Angels in Arabia

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Business angels are the saviour of many start-ups in the US and Europe, but now Arab investors are looking at early stage private equity investment, with the launch of a new network aiming to match regional capital with regional entrepreneurs.

Multi-million dollar management buyouts may attract most of the attention in the Middle East's private equity sector, but the biggest rates of return come from early stage investing.

However, until now it has been difficult for entrepreneurs to tap funding from the region's investors, and for individual investors to source early stage deals.

This is what the Arab Business Angels Network (ABAN) aims to address. The network was conceived by the Young Arab Leaders during the Clinton Global Initiative in September 2005, with Dubai International Capital (DIC), the private equity investment arm of Dubai Holding, its founder and lead institutional investor.

DIC made its first foray into angel investing last year through its US$2.6 million Pan Arab Business Plan.

It invested in an ostrich farm in Jordan and paper producer in Egypt, both of which have successfully expanded following the capital injection.

ABAN will bring together individual and corporate investors who want to access early stage opportunities, with membership by invitation only.

The target value for each investment is between $100,000 and $1 million.

Walid Hanna, CEO of ABAN, said: "ABAN's goal is to promote entrepreneurship and try to fill this equity gap that entrepreneurs are facing."

He was joined at the launch by Anthony Clarke, president of the European Business Angel Network (EBAN), chairman of the British Business Angel Association (BBAA), and managing director of GLE Growth Capital in the UK.

Clarke told potential angels: "I have to be blunt with you: this is money that you might lose, and will be locked up for a long, long time."

He pointed out that investing at such an early stage was an extremely hit-and-miss game, but that the rate of return in successful transactions could be far higher than in later stage private equity or other asset classes.

Figures from the UK showed that 40% of business angel investments delivered a negative internal rate of return (IRR), but 10% delivered an IRR of more than 100%, usually over a five to seven year period.

In the US, angel investors account for around $25 billion of investment, while in the UK the figure is around $2 billion.

No figure has been estimated for the Middle East, but the large number of wealthy individuals should mean there are plenty of potential angels.

The selection of business owners pitching at the ABAN launch, in sectors ranging from healthcare finance to technology, also suggests that, contrary to popular opinion, there is no shortage of budding entrepreneurs in the Middle East.

With support and funding, one of these could become the next Body Shop, Microsoft or Ford Motors, all of which relied on angel investors in their early days.

There are also likely to be benefits to people other than the angel investors and entrepreneurs themselves.

Business angel investment has a history of creating jobs - something that is crucial to the continued development of the Middle East economy - and should also create deal flow for venture capital and private equity firms as the businesses mature and are ready for later stages of funding.

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READERS' COMMENTS

Angel Investors
Posted by DONNELL GREER, VANCOUVER, CANADA on Tuesday 18 March 2008 at 20:50 UAE time

We have been investors and entrepreneurs for thirty five years. The key is to have real estate backed investments and think in terms of five years for an exit strategy at best. If the exit is shorter it’s a bonus. An irony is that today we find ourselves holding a large track of real estate with a phenomenal project but can not find any genuine investors to help us carry it through. Part of that is because the typical stock market broker promises fast returns with relative ease.

Reality is finally rearing its ugly head.

Market conditions in the United States are an in-your-face illustration of what happens when speculative funds are raped around a promise and a prayer of making money. When reality hits it does so with a vengeance. Without brick and mortar paper value is diminished to nothing very quickly. That is why who you deal with, and how much dirt they have in real property, will always make the difference as to financial success long term.

Watch out! Part of being human is obviously being complacent and forgetful. A financial casualty ball is rolling, it’s sticky and as such it will pick up many shallow insecure paper companies on its way down to financial demise. History repeats itself time and time again.

Business Angels
Posted by Peter Dean, Poole, England on Tuesday 4 March 2008 at 16:46 UAE time

There are a number of small Banks and Brokers requiring money
for clients start ups and growth of their current businesses. You will find the larger banks require too much information, instead of focusing on the question of how will the investment will return over time.

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