silly idea of starting my own publishing business. It was poorly funded, badly run and very quickly ran out of cash. No problem: I popped into a venture capital house, and five days later, struck a deal for a sizeable injection of cash. Within two months, myself and my three co-founders were shown the door – the business managed to grow steadily and was ultimately sold for a decent sum. Apart from us “founders” everyone was happy. The above is a typical “venture capital” story in the West. Typically, the funds target very badly run companies that actually have a decent idea: they take over, re-shape it and sell it for a huge profit. Nothing wrong with that. And this week, as we report, the Alf Yad fund has been launched. A joint venture between Daman Investments and the Young Arab Leaders, it plans to pump over US$30 million a year into around four different companies, each run by young, promising Arab entrepreneurs. I was lucky enough to meet Daman’s Shehab Gargash and Alf Yad is new boss Mohammed Sulaiman. Both are impressive men with impressive ideas, but can venture capital really work to promote Arab business leaders rather than take over from them? They were both, not surprisingly, at pains to point out that Alf Yad is not a “salvage fund.” It is being established to help entrepreneurs chase their dreams – dreams that, without a fair chunk of cash, have so far remained just that. Whilst I applaud the move, the real test will come in five years time, when investors in the fund get their first exit option. Promises of 30% returns on investment have been made by Gargash and Sulaiman – bold stuff – and investors will expect no less. But with only around four companies being chosen for investment each year, there is little room for error. What happens if just one of the four companies picked is poorly run? Surely, the right investment strategy would be to install new management, kick out the founders and re-shape the company. Investors will expect nothing, absolutely nothing, less. At that point, founders with dreams may find the whole venture capital experience turning into a nightmare. Let’s hope not. I am a big fan of Alf Yad. But its success or otherwise will be a benchmark for the rest of the industry.||**||Try Qatar|~||~||~|So what exactly is happening to the Dubai Financial Market? Everyone I ask has a different opinion. Most tellingly, Shehab Gargash of Daman Investments will only say it is a “different subject for a different time.” An interesting get out clause. The big players such as Emaar have seen their shares steadily rise in the past month – only to fall again. I have no doubt that the latest threat from Al Qaeda to attack Gulf states can only help push up oil prices, and ultimately drive down stocks. Is there anywhere relatively good to invest in? Take a look at Qatari stocks, which were down 2.2% during the month of August as profit taking in the last few days of the month erased earlier gains. According to a report by Rasmala, “first half corporate profit releases indicate over 32% growth year on year and importantly, this growth seems to be coming from core operations which is a good sign.” Current valuations of around 16 – 18 times earnings overall make this market reasonably well valued.||**||Dress for success|~||~||~|This magazine has covered the growth of the fashion industry in the Middle East more than most during the past year. Our exclusive interview with Tommy Hilfiger and, just last week H&M boss Stefan Persson are proof that the world’s biggest clothing and fashion houses see the Gulf as the next big arena. Next week, I am told that Club Monaco, part of the giant Ralph Lauren group, will be launching in Dubai. Some estimates I have seen by market experts suggest that the retail industry could grow by 35% in 2007, in Dubai alone. And across the Middle East, by well over 20%. And, if you believe the so-called “experts”, the Middle East will be the fashion capital – at least in terms of sales – of the world by 2011. That may be hopeful, but what is clear now is that fashion, not property, is where the future boom may come. Western giants will, in time, look at listing their Middle East ventures as spin offs, hopefully in local stock markets. I’ll certainly dress to that.||**||

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