VC Trends in the Middle East
Over the last decade, the state of venture capital in the Middle East has gone from virtually nonexistent to an industry facing a shakeout. The sector’s breakneck evolution has made it difficult for investors and venture capitalists like Efraim Landa, to obtain a clear picture of the industry’s underlying VC fundamentals in the Middle East. This being the case, they have been understandably cautious about directing their funds to regional venture capital firms. To meet these expectations, the richest countries are investing billions in large-scale projects that will need to be supplemented by private funding and that will directly and indirectly stimulate economic activity.
History of VC in the Middle East
The Middle East has grown remarkably fast. Yet despite its rapid ascent, it is an industry that is still trying to find its footing. Most fund managers have limited track records, significant gaps exist in legal and regulatory frameworks, and the region’s LPs wield substantial influence over investment decisions. As the global economic malaise has wiped out the illusion of easy money and put some VC’s in a perilous position, it is important to remember that the VC industry in the Middle East is still in its infancy, relatively speaking. It has plenty of room to grow in the future. VC investments to date have had a limited impact on the Middle East’s economic development relative to other parts of the world.
The Middle East has a young and promising population that with increasing wealth and increased political stability could constitute a major driver for economic growth and increased demand for products and services. Another big opportunity will involve the region’s infrastructure. The richest countries, like those of the GCC, are already making infrastructure investments, with VC money supplementing public money. In markets that don’t have the same financial base, such as Egypt and the Levant, and where the infrastructure may be more rudimentary, there may be even more of a need for VC players to make infrastructure investments.
Venture capital funds are funds that invest in the equity (i.e. purchase shares) of companies not publicly listed on stock exchanges. There are two large categories for private equity recruitment: venture capital funds and buyout funds. Venture capital funds usually invest in one of three different industries: IT, telecommunications and life sciences. Venture capitalist funds will usually participate in multiple rounds of financing while buyout funds normally invest in a company only once. “Seed investors,” for instance, will invest at the start of a company’s life, while “late stage” investors invest shortly before a company floats on the stock market.
Buyout funds almost always put their money into established business, as compared to venture capital funds which usually invest in start-ups or very young businesses. They also use debt to fund some of the transaction, invest a larger amount of money than venture capitalists and will seek control of the company they’re investing in – conversely, a venture capitalist will usually only own a part share. Private equity and venture capital jobs and careers are split into various categories, including as usual analysts at the lower end, who are responsible for creating financial models and studying numbers to establish whether an investment is advisable; principals who play an important role in deciding whether to go through with a deal and managing the process if it does happen and finally, partners who handle the fund, investigate new investments and maintain relationships with investors. Within these funds, you’ll also find jobs for investor relations and operations professionals. The nature of Asian private equity is dominated by venture or growth capital deals, rather than leveraged buyout transactions.
Posted on January 6, 2014, in VC Firm, VC investments, Venture Capital, Venture Capital Markets and tagged International Venture Capital, International venture capital market, middle east venture capital, venture capital firms. Bookmark the permalink. Leave a comment.