Venture into the unknown for capital

23 June 2011

More venture capital than ever is available for aspiring business owners in the region. But it takes a bit of entrepreneurial know-how to tap into it, experts warn.

More than US$300 million (Dh1.1 billion) was raised by the venture capital industry in the Middle East and North Africa (Mena) last year. This figure marks a record and is up from just $133m five years ago, according to a report released this month by the Mena Private Equity Association (MPEA).

Venture capital (VC) funding, which helps potential business owners get their companies up and running, helps foster entrepreneurship, job creation and technical innovation in a region that has many untapped yet talented workers, supporters say.

Venture capital deals in the Mena region more than doubled over the past two years. There were 14 deals last year, up from five in 2008, according to MPEA.

To improve the odds of breaking into this small but growing market, experts say there are a number of steps entrepreneurs can take to obtain venture capital funding - and some they should avoid.

Hit the books

Pursue a field of study that might provide an educational edge when it comes to launching a business. In Saudi Arabia, entrepreneurship activity is driven by a large number of engineering graduates, and venture capitalists have targeted these students.

Think beyond tech

From Apple and Microsoft to Facebook and LinkedIn, tech start-ups garner a lot of attention. But some firms that invest in new businesses, such as CedarBridge Partners, based in Egypt, look to other sectors such as health care, education and retail.

"We feel that in this region there are a lot of opportunities in the non-tech sector," says Imad Ghandour, who lives in Dubai and is the managing director of CedarBridge Partners. "We try to support all of the concepts and formats."

Stop obsessing over revenues

Aspiring business owners can still obtain funding even if their idea has not generated any revenue, experts say.

"If entrepreneurs have a unique idea with intellectual property wrapped around that idea then VCs don't have any issues with funding the entrepreneurs, even if there is no revenue today," says Feroz Sanaulla, the director of Middle East, Turkey and Africa for Intel Capital, the investment arm of technology giant Intel.

"But the entrepreneur does need to understand if the product is something the market needs, is scalable and has revenue and margin-generating capability."

Look for lucrative markets

In the GCC, venture capital funding and entrepreneurial activity is dominated by two countries: the UAE, which is seen as the most dynamic economy in the region; and Saudi Arabia, which has the largest economy, according to MPEA.

That is not to say there are no opportunities elsewhere but those countries have the most money available and the largest number of active VC firms.

Mentorship may trump money

Building a network of mentors who come from the venture capital field may be just as important, if not more so, than their money itself.

New entrepreneurs with risky ideas may not earn a "huge amount of money, but remember venture capital is never about a lot of money initially, but about mentorship and support", says Mr Sanaulla.

"Really, we're talking about small businesses here. That small amount of money grows the company over time, and if that company can prove the marketability of their product or service they can raise additional rounds of funding at higher valuations, eventually ending up in a fairly large exit."

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