As Middle Eastern entrepreneurship continues to gain momentum, more venture capitalists are taking notice and creating funds specifically tailored for the region. This year, the MIT Arab Startup Competition received 5,000 entries from excited, motivated young minds who have an incredible amount of potential. This large number captured the attention of venture capitalists working in other parts of the world and drew their focus toward the Middle East.
Hala Fadel, a cofounder of Leap Ventures, one of the newest venture capital firms in the area, spent more than a decade investing in pre-IPO companies in Europe before deciding to channel her energies into the Middle East. Leap, which now has offices in Dubai and Beirut, impressively raised $80 million in a short period of time and then quickly met its goal of raising another $80 million to create a separate fund. This money, which came from both corporations and individuals of high net worth, signals investors’ growing confidence and interest in the region.
Venture Capital from Local Sources
Successful Middle Eastern entrepreneurs are likewise turning their attention to venture capital. Wael Amin, the founder of ITWorx, one of the leading information technology (IT) companies in the Middle East, recently signed on with the prominent venture capital firm Sawari Ventures, based in Egypt. Working directly with a Cairo-based incubator, Sawari provides seed funding and operates with $50 million in capital. The company is presently the only private venture capital firm in Egypt and is looking to expand operations across North Africa.
The growth of venture capital in the Middle East promises to solve some of the funding problems that entrepreneurs in the region face. Innovators in the Middle East have no lack of great ideas or talent, but they often struggle to obtain funding. However, as international and local individuals begin investing more venture capital into the region, this hurdle may recede.
The MENA Private Equity and Venture Capital Summit
Another sign of the increasing interest in Middle Eastern venture capital is the success of the Middle East and North Africa (MENA) Private Equity and Venture Capital Summit that recently took place in Riyadh, Saudi Arabia. During this meeting, Prince Turki bin Saud bin Mohammed pointed to the significant potential for venture capital in Saudi Arabia. The country, which has long been a major source of capital for the Middle East, has recently experienced a growth of internal investment activity. The Saudi Arabian government has gone to great lengths to support local entrepreneurs, offering business advice in addition to seed money.
One of the most effective mechanisms involved in growing the venture capital industry is networking, both among local stakeholders and individuals based in markets around the world. Events like the MENA Private Equity and Venture Capital Summit provide unparalleled opportunities for building key business relationships and generating excitement about the region’s potential. Such networking events are becoming more popular in the region, especially in incubation centers like Dubai, Riyadh, Cairo, and Beirut.
Successful Fundraising at Regional Venture Capital Funds
Recently, Middle East Venture Partners, a major fund with offices in Dubai and Beirut, as well as in Silicon Valley, announced the second close of its Middle East Venture Fund II at $30 million. This fund concentrates on early stage startups in information and communication technology. When making the announcement, Middle East Venture Partners confirmed that it was oversubscribed, but it also announced that it would accept more subscriptions in the near future. These accomplishments point to the incredible interest in and demand for venture capital in the Middle East.
Since its inception, Middle East Venture Partners has invested in more than 28 companies, many of which have emerged as regional market leaders, generating nearly 1,000 new jobs. The firm achieved its first exit at the end of 2014, when Cookpad acquired Shahiya.com, an Arab food website and app that facilitates the sharing of recipes. The transaction achieved an impressive 130 percent internal rate of return.
The firm’s other three funds include Middle East Venture Partners Fund I, which totals $10 million; the Building Block Equity Fund, which totals $7.3 million; and the IMPACT Fund, which totals $70 million. Although each of these funds concentrates on a different area, such as consumer services, retail, and creative industries, all three funds work with companies throughout the Middle East and North Africa. The IMPACT Fund maintains a special focus on Lebanon.
Other successful venture capital firms in the Middle East include MENA Venture Investments Ltd., Wamda Capital, Silicon Badia, DASH Ventures, and Ideavelopers. In addition to these established firms, many more organizations are emerging, including Hummingbird Ventures, Sadara Ventures, twofour54, and the European Bank for Reconstruction and Development (EBRD).