Start-up technology companies will struggle to find venture capital in the short term, financiers said on Wednesday, pointing to a lack of both specialist investors and opportunities to exit investments. At a forum on the outlook for private equity and venture capital in the region, industry players said that investors linked to the Gulf's sovereign wealth funds and large family-owned conglomerates remained the most likely source of early-stage funding for companies in the region.
But such investors will show a preference for businesses that are importing proven business models or brands from abroad, rather than making high-risk experiments into new technologies or ideas, said Tamer Bazzari, the chief executive of Rasmala, an investment bank based in Dubai. "With the current market conditions and the approach towards business taken by these types of investors, these are the kind of ventures likely to get support," he said. "I think we are unlikely to see a Silicon Valley-type approach replicated here."
Dr Pablo Fetter, a finance and technology professional and former investment director at Dubai's Isthithmar World, had similar sentiments, but said he expected better news for the region's technology start-ups in the long run. "There are really three things that you need for this type of investment," he said. "You need the right kind of investors, the right opportunities for investment, and the right opportunities for exits. None of these are really here today in the region. I am bullish on this in the long run, but today it is not the case."
Dr Fetter, a member of the Gulf Venture Capital Association, pointed to government incentives and support for venture investment in Europe and North America as key to the success of the industries there. "So far, we have none of that in the region," he said. But developments such as Abu Dhabi's Masdar City renewable energy hub were "a great start", he said. "Clusters like this bring together the know-how, the innovation and the investors - and that is a place where venture capital will flourish."
Private equity investments, which typically see larger sums of money invested in return for management control of more established companies, have a more hopeful outlook for the coming years, others said. Achmed al Shahrabani, a senior vice president at the investment bank Abraaj Capital, said opportunities in the Middle East, North Africa and South Asia were abundant. To move towards the average standards enjoyed in western economies, the region will need to build 39,000 hospitals and 7,000 schools by 2020, he said.
Industries such as insurance and low-cost airlines, both major sectors in the West, remain in their infancy in the region, also pointing to huge growth opportunities for new companies. "This region will regain its position as the economic centre of the world," he said. "And that is a real opportunity." email@example.com