Venture Capital in the Middle East

Observations and growth of the UAE

Ramzy Ismail ramzy.j.ismail@gmail.com

Outline

1. Venture capital asset class 2. The shift to technology investments 3. First $100M+ exit and catalyst 4. Startup exits - rare but it happens 5. Geographic shift to the UAE 6. UAE quickly maturing and leading the way 7. Power law in action 8. Ecosystem maturity and support 9. Opportunities and bottlenecks

1

Regional funds mirrored the global resurgence of private equity and buyouts in the early 2000’s but appetite waned with the credit crisis and funds shifted to growth and venture

capital

Source: MENA Private Equity and Venture Capital Report 2010, 2015 2

MENA Funds Raised by Type 2005 - 2014

The years starting in 2010 saw an increased amount of venture capital flow into emerging markets led by China and India, which along with regional exits,

brought attention to VC in MENA

Before 2009 there was limited internet, software and technology investments…since 2010 tech, ecommerce, and media have quickly become

a high priority with over 60% of all venture capital

Source: MENA Private Equity and Venture Capital Report 2009, 2010, 2015 3

No distinguishable IT/Tech sectorMENA investment volume by sector

2009 - 2010

MENA investment volume by sector 2014 - 2015

Maktoob’s acquisition by Yahoo changed the landscape and perception of startup investing. 2010 saw the beginning of a rapid increase of venture

capital funds in the region…

VC funds raised and investments completed Number of VC Investors By Year

Regional inflection points after Maktoob acquisition

Source: MENA Private Equity and Venture Capital Report 2015, Arabnet/DIC 2015 Digital Investment Report, GigaOM 4

52% CAGR

34% CAGR

yet the biggest concern in regional VC is liquidity….only a handful of exits are often mentioned but there have been 30+ exits/buyouts across various

tech sectors in the last 7 years

Sample Exits

Company Acquirer Amount Year Notes

$40M 2012Thomson Reuters acquired Zawya from the management and Saffar Capital, who acquired 60% stake in 2001

Undisclosed (~$20-40M)

2013

Tiger’s strategy in 2013 was to invest in group-buying sites across the globe and acquired Cobone in majority buyout; previous investors included Jabbar group and Oliver Jung (FB, AirBnB, Houzz)

$13.5M 2014Investment was led by Middle East Venture Partners (MEVP) an; CookPad is a Japanese public company with a user base of over 50M

Undisclosed (acquihire)

2015White Payments aimed to build a Stripe-like platform until Payfort acquired them to build out their SME strategy, START by Payfort

Source: MENAScapes.com 5

The pace of acquisition has increased as the value of technology growth and diversification is being materialized regionally

Source: Middle East Venture Partners 6

Examples such as Souq, Beam, and Fawry indicate a majority acquisition by investors and not complete management buyouts

Initially Jordan, Egypt, and Lebanon led the majority of investments but focus quickly shifted to the UAE…driving factors include ecosystem maturity, access to

markets, and socioeconomic drivers unique to the UAE

Source: MENA Private Equity and Venture Capital Report 2013,2015; Arabnet/DIC 2015 Digital Investment Report 7

Number of Investors by Ticket Size and Country

VC investment volume by country 2011-2015

UAE continues to standout, leading the region in investment deals and value since 2013

Value of Investments In The Top 5 Countries (excluding Growth Stage)Markets Ranked By Number of Investments

Lebanon’s recent growth has been augmented by the Banque du Liban’s Circular 331 initiative, underwriting 75% of SME investments - allowing banks to act as LPs to venture funds

Source: DIC 2015 Digital Investment Report 8

The attractiveness of the UAE market along with compounding effect of talent and capital are driving deal inflow from regional hubs

A third of entrepreneurs regionally want to expand into UAE markets but have yet to effectively due so. Alongside Saudi, UAE is the top destination for startups with 42% of

founders looking to expand to the UAE

Source: Wamda Research Lab’s Country Insight 2015, Wamda Research Lab’s Enhancing Access Report 2014 9

Power law dynamics are considerable with over $800M invested in 480 deals since 2013 = ~80% of value accountable to 7 companies

