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The Middle East Venture Fund III (MEVFIII) will concentrate on Series B technology investments - fast-growing businesses that may still be losing money, but with established revenues that have been substantially de-risked.
The launch of the new fund follows on from an equity investment in MEVP by Emaar Properties founder Mohamed Alabbar in May.
Alabbar said at the fund’s launch in Dubai that the investment in MEVP has been made in a personal capacity, and that it was a 50:50 arrangement with MEVP's existing team.
Hanna said the MEVFIII fund's launch represented "the beginning of a big tech play in the region, because we haven't seen a big fund like ours up until today."
"This region is completely underserved," he said. "The start-ups in this part of the world are hungry for equity, hungry for capital. Banks do not lend money to start-ups."
According to Alabbar "something's missing" in technology investment in the region, given the size of the market and the online habits of its consumers.
MEVP cited research reports stating that venture capital in the Middle East and North Africa region represented less than 0.03 percent of gross domestic product last year, compared with 0.2 percent in India and 0.4 percent in the United States.
Further research cited by the company stated that there are 155 million smartphone users in the region and that 29 percent of its population of 425 million is under the age of 15. Hanna said that overall online spending in the region – on physical goods, travel, hotel bookings and other purchases – stands at about $45 billion.
"These customers are hungry for digital goods and services," he said. "They spend 6-7 hours per day on their smartphones."
Discussing the state of local VC funding, Alabbar said: “When you look at the demographics of the region, if you look at how internet and technology-savvy our boys and girls in the region [are], and their consumption of technology and their participation in the digital scene globally, you realise that something is missing.”
The MEVFIII fund will have a lifespan of about eight years and, according to Hanna, net internal rate of return (IRR) to the fund's investors is targeted at about 25 percent, meaning that it will need to generate at least three times its original investment.
Hanna said that he and MEVP's other founding partners, chief investment officer Walid Mansour and chief exit officer Rabih Khoury, had invested $3.5 million of their own equity into the new fund, and that Alabbar has invested "much more than that", but he did not say how much.
He said that MEVP expects to attract the remaining funds within the next 6-12 months, and that the fund is to reach full investment within about four years.
The fund has already targeted 26 potential opportunities, which would require investment of up to about $100 million, he added.
About 70 percent of the capital will be deployed in growth stage companies, 25 percent in early-stage businesses and 5 percent in seed funding. In terms of location, at least 70 percent will be invested in businesses in the MENA region, up to 20 percent in Turkey, and the remaining 10 percent retained for 'opportunistic' investment.
Middle East Venture Partners has been in business for seven years and already has about $120 million worth of assets under management, Hanna said, with 40 companies in its portfolio. The company employs 23 investment professionals and has relocated its headoffice to Dubai.
© Zawya 2017
