ANGEL INVESTING AND THE ROLE OF ABAN MENAOECD

ANGEL INVESTING AND THE ROLE OF ABAN MENA-OECD Enterprise Financing Network 20 th – 21 st March 2007 Rabih Khoury Head of MENA Investments – Dubai International Capital www. aban-18. com

Arab Business Angels Network What is Angel Investing? → Angel investment is funding and mentorship provided by private investors, professional investors and money managers to young, rapidly developing companies → Investment is typically in the form of pure equity → Has high potential rewards, although there is much more risk associated than with later stage investments 2

Arab Business Angels Network Some well known companies funded by Angel Investments: 3

Arab Business Angels Network What is required to make successful Angel Investments? → Deal Generation – market awareness of investor’s existence, interest areas and channels to get deals through → Due Diligence – calculation of risk, screening of deals, researching market opportunities, investigating management and track records of entrepreneurs → Determining Valuation – ascribing a value to companies that lack traction, revenues or seasoned management. Subjective process that requires negotiation to structure deals and set terms. Earn-outs are common and capital is deployed on milestones → Entrepreneurship Experience – Ex-entrepreneur that started up with angel funding is desirable as is having a firm grasp of direct private equity investing. 4

Arab Business Angels Network Who are Angel Investors: → Savvy investors who channel a portion of their time and investment portfolio – between 5 and 20% – into the private equity market or alternative asset classes → Angel investors are successful private equity direct investors, pre-IPO investors who are investing their own money → Active participants in the investment process – in the absence of a middleman, typically also provide guidance and expertise to their investee companies → Angel investors are increasingly joining organized groups (Angel Networks) to facilitate and share deal flow generation 5

Arab Business Angels Network What is a Business Angel Network? → A network that brings together entrepreneurs seeking to fund early-stage businesses and investors looking for high-potential seed capital investments → Angel Networks function in the same manner as the investment committees of PE funds → Characterized by a social element and the absence of a middleman → Created to facilitate successful Angel Investing and channel deal flow in investors interest areas → Facilitate collaboration on deals thus spreading the deal risk over multiple investors → Their numbers have grown substantially in the US and Europe in recent years: Region Year US* Europe** MENA 1999 ~100 66 ? 2004 ~200 282 ? Source: *Angel Capital Association & Kauffman Foundation presentation 2004, **EBAN 2004, 6

Arab Business Angels Network Examples of business angels networks in the US and Europe: 7

Arab Business Angels Network Why a regional Business Angel Network? → Current economic environment within the MENA region is supportive for SME development with markedly above-average real GDP growth → Contributes to job creation and economic diversification – high population growth rates, high unemployment rates and a growing concentration of young people in MENA populations Estimated minimum 4 jobs created per angel investment in the US during 2005 (Prof. J Sohl, Centre for Venture Research 2005) → Increasing number of high net worth individuals (HNWI) within the region and growth of liquidity → Growing sophistication of investors and demand for alternative asset classes

Arab Business Angels Network Growth in HNWIs in Middle East Region The Middle East has one of the fastest growing markets of HNWIs globally: HNWI Population by Region, 2002 - 2004 (in Millions) Source: Cap Gemini – Merrill Lynch World Wealth Report 2005). 9

Arab Business Angels Network Growth in Demand for Alternative Asset Classes HNWIs are increasingly looking for investments in alternative asset classes: HNWI Asset Allocations by Investment Class, 2002 - 2004 Source: Cap Gemini – Merrill Lynch World Wealth Report 2005). *Includes: Structured products, hedge funds, managed funds, foreign currency, commodities (including precious metals), private equity and investments of passion (the art & collectibles) **Includes: Direct real estate investments and REITS, which are not common instruments outside the US. 10

ARAB BUSINESS ANGELS NETWORK www. aban-18. com

Arab Business Angels Network What is ABAN? → ABAN is the acronym for the Arab Business Angels Network → ABAN is a non-profit organization, set up to exchange information and channel regional investor appetite in start-up and early-stage companies within the Middle East and North Africa → Based in Dubai, ABAN is building a community of Angel investors in the Arab region and aims to have a network of investors across 18 countries in the Middle East and North Africa (MENA) → The proposed structure and organization of ABAN is modeled after the leading Business Angel Networks in Europe and North America MATCHING ENTREPRENEURS ANGEL INVESTORS

Arab Business Angels Network Who is behind the creation of ABAN? → Conceived by the Young Arab Leaders (YAL) and Dubai Holding during the Clinton initiative in September 2005 → Dubai International Capital (DIC) is the founder and lead angel of ABAN 13

Arab Business Angels Network ABAN’s Mission ABAN is a non-profit organization set up to exchange information and channel regional investor appetite in start-up and early-stage companies within the Middle East and North Africa. WHAT IS ABAN’S MISSION? → Provide a platform to complement the economic development objectives of the Arab world and launch young, dynamic ventures → Support Arab entrepreneurs and encourage the commercialization of promising ideas → Act as a vehicle for the promotion of angel investing in the Arab region