$150M Series C$211M Total*

$53M Series B$54M Total

$60M Series C$72M Total

$275M Series D $390M Total

$20M Series B$20M Total

$11M Series A$11M Total

HQ in Nigeria with major operations in Egypt*

Jordan Egypt/Africa UAE UAEEgyptUAE

$67M Series A$67M Total

Source: Crunchbase, Wamda, Arabian Business, Al Tayyer PR 10

UAE

~3% of all investments are driving the majority of value in venture capital….early stage investments are growing due to a proliferation of incubators, accelerators and angel

investors creating downstream deal flow for institutional funds

NUMBER OF INVESTMENTS BY TICKET SIZE VALUE OF INVESTMENTS BY TICKET SIZE

Source: Arabnet/DIC 2015 Digital Investment Report 11

VC deal flow continues to grow through early-stage funding, mentorship, and startup services that have dramatically increased from Morocco to Kuwait

Source: MENAScapes.com 12

Early stage

Concept Seed Product development

Go to Market Growth

Inspiring Starting

UpLate stageGrowthCompanyIdea

Broadening Ecosystem

ABU DHABI

The UAE ecosystem has quickly matured and outpaced other countries to create value-added support across every stage of startups

13Source: Flat6Labs

An addition to regional organizations, the last two years has seen a spike in European and U.S. based accelerators and funds seeking to tap the UAE market’s growth potential

There is still plenty of room for growth with private equity in Saudi and the UAE accounting for ~0.02% of GDP, a fraction of other emerging and developed countries

Source: MENA Private Equity and Venture Capital Report 2015, Arabnet/DIC 2015 Digital Investment Report , Financial Times

726

1,950

3,007

3,879

4,614

5,843

2 28 135 256 285490

0.3%

1.4%

4.5%

6.6%6.2%

8.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

0

1500

3000

4500

6000

2009 2010 2011 2012 2013 2014Cumula2veFundsRaisedinMENA(USDm)

PE

VC

VC%ofPE

14

Within private equity, VC has continued to attract dollars due to various factors including favorable youth demographics, growing online adoption, and government-backed initiatives

VC Investments as a % of GDPCumulative Funds Raised in MENA (USDm)

Source: MENA Private Equity and Venture Capital Report 2015; MENAScapes.com

Family offices are increasingly interested to invest directly into startups where traditionally they were focused on being limited partners to local and international funds

The last two years has seen an increase number of international funds actively fundraising and deal sourcing in the region specifically in the UAE and Egypt

International VCs Investing Locally

15

Survey of GPs on Next Year’s Most Active Investors

Source: PRNewswire, SEC.gov, Crunchbase, Arabian Business, India Times, investcorp.com, aramcoventures.com , NYtimes.com

Along with family offices, the GCC is seeing an increasing rate of non-traditional investors and sovereign wealth funds investing into the technology sector directly or through VC

16

• Investcorp Technology Partners III LP.

• Investcorp/(212) Ventures Technology Fund I

Qatar Saudi Arabia Kuwait Bahrain

United Arab Emirates

Adding to the regional VC stack are corporate venture funds as a strategic way for large organizations to diversify product offerings and technological depth

Source: MENAScapes.com

Corporate venture arms are increasing in nature but are susceptible to macroeconomic slowdowns as many corporate VCs invest from their balance sheets and not in traditional GP-LP funds

17

The regional opportunity in digital has yet to fully be realized; high ceiling for digital ad spend, young demographics, and continued distribution will drive growth

Source: Andreessen Horowitz/Benedict Evans “Mobile Is Eating The World” Report, www.mideastmedia.org, *PwC’s Global Entertainment and Media Outlook 2016-2020 report 18

The MENA region lags in overall ad spend and in particular digital/internet ad dollars, a major driver of online business models

Print media’s share of the total ad market is higher in MENA than any other part of the world but the market is quickly giving way to mobile and video advertising, which is growing at a CAGR of 28.8%*

There are still a few hurdles to creating a flourishing venture capital ecosystem..

Transparency and disclosure • According to the MENA Private Equity Association a large part of the attributed jump in VC was due

to deal disclosure which increased from 33 in 2014 to 120+ in 2015

Uniform legal framework • Beyond the often-discussed bankruptcy and liquidation, there are large gaps of clarity and uniformity

in founder earn-out agreements, foreign ownership, and tax implication for regional and international LPs amongst other things

Venture capital dynamics and education • An on-going dialogue has been taking place the past few years between traditional brick-n-mortar

investors and the venture community with respect to time expectancy of investments, minority ownership, portfolio diversification and industry-specific knowledge within software-based companies

Sourcing quality deal flow • A consistent hurdle for VCs but has slowly been less of an issue with the increased adoption of a

‘startup culture’ including the support systems of incubators, accelerators, ecosystem programs and repeat entrepreneurs.

19Source: MENA Private Equity and Venture Capital Report 2015

Appendix - UAE ecosystem maturity and growth

Source: Wamda Research Lab’s Country Insight 2015 20