Mid East, N.Africa venture capital deals seen rising

DUBAI Sun Jun 12, 2011 11:16am BST

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DUBAI (Reuters) - Rising populations and growth of small businesses bode well for venture capital transactions in the Middle East and North Africa region and the nascent sector will see more deals this year, executives said on Sunday.

The industry has seen significant growth in the last two years with 33 venture capital related transactions versus 16 between 2006 and 2008, a report compiled by a group of industry professionals said.

Small-and medium-size enterprises comprise a large part of the economy in the region and the sector has seen considerable growth in recent years.

"If you take into account SME growth, equity deals as well as pure venture capital deals, there is definitely going to be an uplift," said Tom Speechley, chief executive of Riyada Enterprise Development (RED), at the launch of the report.

"We have done five deals this year and we have seven more in late stage execution."

Riyada is the SME investment platform of Dubai-based private equity firm Abraaj Capital.

The buoyant mood was also shared by other executives, including Intel Corporation's top executive for Middle East, Africa region, Feroz Sanaulla.

"The important thing to notice is that there is a momentum building in the industry and it will continue to build. Whether the number of deals will be twenty, thirty or forty, it doesn't matter," Sanaulla said.

Fifty six percent of the total VC transactions since 2006 have been in Egypt, which has a large and fast-growing population, and the United Arab Emirates, which enjoys a dynamic economy, the report said.

The IT and software industry have constituted 45 percent of the total VC transactions in the region since 2006, it said.

Three venture capital funds raised $300 million in 2010, a significant increase from prior years.

However, many challenges still remain, the executives said, including a lack of legal clarity surrounding contracts, structures and governance, as well as the absence of suitable exit opportunities.

The initial public offering (IPO) market in the region has been muted for last two-three years and most of the venture capital funds in the region have yet to make an exit of their investments.

(Writing by Shaimaa Fayed, Editing by Shaheen Pasha)

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