Arab Business Angels Network ABAN membership is extended by invitation to: → Experienced and proven entrepreneurs, CEO's, venture capitalists and business leaders → Active contributors to mentoring, coaching and supporting entrepreneurs that receive investment → HNWIs who are interested in making individual investments in earlystage, privately-held ventures that have the potential for high returns, but may involve the loss of capital 15

Arab Business Angels Network ABAN’s Initiatives to Date → Held in 2006 in conjunction with DIC & YAL ABAN’s founding partners and promoters → Up to US $1 million each to two winning plans Equity funding from DIC 16

Arab Business Angels Network Rationale for the Arab Business Challenge PROMOTION OF ARAB ENTREPENEURSHIP COMMERCIALIZATION OF BUSINESS IDEAS A dynamic entrepreneurial environment is essential in the push for innovation, and the development of the economy as a whole Encourage individuals to turn innovative ideas into operating businesses by providing a funding mechanism PROMOTION OF ANGEL INVESTING IN THE REGION Demonstrating to the sizeable regional investor community the scope for angel investing in the region Challenge INTRODUCING ABAN TO THE ARAB REGION An introduction to Arab investors and entrepreneurs about ABAN and its role and mission in the region

Arab Business Angels Network The Arab Business Challenge - Overview: The Challenge ran for nine months between January and September 2006: Tunisia → PAN-REGIONAL: Morocco Open to the entire MENA region Lebanon Syria Iraq Algeria Libya Jordan Egypt Saudi Arabia → HIGH PROFILE PARTNERS: Organized by leading institutions → PROMOTING ENTREPRENEURSHIP: Targeted young Arabs to submit business plans → PROMOTING ANGEL INVESTING: Simulated investor interest in seed-capital opportunities Sudan Kuwait Bahrain Qatar Yemen Dubai United Arab Emirates Oman

Arab Business Angels Network Arab Business Challenge - Supporting Partners & Sponsors: ORGANISING PARTNERS Dubai International Capital Young Arab Leaders SPONSORS HSBC SHUAA CAPITAL MEDIA PARTNERS Al-Arabiya TV CHALLENGE ADVISORS Mc. Kinsey and Company CHALLENGE ASSESSORS Pricewaterhouse. Coopers UNIVERSITY PARTNERS American University of Dubai Yarmouk University in Jordan Lebanese American University

Arab Business Angels Network Arab Business Challenge – Process and Phases: Pre-launch Mobilization phase Phase I Develop the idea Submissions Assessed 01/2006 Phase III Finals Refine the offering Prepare full business plan 200 Teams Qualify 20 Teams Qualify 11 weeks 4 months 09/2005 Phase II 8 weeks 04/2006 Winners announcement: 5 Teams Qualify 2 Winners 12 weeks 05/2006 3 weeks 08 -2006 09/2006 → Phase I: 933 Teams Registered participants submit 5 page business concept → Phase II: 200 Qualifying Teams Assessment of 5 page business concept identifies 200 teams. Teams in this phase received: - Training workshops – held in 4 centers (Amman, Beirut, Cairo and Dubai) - Panel presentations – filmed by Al-Arabiya TV - Coaching – from YAL members → Phase III: 20 Qualifying Teams Assessment of 15 page business plan identifies 20 teams. Teams eligible for coaching and filmed panel presentation in Dubai → Finals: 5 Qualifying Teams. 2 Winners Announced at Televised Gala Dinner Assessment of complete business plan identifies 5 finalist teams. Teams received further coaching and took part in filmed judging panel in Dubai 20

Arab Business Angels Network Arab Business Challenge Statistics: → 933 Teams registered with all eligible countries represented (both in terms of country of residence and nationalities) → The largest proportion of teams registered from the following 5 countries: Egypt, UAE, Jordan, Lebanon and Saudi Arabia. (Based on team leader country of residence) Top 10 countries of residence for registered teams 21

Arab Business Angels Network Arab Business Challenge – Winners: The two winning teams receive up to $1 million in equity funding from Dubai International Capital: → Palm Paper Egypt Use of annually trimmed, waste leaves from date palm trees to make valuable commodities such as Kraft packaging paper and paper bags with various applications for the Egyptian market Progress to date: → Detailed assessment and valuation completed by DIC → DIC’s evaluation identified a funding requirement of $1. 55 million → Funding structure with earn-out has been agreed by the team and DIC → Legal documentation currently in the process of completion 22

Arab Business Angels Network Arab Business Challenge - Winners (Cont. ) → Ostrich Farm & Slaughterhouse Jordan Provide local slaughterhouse, marketing and export services for growing ostrich meat and leather production in Jordan Progress to date: → Detailed assessment and valuation currently in process → Further evaluation of market entry mechanism and product viability in process 23