DUBAI: A newly established Venture Capital Debt Fund (VC) focused on providing alternative forms of debt financing to early stage and mid-term start-ups in the Middle East and South Africa region. Nord (MENA) has been deployed.
Abu Dhabi-based Shorooq Partners, whose investment portfolio includes regional start-ups like Pure Harvest, Sarwa, Lean, TruKKer, Capiter and Retailo, launched its Nahda Fund I at the end of October.
Licensed in the Abu Dhabi Global Market (ADGM), the Nahda Fund I will focus on three areas, including software, platforms and fintech. The fund is particularly interested in start-up opportunities in the agrotech, e-commerce, logistics and fintech sectors.
“Most start-ups and their founders do not have access to financing or debt from conventional or Islamic banks,” said Samir Yamani, Managing Partner of Shorooq. “We are here to fill the space where these start-ups can access funding to grow and develop. “
The criteria in the selection process for potential companies in which investors invest include that start-up founders are leaders in their field. The start-up of the beneficiary company will have to demonstrate high growth and a valuation of around $ 100 million or more.
The Nahda Fund I plans to fund major Series A and B rounds with an average ticket of $ 5-10 million, Yamani said, adding that he would selectively consider pre-series funding opportunities. Typical funding for Nahda I will be medium term of around one to three years in the issuing company.
The fund will focus on debt financing rather than equity financing because it is less disruptive.
“Founders look for debt because it is non-dilutive with minimal operational interference, while equity financing is dilutive and often more expensive,” Yamani said. “In terms of potential return on investment, from a pure rate of profit perspective, we are high-yield, secure seniors in the mid-teens. This excludes our share purchase warrants.
Debt financing for recipient companies will be structured in a Sharia-compliant manner.
“Although our fund is not an Islamic regulated fund with a sharia board, we operate and invest in a sharia compliant manner,” he explained. “We will use a method of financing tools such as the murabaha and ijara commodity agreements. “
In addition to this, specific elements of ESG (environment, social and governance) and socially responsible investment (SRI) should play a role in ethics and the investment process.
“Not all ESG areas play a role in our strategy and are not relevant to our region and the area, from executives to monitoring and rating, is still in its infancy,” he said. declared. “Things like environmental impact, inclusion of women and governance are important. However, some frameworks are built for different societies and their idiosyncratic conditions. “
South Korean involvement
One of the main investors in the fund will be South Korean company IMM Investment, which is a leading PE / VC company with over $ 5 billion in assets under management, through Hong Kong-based IMM Investment Global and subsidiary IMM.
“This is our first MENA fund and we hope it will open new doors to exciting opportunities,” Sean Jinn, director of venture capital investments at IMM Investment Global, told Salaam Gateway. “We would like to contribute our experience in helping Korean start-ups grow and provide much-needed capital and relevant strategic advice to corporate issuers. “
At the same time, we would also like to instill the international level of management discipline so that the alumni of our fund not only reap the financial benefits, but also prepare for the increasing pain from the start so that they are well prepared. for the next level. scrutiny, hopefully with international investors, ”he added.
Yamani believes that the involvement of IMM and Shorooq’s Asia-Pacific investor base will give them the opportunity to experiment and be part of Islamic structured transactions.
Sean Jinn said that IMM Investment Global does not view Sharia compliance as a major obstacle as long as their target companies do not lack both economic and legal qualifications.
“We wish to engage our local network ranging from partners, legal advisers, consultants and investment bankers to review each transaction, if necessary,” he said. “At IMM, we have gone through the structure of Islamic finance with the best legal advisers as well as local financiers. We understand that this is a local practice that we need to adapt to the Middle East instead.
Growing number of venture capital debt providers
Shorooq’s entry into the venture capital debt market is not isolated. The number of providers of debt financing to regional start-ups and start-ups is increasing.
In July, Liquidity Capital, an Israel-based financial technology and fund management company, announced a joint venture with Dubai-based YAS Investments to launch the YAS Liquidity Fund, a $ 100 million risk debt fund. focused on the MENA region and based at ADGM.
Other players include the Saudi Venture Capital Company (SVC) which said it was rolling out its own debt fund for start-ups and start-ups last month.
MENA first but global in the long term
The Nahda Fund I will initially focus on the MENA region and Pakistan, although it will selectively examine opportunities in markets such as Turkey and Bangladesh.
“While there are opportunities in Malaysia and Indonesia, these lie outside of our key regions at the moment,” said Yamani. “We will be looking outside the GCC over the next few years.”
Despite this growing activity, Yamani maintains that the venture capital industry is still fairly nascent in the MENA region.
“Historically, investors in the MENA region have had to be comfortable with what they know,” he said. “On the debt side, we have many low-wait opportunities that make regional targeting more attractive and, by extension, support our ecosystem. “
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