Middle East momentum

Private equity came of age in the Middle East in 2005, and new firms such as Bahrain-based VCBank are springing up to ‘create a VC culture where none exists’. By Judy Kuan.

Last year was a big year for private equity in the Middle East, and seeking to join the ranks of the more established names in the market is a new crop of firms that do not necessarily adhere to the more conventional, partnership-based approach to private equity.

One debutante to the market is Bahrain-based Venture Capital Bank (VCBank), which was given licence to operate by the Bahrain Monetary Agency in May 2005. The bank asserts it is the first Shariah-compliant venture capital bank to ever be established.

VCBank, Global Emerging Markets Group and SAPIG sign on for new fund.

According to local news sources, VCBank, along with New York-based private investment firm Global Emerging Markets Group and the Saudi Arabian General Investment Authority, have signed a memorandum of understanding to establish a $100 million private investment fund next month, targeting Saudi Arabian small and medium sized enterprises. The news follows previous press coverage from November 2005, when VCBank and GEM were said to be launching a $250 million venture fund targeting SMEs across the Gulf, Middle East and North Africa regions.

Speaking to The Financial Times last week, VCBank chief executive Abdul-Latif Janahi said the firm was launched as bank – not a limited partnership – because the bank structure would better facilitate the creation of multiple funds and exits through public markets. The banking licence would also allow VCBank to provide more cash-generative products such as real estate and advisory services.

Despite the growing bullishness of investors toward venture capital investing in the region, many are still wary of entering into the higher-risk and longer-term arena of seed capital or early-stage investments. In the FT story, VCBank chief investment office for venture capital Ahmed Al Jawhary stated that – despite what its name would suggest – the starting point for VCBank will be later-stage buyouts, rather than seed capital investments. “We are trying to create a VC culture where none exists, so that will take some time,” Al Jawhary was quoted as saying.