Middle East Venture Partners (MEVP), a Dubai venture capital firm, is in talks with prospective partners in Saudi Arabia to co-invest in start-ups in the Arab world's biggest economy, according to its founder.
"Saudi Arabia is a massive country and we're talking to a big government institution – a large one – in Saudi Arabia. If this works out it would be a pleasure to co-invest with them," said Walid Hanna, who is also the chief executive of the venture capital firm.
Talks with the prospective co-investor are in the early stages, but MEVP hopes it would take a stake in its entire Saudi operation..
“Ideally, it would be an automatic co-investment plan, with a pre-committed amount,” Mr Hanna said.
MEVP also aims to team up with the kingdom’s state-owned telecoms operator Saudi Telecom Company (STC) on a deal-by-deal basis to invest in start-ups in the kingdom.
Any collaboration with STC would be based on deal-by-deal co-investments through the telco's planned $500 million VC fund announced last year.
"We have a very friendly relationship [with STC]," said Mr Hanna. "Their fund will be global and offer ticket sizes larger than ours. So this would be a strategic partnership to help promote and market the companies we invest in."
MEVP is also in discussions with a Saudi asset manager that would become the firm's local licensed partner.
“We need a strong partner in Saudi Arabia,” Mr Hanna said. “It’s a very large nascent market, there are entrepreneurs looking for seed and Series A financing and they need our know-how.”
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Saudi Arabia is trying to increase contributions of small- and medium-sized enterprises (SMEs) to its GDP as part of its Vision 2030 economic diversification plan. The government is devising initiatives to expand access to capital for SMEs and develop the digital and regulatory infrastructure.
The Public Investment Fund (PIF), the kingdom's sovereign wealth fund, has set up a 4 billion Saudi riyal (Dh3.91bn) fund to provide SMEs with access to capital. It is hoped the fund will contribute 400 million riyals to Saudi Arabia's GDP by the end of 2020.
PIF has also been actively investing abroad in technology start-ups such as ride-hailing app Uber and Richard Branson's space research companies.
MEVP is expanding its business in the Middle East and North Africa region with a particular focus on the UAE and Saudi markets, says Mr Hanna.
It has four funds at present, including its most recent – the targeted $250m Middle East Venture Fund III, seeded by MEVP's founding members and the chairman of UAE real estate developer Emaar Properties, Mohamed Alabbar, who also controls a significant stake in MEVP.
The fund, which is mainly targeting Series B investments, has raised $100m to date and expects to raise another $50m by next month, Mr Hanna said. The remainder – either $50m or $100m depending on the fund's final size – will be raised between August and November this year.
By then, about 10 investors will be in the pool, primarily from the UAE, Saudi Arabia, Oman and Bahrain, he added.
The fund has already started deploying capital and recently identified $10m of new prospects following its undisclosed investment into Dubai start-up One Click Delivery Services last month. The next investment is expected in February, he said.
"In Saudi Arabia there has been a big jump in the number of start-ups – three to four years ago there was next to nothing," said Mr Hanna. "Today, the kingdom is ready for seed and Series A funding – there are lots of candidates for that."
MEVP has more than $220m of assets under management and expects to have between $300m and $370m by the end of this year.
After that, the firm plans to take a breather for "at least three to four years because we have to deploy, invest and exit", Mr Hanna said .
It expects to exit from at least five of its portfolio companies in 2018, including a second exit for Arabic music streaming service Anghami within the next three to six three to six months.
In the UAE, MEVP plans to focus predominantly on Series B funding and hold those investments for about five years before exiting.
“The start-up ecosystem is ripe for Series B,” Mr Hanna said. “You see dozens and dozens of seed and Series A VCs but very few of them are looking at Series B, and in the UAE in particular this is a clear gap we hope to address.”
