Gulf Trip: Day Five

Kuwait / Dubai

The first meeting was easy, in a way, despite being in a very new place and flying solo (Sunil had stayed behind in the UAE). The robed Kuwaiti I met with ran a US$125 venture capital fund whose sole focus is on Kuwait investment opportunities. Probably in his mid-30s.

He knew was he was talking about, and battles with the same issues that North American VCs wrestle with: valuation expectations of entrepreneurs, limited exit opportunities, few syndicate partners, nascent innovation ecosystem. His specific interests will be of much relevance to the folks back at home: mobile (both apps and value-added services), some software, healthcare, energy services. Many of the same themes as in Dubai. Despite the challenges he faces, about 40% of his private sector-provided capital already committed, which was impressive after just 18 or so months into the fund. His English was flawless, of course, and he could have carried himself well anywhere in the world when it came to the business of venture capital.

On the valuation front, he focused on EBITDA in the mobile VAR-space, for example. Positive EBITDA? That’s something which is foreign to many early stage investors in our time zones. Valuations as a multiple of revenue? Apparently not at this shop. We can learn from this guy.

It was clear when we finished that there may be opportunities for some of our portfolio companies. The cell phone penetration rate is incredibly high in this part of the world, and in many cases cell towers have leapfrogged landline telephones and cable lines. Perhaps an e-commerce angle as well.

The next meeting was with the subsidiary of a large (very, very large) investor. The profile that attracts global banks and investment banks when they are looking for capital to shore up their balance sheets. The kind of institutional investor that has a fortress-like campus and gates to keep out the riff-raff like me; unless you have an appointment. The subsidiary has a deep interest in many verticals that are relevant to venture capital, and they were the right people to see for phase one of a multi-year relationship-building effort.

I had the chance to speak with four of their team members for an hour, and the experience reaffirmed my first session of the day. The guys in Kuwait who care about IT services, medical devices, e-commerce and software (with a particular focus on mobile or healthcare), have done their homework. This group has been capitalized with state funds, and they will play both in direct investments as well as invest in funds around the world, including North America. Of the four who attended, only one wore western clothes; his business card hinted at an engineering degree. The white robe has an attractive element to it, and the different head dress styles and colours speak to the opportunity for individuality. These men are definitely familiar with Canada, although they hadn’t kept up with our country’s ability to weather much of the storm that has brought many financial institutions to their knees over the course of this year.

Technology transfer is certainly part of their mandate, and they enjoy the company-building experience as you’d expect. But financial returns are also critically important.

When they went through a representative list of our Fund III portfolio companies, the senior team member focused on a couple of specific firms that seemed to play in a space he was currently researching. “Send me more”. It was pretty clear that they’d rather not recreate the wheel if they didn’t have to. But the primary goal appeared to be to grow local companies, locally.

The next meeting was with a traditional Fund-of-Fund player. They have fund investments around the world, although none in Canada as near as I could tell. The boardroom had a good collection of tombstones from some of the closings they’d been a part of over the decade, including some well-known U.S. groups such as Oaktree. Close your eyes and you could be in a meeting room in Toronto, Halifax or Calgary.

Founded at the beginning of the decade, the firm raises capital from local institutions and high net worth individuals. Although they’d raised a lot of capital in the early part of the decade, new commitments were becoming less frequent. Sounded a bit like the Canadian venture scene.

They asked all the right questions, and took plenty of notes. Lots in fact. Everyone in the office appeared to be in Western dress, and the senior person was a woman, who held an executive title. The only one I came across during the entire week. Progress, perhaps; my sister would be pleased.

I was then off to our local embassy. On the way there you’ll pass the British Embassy. The walls are maybe 10 feet high, although the guard posts on each of the four corners were empty on that day. At the front gate, there is a solitary Kuwati policeman on guard, with his jeep blocking the way. The WWII-style beachfront tank barriers are a nice touch, but they are spread like Jacks on a carpet. The appearance of security, but nothing more than that.

