Q2 2022: Conventional venture capital tanks, Islamic tech holds up

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The last few “COVID-era” years were great for the venture capital (VC) industry — the targets were aplenty; the money kept coming from all places — from hedge funds to pension funds. Even the relatively poor investors were catered to by various crowd-funding schemes that allowed the “financially underqualified” investors to join the Great Game of the VC enrichment.

And now, some 70 days into the regional military conflict, the entire industry is shaken. Who would have thought that imposing sanctions and destroying much of the Russian financial system and global trade would affect our beloved venture capital and private equity industry?

Refinitiv’s venture capital index dropped 24.2% in April, taking the 2022 loss to 45.8% — the worst result since the “dotcom” crisis. Still, the VC market will recover. Eventually. But now we have the tickets to the show called the “Minsky Moment in Venture Capital” — the term coined by Abraham Thomas, describing the situation where bad performance reverses investor inflows and we go spiraling down. The term had nothing to do with Minsk, Belarus but refers to Hymen Minsky, the author of “financial instability hypothesis”.

The relative isolation of Islamic venture capital seems to help the industry transverse the investment crevasse that absorbed its conventional counterpart. Here are just some of the newsworthy events that deserve special mention:

· The UK’s Maydan Capital will help Wa’ed Ventures (a sub of ARAMCO) to promote ethical technologically intensive startups in Saudi Arabia;

· The ABHI of Pakistan which offers Shariah compliant digital financial services, has raised US$17 million in Series A funding;

· Fasset Exchange secured USD 22 million in Series A funding lead by Liberty City Ventures, Fatima Gobi Ventures, Some Capital and MyAsiaVC;

· IMAN of Uzbekistan, a company which I had the honour to know several years ago at their onset, is raising another UDS 3 million to fund it South Asian expansion, just having raised USD 1 million from Tesla Capital, Uzcard Ventures, MyAsiaVC and IT-Park Investments;

· Right Farm, a UAE agriculture technology start-up that sources fresh produce for the food and retail sector, raised $2.8 million in a seed funding round led by DisruptAD, the venture capital platform of Abu Dhabi’s holding company ADQ, and Enhance Ventures.

But the key news of the season is, of course, the launch of US$250 million SHUAA Venture Partners fund to provide Shariah compliant debt opportunities to the GCC companies that are seeking alternative sources of funding without significantly diluting their shareholding.

The latter relates to another interesting development in the world of Islamic private equity. The year 2022 is likely see the emergence of a commonly underutilized Shariah compliant finance tool — the High Yield (HY) Sukuk. At least 3 companies — Deshbandhu from Bangladesh, and two still unnamed companies from Oman and Jordan will be offering superior margins to their investors in lieu of the companies’ equity.