The birth’ of VC in Arabian Gulf

It took a year to get off the ground, but at the first gathering of the Gulf Venture Capital Association (GVCA) in Bahrain late last month, no fewer than 41 private equity funds were present and either talking about the funds they’ve just raised, were in the midst of raising or that they were planning to raise in the near future (see PE Week, Feb. 27,. 2006).

Readers who have been following my coverage of Asian and Middle East private equity funds, in PE Week or my weekly APEN newswire, will not find this surprising. I have often talked about data that shows that new funds in the Middle East are growing at a faster pace than funds in China or India. After the event of two weeks ago, I can now accurately state that more money is being raised in the first quarter of the year than in China or India, in terms of the dollar amounts, not merely new firms hanging out their PPMs in trial balloons.

I haven’t been gathering empirical data at comparative events, but I’d still bet that the GVCA meeting, at Bahrain’s Ritz Carlton Hotel, set a record for the number of new venture and private equity funds announced in a single day. At least 21 new funds were announced, ranging from $28 million to over $10 billion.

And it’s fair to project that Gulf region funds will raise at least $17 billion by the end of 2006. And if the rate of new fund formation continues across the next three quarters, the figure could pass the total of all new PE funds being raised in Asia (inclusive of China and India).

The Bahrain event was “nothing short of the birth of the VC industry in the Arabian Gulf,” said Abdulazsiz Jazzar, chairman of the Malaz Group, who summed up the conference during the closing session.

The event featured about two-dozen Gucci-shod Westerners, wearing Brooks Brothers’ suits, who worked the crowd to raise money for Western-based VC or PE funds. They were also seeking consulting or professional work, but probably with little success. More than three out of four of the attendees at the event were men from the Gulf region wearing long white, gray or black robes and Gutra (head scarves), which indicates their participation in the Muslim Haj.

And much of the remaining attendees stemmed from the Middle East, North Africa and other Islamic countries.

Notably missing in action was a single mention of any interest in participation in American and European venture funds. The GVCA event was instead about Arab LPs investing in Arab-founded, Arab-run and Arab-operated funds.

By way of example, I picked up a PPM for a New York-based $100 million medical technology fund that had been abandoned by its Arab recipient.

Also missing in action was a decent hotel that didn’t cost $500 per night. Both of my three-star hotels I stayed at were over $200 per night, and neither had hot water.

(Note to self: Walk to Bahrain before taking Gulf Air again. Every Gulf flight on my day of departure was delayed without explanation and without exception. My 10:30 p.m. flight took off some time after 2:30 a.m. Cargo class, which does not possess leg room, was crammed to the gills, I arrived home, grumpy and unable to walk.)

My advice for GPs thinking about rushing to the Gulf to sop up the excess oil money: think again. The LPs I talked with did not ask one, single question about participation in U.S. funds, but they were full of advice on how to make money if you want to work and live in the Middle East.