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Have you heard the buzz around YouTube? It’s another emerging web-based phenomenon being touted as the Google of videos. YouTube allows people to easily post their own short videos for free, as well as watch thousands of clips posted by fellow users.
As of May of this year, it had some 20 million unique users a month, and it is already beginning to ‘monetize’ this audience-base starting with a recent deal with US TV broadcaster (NBC) to promote its shows on YouTube. Many broadcasters are bracing for the impact this phenomenon will have on the industry.
As with many such emerging global technology icons that are disrupting whole industries, there is invariably a Venture Capital firm that is a key driver for sustained growth for such successes.
In this case its the legendary Silicon Valley based Sequoia Capital which in addition to YouTube, has also backed Apple, Yahoo and Google.
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Mr. Roelof Botha, the partner at Sequoia actually discovered YouTube while using the service personally, reflecting the highly tuned-in market approach VCs live by as they seek to grow the promising start-ups for a profitable public listing or acquisition. Sequoia ended up injecting $3.5 million to help finance YouTube in November 2005 and has had its team actively involved in supporting the founders in their strategy by providing Sequoia’s vast expertise, resources and partnership exposure.
Replicating such a culture of innovative global offerings and system of entrepreneurship in the Muslim World may seem a far fetched idea, but in the Arabian Gulf recently, there have been emerging signs of at least a budding Venture Capital environment--evolving to support an enterprising culture unique to the region.
Amongst the pioneers in this field is Dubai based Injazat Capital Limited which is also one of the founding members of the newly formed Gulf Venture Capital Association (GVCA).
In a region abuzz with Private Equity growth and an abundance of cash, Injazat Capital is leveraging its deep roots in the region and a globally experienced management team to establish a professional VC model.
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Its funds not only champion the Silicon Valley styled growth of entrepreneurship in technology and recently healthcare sectors, but also operate within the ethical and just Islamic principles of business and finance (Shari’ah) to better meet the sensitivities of the region’s investors.
In an exclusive conversation with DinarStandard, Injazat Capital’s Managing Director, Mr. Hussain Rifai, a native of Jordan and a seasoned executive with multi-national experience, shares the evolutionary state of the PE/ VC in the region as well as Injazat Capital’s current strategies and the set of portfolio companies in its Technology Fund.
Injazat Capital leading Shari’ah compliant Investment & Advisory Firm
Injazat Capital was established in September 2001 primarily as the Injazat Technology Fund. Today, as Injazat Capital Limited, it is a leading Shari’ah compliant Investment Bank specializing in Private Equity Investment and Corporate Advisory in the MENA region and is the first to offer an Islamic Venture Capital Fund worldwide. It is now registered in the DIFC (Dubai International Finance Center) and regulated under the DFSA (Dubai Financial Services Authority).
Through its US$ 50 million Technology Fund and the US$ 100 million Shefa (in Arabic means – Well-being) Healthcare Fund, the company is supporting early stage ventures in technology, media, communications and the health sector with keen interest in building up the region’s economy.
Rubicon, an Injazat Technology Fund portfolio company, is an animation and multimedia company. Ben & Izzy is its state-of-the-art animation series that follows the adventures of two pre-teens one from Jordan and one from the United States and is expected to be released early 2007.
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Image: Benn & Izzy website
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Amongst its current portfolio of Technology Fund companies is the Jordan based Rubicon which Injazat Technology Fund invested in late 2003. It is one of the foremost 2D and 3D animation studios in the region, working with international movie studios such as FatRock, in addition to its growing relationship with regional networks such as Arab Radio & Television (ART) and Cartoon Channel. (see Article) Rubicon's Chief Executive, Ms. Randa Ayoubi is considered a leading regional entrepreneur having won the Arabian Business Magazine (ITP) eEntrepeneur 2003 award.
In August 2005, Injazat Technology Fund had its first successful exit when its February 2003, US$ 5.0 million investment for a 6.79 % stake in Raya Holding, the largest IT holding company in Egypt, operating across the Arab world, yielded a return of over 40%. Soon after, Raya Holding had a succesful listing on the Cairo Exchange.
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Other Key Injazat Technology Fund
Portfolio Companies |
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Riyadh, Saudi Arabia based EJADA is a Leading IT Business Solutions and Services company for enterprises in the Middle East and North Africa region. It has eight offices in the region including in Cairo, Dubai and Amman.
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Omnix is headquartered at Dubai Media City, UAE, with affiliate offices in Canada and across the Middle East. It is positioning itself as one of the key audio/visual and IT solutions providers in the region.
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Raya Holding Company has become the largest and most recognised Egyptian IT and telecom company with regional and global reach. Injazat has exited from this investment and the company is now listed on the Cairo Exchange.
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Specialized Technical Services (STS) Group
is headquarters in Amman, Jordan with affiliate offices in Palestine, UAE, Syria, and USA.
It is a diversified IT services firm with activities ranging from "hardware" to complex "e-government and e-banking solutions".
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Injazat Technology Fund had since then invested in another emerging regional IT services leader named, Ejada. Ejada was formed by the merging of three companies to truly establish a regional presence. Just recently (July 6th) Injazat’s investment banking arm facilitated a further infusion of investment into Ejada in the form of a 30% equity stake by Saudi Economic and Development Company (SEDCO) supporting the company with additional capital for growth and potential acquisitions in the region.
In all its investments including the newly formed Shefa (Healthcare) Fund, the hallmark of Injazat Capital’s value proposition has not only been its financial support for the portfolio company’s expansion plans, but also Injazat Capital’s strategic advice and corporate governance guidance to help take its portfolio companies to the next level of growth.