Kuwait has had a democratic arm for decades, and they are proud of that. About an hour after me meeting at the Embassy, however, the Kuwaiti Government resigned on masse. It seemed as though they didn’t want to suffer from the “grilling” that Members of Parliament had in store. The ruling Emir refused to terminate Parliament itself, haing already done so just last year. Interesting storyline given what Canada was about to go through.

The final meeting of the day took place in the lobby of Le Meridien Tower. Many meetings in the Gulf are held in hotel lobbies, which is something you would never think to arrange in Vancouver, Toronto or Halifax.

I was to meet the Kuwaiti representative of the Gulf Venture Capital Association, and I’m glad I was early. For ten minutes prior to our date, he shows up with not one but two lawyers (male and female) in tow. “Always good to have a lawyer take notes when you are talking business,” he says. He’s probably in his mid-50s, and left the US$264B Kuwait Investment Authority a few years ago to do his own VC/PE thing.

The woman “is Canadian” I’m told. The question of ‘what is an 8-month pregnant Canadian lawyer doing talking notes in a hotel lobby in Kuwait City’ comes to mind, but it need not be asked. She spilled the beans herself. She is actually from Lebanon, although she has cousins in Quebec and Alberta. Her firm is the largest in the MENA region, and they are the right group to work with should anything come to pass.

Soon after, we are joined by a PhD-colleague of my new friend. He towers over me and has movie star looks could have easily have won him a role beside Kirk Douglas in Ben-Hur.

For the next 100 minutes I learn all that I need to know about doing business in Kuwait. All documents should be done under the Islamic Code, any business venture will have to be 51/49 with the local taking the majority stake, that 96% of the adult population of Kuwait ultimately work for the government in some way.

To say that he’s come prepared is an understatement: “I’ve been through your website”, he says. “You’ve been busy. Very impressive.” I can’t help but recall that there are occassions when firms come to pitch us for money, and have themseves not looked at our website prior to the session, yet this businessman in Kuwait has done his homework.

Although he is concerned that there isn’t much of an entrepreneurial community in Kuwait, he is trying to change that. And to professionalize the way investments are made. Everyone, it seems, wants to invest, but always directly. And on a deal-by-deal basis. Hire a manager to run a fund? Why? I’d like to be the manager myself, will be the response.

In terms of opportunity, Kuwaiti businesspeople are excited about the return of some government to Iraq. Over the next few years, he says, “150 million people in this region will need jobs” (I assume he’s referring to the young people of Iraq and Iran). And basic infrastructure. Kuwait is well placed for both, particularly in the south of Iraq. But it’ll have to wait for the Americans to leave.

We agree that there is a chance to work together, and to bring some Canadian firms and technolgies to the city. Maybe even do a JV.

It was a thoroughly wonderful meeting, and one that was put together once we arrived in the Gulf. Amazing that things can be so fluid, which would be unusual in New York or Boston, for example.

Charge off to the airport, but it turns out to be just 20 minutes away. There is a Kuwait-Dubai-Bangkok flight to catch, and arriving early isn’t as important here as back home.

Airport security is interesting. When I walk through the metal detector, the alarm goes off. The guard looks at me, and returns to his conversation with the guard who is staring at the xray machine screen. I’m waved on. Hmmm, I think. At home they think I look like a terrorist. To actually get to the flight, I need to be screened again. Thank God, I think. The inner sanctum is what matters to these folks.

Alas, when the alarm goes off again, he doesn’t reach for the metal detector wand for a second look. I’m free to go. Not comforting.

The flight is full of Thai and Phillipino women, so perhaps the plane isn’t at risk of being commandeered. But still, use the equipment! One assumes that my fellow passengers are taking a break from their Kuwait-based jobs. I later learn that the Bangkok airport was taken over at some point after the Thai Airways Airbus 310 took off from Dubai for the second leg of the journey. Wonder where they landed when they reached Thailand.

For all the fears that Westerners have about unrest in the Middle East, this week it is Southeast Asia and the Subcontinent that will be in focus.

MRM