Dubai-based investor group Arab Business Angels Network’s portfolio could boast seven start-up investments before the end of the year as the company is currently reviewing five new business plans for investments, a top executive has said.
“We have invested more than $2.5 million (Dh9.2m) in two start-ups, which have exceeded their target milestones one year post-investment,” Walid Hanna, Chief Executive of Aban, told Emirates Business in an interview. “Five more entrepreneurs have presented their business proposals as of last week, and they are all currently under review.”
One of the two start-ups invested in so far is Jordan Ostriches, designed to meet the local and regional demand for ostrich products including meat, feathers and leather. “We committed $950,000 to the project in 2006 and the business is worth around $1.5m today,” Hanna said.
The second, Palm Paper, is an Egypt-based industrial business that will use waste leaves from palm trees to manufacture industrial-grade paper products. Aban originally committed $1.55m to the project, which is now valued at more than $2m.
Angels seek to export concept
“Aban complements the development objectives of the Arab world by facilitating the development of exciting entrepreneurial ventures,” Walid Hanna, Chief Executive of Aban, told Emirates Business in an interview. Excerpts:
What are the core activities of Aban and who are its lead investors?
Aban’s functions include identifying and connecting angel investors from around the world with young start-ups without any institutional funding. The core activities that Aban involves itself with are the development of the angel investor community and the promotion and development of start-up businesses. We act as a matchmaking partner by screening and connecting the entrepreneurs and their business plans to our network of prospective angel investors.
Dubai International Capital is Aban’s lead investor for the two seed capital funds with co-investments by angel investors. These two funds will be used by Aban to source deals and fund start-ups.
What is the size and function of these funds and what is the internal rate of return that you are targeting?
These two funds have been started with a target fund size of $15 million (Dh55m) in total. Of this, $10m is the size of the
Aban seed capital fund, while $5m is the target fund size for the second fund for women-led ventures.
The intention is obviously to promote female entrepreneurship in the Arab region along with bridging the equity gap for entrepreneurs who want to start and grow their business. These two funds will see angel investors from around the world pool their funds for investments in start-ups sourced by Aban and will be a co-investment between Dubai International Capital and the
We are targeting an internal rate of return of 30 per cent with an average holding period of four years. The funds will have a life of six years. These funds are unlike venture capital or private equity funds. The deals are sourced by Aban’s own networks and word-of-mouth channels.
Is there a restriction on the kind of entrepreneurs or business ideas that you target or is it an open approach?
There are no restrictions on where the entrepreneur comes from or what his nationality is. It doesn’t matter where the entrepreneur comes from as long as he intends to set up the business within the Middle East and North Africa region and has a strong business plan backing him.
We look at the projections and bottom-line targets for the start-ups. If that looks attractive and achievable, it is considered for investment.
We are not country-specific or sector-specific and we are not just looking for Arab entrepreneurs. We are looking for anyone who has a good idea for a business in the region.
How many business plans or proposals have you screened so far and how many have you earmarked for investment?
We have already screened 150 business plans since July last year. We usually get 25 to 30 business plans in a month. That is an average of one business plan a day. We would usually invest in two to three per cent of the total proposals, but that is not an upper limit. It could be more depending on the quality of the plans and funds available. Out of the 150 proposals we have received since last July, we have marked out five start-ups.
How much investment do you typically make in a start-up? Is there an upper limit to that?
We are looking to invest anywhere between $100,000 and $1m in a start-up. The average investment is around $400,000. While deciding on the amount to be invested, we look at the quality of the proposal and the milestones that the entrepreneur has set a year post-investment.
We know that out of 25 companies we invest in, 10 will definitely go bankrupt, but 15 will be successful. If the company achieves its first-year milestones and the profits are in line with the projections, we could increase our stake in the company and invest more money for expansion. Conversely, we also have to write off our investments and sell our stakes in the company if the business is unable to achieve its target. We are not a charity. Our investments are based completely on rate of return.
How do you go about sourcing deals?
Our lead investor at Aban is Dubai International Capital. We have developed a strong network of potential angel investors who intend to invest in start-ups in the Mena region.
The chances of high returns are enhanced in the case of start-ups because valuations grow from virtually nothing. So, in that sense, it does provide a high value for investment. But, the risks involved are high as well. So, we target institutional investors and high net worth individuals for expanding our network. Growing our network of angel investors is an ongoing process. Once we receive the proposals, we look to align it with the profile of angel investors. That is where we act as a matchmaking body. We have advisors in the UAE, Jordan and Egypt who advise us on the right investors to approach.