Setting-up Professional Processes
Injazat Technology Fund started at the heels of the global tech market correction in Sep 2001. This was a fairly rough time for technology companies globally and the region was certainly not immune to it. By the time Mr. Hussain Rifai joined in April 2003, the fund had already invested in three companies--all three of which had shown a significant drop in their values.
As Mr. Rifai came on board, he introduced much needed professional rigor in the management and investment philosophies. He introduced the fundamental processes for proper investment such as corporate governance, investment processes, and due diligence. “We had to basically build it from scratch,” he says.
Within 18 months they deployed about 75% of the fund. The portfolio is now growing in net assets. Last year it grew about 22-23% and actual realizable cash on cash flows of 43% RIR.
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Injazat Capital’s Managing Director, Mr. Hussain Rifai
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Mr. Rifai certainly has the background and experience to have effectively re-charted Injazat Capital’s course. He has an MBA, an Electrical Engineering degree and two other Post Graduate education programs from global institutions including Stanford University. His career spans being CEO of Bolero M.E. and North Africa; Managing Partner, Optimum Solutions & Services; Client Partner, Boston Consulting Group; Principal, Ernst & Young Consulting; and Regional Technology Manager, Johnson & Johnson Pacific.
Values Driven
Mr. Rifai’s leadership also complements the purposeful mission of Injazat Capital. In addition to his professional experiences, his personal sets of values further enrich the culture of Injazat Capital.
He shares saying, “Probably one of the most prominent values I apply is based on a verse of the Qur’an that I learned from my Dad and Grandpa, who were both Islamic scholars in their own right. My dad was a Supreme Court judge (Jordan) and my grandpa was a scholar in Europe in the 30's where he lectured on the Quran at various Universities.“
“the verse is -
La Yughaira Allahu Ma Fi Qaumin, Hatta Yughaiiuru mafi anfusihimm. i.e God doesn't change anything in a people or in a nation, until they change what’s within themselves.”
“I try to instill this value as much as possible i.e, If you want change to happen, start by changing yourself.”
Another key aspect of the values based investing is the ethical and social considerations of Injazat Capital’s approach. Injazat Capital is one of the few VCs to provide a financing model based on Islamic (Shari'a) principles, which blend the profit motive with social responsibility and commitment to regional development. Its Shari’ah compliance is essentially based on the sectors it invests in and the instruments it uses.
In terms sectors allocation, the Fund not only does not invest in gambling, pornography, or alcohol, related businesses, but extends to also not consider any business whose model is harmful to the society in anyway—may it be the physical environment or women’s rights etc. “We take more of an ethical view of that which we believe is the spirit of Islam,” says Mr. Rifai.
“To be honest with you, we don't even have a need to invest in any such companies. Their are enough positive, solid, development sectors to invest in and for the type of good working-family type of investors that we attract, this approach works just fine.”
From an instrument perspective, the first aspect is being a partner in the risk and the rewards with its portfolio companies. “We can't mandate a certain return, we can't mandate a certain time, in a pure partnership sense, but we do very, very thorough due diligence before we go into a partnership,” explains Mr. Rifai.
The second part of this exercise is that the invested company’s debt component cannot exceed 33% of the company market cap or value. Mr. Rifai explains how this approach is in-fact a good business decision, “If I am talking about the IT sector, debt is not a bad thing, but in bad times the companies that can down-scale and weather the storm are the ones not ridden with debt. If you are with high percentage debt, it doesn't matter if you are growing much; you still have to pay the bank. So this is not necessarily a bad business decision.”
Private Equity in the region
Speaking on the prospects of Private Equity in the region, Mr. Rifai contends that there is certainly an enormous supply of money and many attractive sectors, but the professional PE market in the region is still in its infancy. Underscoring the 'professional' aspect, he says, “from an infancy perspective, there is a lot of money going to the private sector, and a growing number of Private Equity players emerging, but most are not taking a hands-on, long-term position where the expertise provided is not just funding, but actively growing companies, creating jobs, building on the IP, sitting on their board - helping them with the rough spots and the good spots. That’s really more a PE play which I see missing.”
His fear is that Private Equity will gain an unfavorable view with investors as too many amateurs enter the market. “That’s the danger and risk for the PE market in the region today,” he says.
The missing link he sees is that PE outfits are lacking professionals, but also recognizes that it’s not really the fault of the region either as it’s a matter of evolution.
“We have not had the industry for very long, and as such consulting, analysis, and research pieces are lacking. It’s the level of sophistication that you will see in a Blackstone or Carlyle Group or any of the major funds in the West and the primary reason for it not being there is because their isn’t the depth of human resources to make it happen.”
The silver lining he sees is that many professionals with experience would be interested in coming to the region for a variety of reasons, either because they have roots here, or to enjoy the improving lifestyle of the region. Meanwhile many of the regions girls and boys are getting higher education either in the west or from some promising institutions in the region.
“But this is a slow process, because remember you don’t have the institutions. Those institutions have to grow to a certain stature and numbers to attract the right talent.”
Injazat Capital’s Role
As far as Injazat Capital’s role in contributing to the industry, Mr. Rifai has a very humble view. “It’s not that Injazat Capital on its own will play a massive role to change the regional economy. We, as everyone else is doing, will play our role in developing PE further and further. We will try to have a stronger and stronger impact in the sectors we have focused on.”
When you look at the emerging global new media icons such as Google, Yahoo and YouTube there’s certainly hope that with an emerging presence of some ‘professional’ VC players such as Injazat Capital in the Muslim world, budding entrepreneurs would be positioned to make an impact with services geared for a global market.
As Mr. Botha of Sequia Capital, in a recent interview with Wall Street Journal pointed out, the key attribute that tech legends such as Yahoo, Google and YouTube have in common is to, "build something for a personal need that winds up being universally useful." The hope is that entrepreneurs from the Muslim world will be pursuing such big thinking with the help of firms such as Injazat Capital.
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