We have a strong advisory board here in the UAE. The advisory board of Aban is chaired by Abdul Aziz Abdullah Al Ghurair. The other members on the advisory board include members of royal families such as Sheikha Hamadi Al Thani from Qatar, Mohammed Al Faisal from Saudi Arabia. There’s Majdi Al Yasin from Jordan and Sameer Al Ansari, who is the Chief Executive of Dubai International Capital.
We are looking for a board member from Egypt – a good market for start-ups.
What is your screening procedure like? How do go about identifying start-ups fit to invest in?
The most important part of such angel investment is the deal flow or sourcing of deals. We evaluate the proposals based on the management team, maket opportunity, growth potential, as well as other factors. To stand out from the rest of the crowd, we encourage entrepreneurs to come fully prepared with a business plan and presentation.
Our funding process involves a thorough screening process where selected plans are presented to our members for funding consideration. Entrepreneurs looking for angel investment must go through our website, aban.ae.
How much ownership do you take in the companies that you invest in?
Again, we are flexible with the ownership pattern. If we are financing most of the business, then we usually take a majority holding so we have greater control. If not, we might opt to have a minority stake.
Sometimes, we even sell back some of our equity to the entrepreneur after a year depending on the pre-investment commitment and the achievement of target milestones. As a policy, we only support businesses that do not have any other institutional financing.
Our entrepreneurial incubators include universities, industry associations and industry agencies and trade events. We seek continuous references from this network, which is where quality deal flow comes from.
How many start-ups have you supported?
We have invested more than $2.5m in two start-ups, which have exceeded their target milestones one year post-investment. The first one, Jordan Ostriches, is a start-up business based in the Kingdom of Jordan designed to meet demand for ostrich products including meat, feathers and leather. We committed $950,000 to the project in 2006 and the business is worth around $1.5m today.
The second, Palm Paper, is an Egypt-based industrial business that will use waste leaves from palm trees to manufacture industrial-grade paper products. We committed $1.55m to the project, which is now valued of more than $2m.
In total, DIC committed $2.6m to the two winning business plans, $600,000 more than was pledged.
Going forward, what are your plans for 2008?
The idea is to source more deals and close more deals. We want to get more investors to invest in the fund. We also want to create more local advisors in the neighbouring countries within the GCC.
We are looking for advisors in Saudi Arabia and Qatar. Getting more investors is the key. Such investors are not typical, they want to be able to add value and mentor a company. But, it is the returns that make it attractive. Investing at pre-money stage gives investors the chance of higher returns. That will be the driver going forward.
Arab Business Angels Network
Walid Hanna joined Aban as CEO in September last year. He began his career at BNP Paribas in 1997 and then joined Bank Audi in Beirut until 2000. He then co-founded and managed several start-up ventures across a range of industries, primarily in Lebanon.
Previously, Hanna was also Associate Vice-President with Abraaj Capital’s private equity team. Hanna holds a Bachelor’s degree from McGill University in Canada and a Master’s in Finance from HEC in France.
Some Aban start-ups
- Joga is a health food and beverage chain based in the UAE (UR – under review)
- Hayati is a consumer finance company for the healthcare industry based in the UAE (UR)
- Kindisoft is a software development firm for IP protection in Jordan (UR)
- Content Syndicate is a publishing and content clearing house based in the UAE (UR)
- I-Level is a shopper marketing company based in the UAE (UR)
- Jordan Ostriches, based in Jordan, is designed to meet the local and regional demand for ostrich products. Total investment: $500,000
- Palm Paper is an Egypt-based business that will use waste leaves from palm trees to manufacture paper products. Total investment: $1m
Dubai international capital
Dubai International Capital (DIC) is a Dubai-based international investment company focusing on private and public equity and is Aban’s chief investor. Established in 2004 as a subsidiary of Dubai Holding, DIC has built an international portfolio of business assets across a range of industries in North America, Europe, Asia-Pacific and the Middle East and North Africa (Mena) region.
At the end of 2006, DIC had approximately $5.5 billion of assets under management. Some of the DIC’s assets include the UK-based Tussauds Group, the Doncasters Group and Travelodge, the company’s website says. The firm also owns minority stakes in major multinational corporations worldwide, including DaimlerChrysler, in which it owns a two per cent share.
Sameer Al Ansari who is the Executive Chairman and Chief Executive of DIC – which he helped found in 2004 – heads the firm.
Al Ansari has previously served as Group Chief Financial Officer for the Executive Office of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai. He was involved in the establishment of Dubai Holding in 2004, which went on to found Dubai International Capital later that year.
Al Ansari is also a member on the board of Dubai Media Incorporated, Sama Dubai and the Dubai International Financial Centre (DIFC).