Going The Extra Mile: Mahmoud Almarzouq, Investment Manager, KISP VenturesMahmoud Almarzouq, Investment Manager, KISP Ventures, on how his firm encourages founder-friendly financing terms in order to give MENA entrepreneurs a level playing field
ByTamara Pupic•
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It has been repeated many times that the banking industry struggles with different disruptors, be it with the advent of new technologies, or the experiencefocused millennial generation that demands the highest quality service at breakneck speed. However, there are banks that are agile and proactive enough to not only cope with these changes, but lead the way for others.
Established back in 1977, Kuwait Finance House (KFH) is the country's biggest Sharia-compliant lender –its branch network exceeds 509 branches around the world– and also an example of a banking institution capable of repeatedly reinventing itself to align with changing market demands. For decades, KFH has been one of the main financiers of various megaprojects in Kuwait, mainly in the energy, water, power, infrastructure and construction sectors, with an aim of supporting the National Development Plan and Kuwait Vision 2035. Similarly, the bank did not shy away from implementing new projects internally, mainly by allowing and enabling digital transformation across its business areas. For example, it is the first regional bank to implement robotic process automation systems to support customer loan applications. Another example is that last summer, it went live with an advanced open banking infrastructure, which today serves as a platform for the bank's partnerships with innovative fintech firms from around the world.
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In line with that, KFH has been open to investing in new ventures, for which it set up a dedicated investment arm, KFH Capital, in 2005. Mahmoud Almarzouq, a member of the executive management team at KFH Capital, notes that while KFH Capital had been investing heavily in the US for a while, it was in 2016 that they decided that it was time to open their doors to MENA startups as well. This resulted in KISP Ventures, which is a Sharia-compliant venture capital firm that manages a $US35 million fund to invest in technology companies across the MENA region. "In 2016, we decided to have a MENA fund to support entrepreneurs in the region, which has been picking up lately," Almarzouq says. "It's a fund that focuses only on growth stage, I would say particularly Series A. We are supporting and educating entrepreneurs here in the region, since we have seen a lot of very good technology companies, and being big believers in them, we have started investing."
Sector-wise, KISP Ventures focuses on e-commerce, fintech, AI, logistics, and enterprises in the sharing economy. To date, it has made ten investments. "Our average ticket is $500,000, but sometimes when we find a company that we really like, we do invest smaller amounts, such as $250,000. For example, we have invested in a very good growth stage company, where we only had a chance to invest $250,000. The reason was that the founders had a couple ofgood opportunities from other investors, so we had to split the cake with others. Those are companies that are in the growth stage, and which are not looking for investment that much, but more for strategic partners."
Almarzouq explains that the company's focus on supporting its portfolio companies, rather than only injecting cash into them, is one of the differentiating traits of KISP Ventures. "We don't like the concept of investing in a company just for the sake of making that investment," he says. "We do invest in a company, but we also do our best to handle the business for them, either through KFH Group directly, or through the subsidiaries. 90% of companies in our portfolio either all have synergies amongst themselves, or we bring business to them. It's either that we use their technology in the group directly, or in our subsidiaries." This approach is in line with the fund's philosophy to seek the highest returns for its shareholders. "Fund life is 10 years, but it can be extended," Almarzouq says. "It's hard to determine ROI on an early-stage company, but we do seek higher returns because we want them to do well."
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A typical due diligence process by the KISP Ventures team lasts from one to three months, Almarzouq says. "If we look into a company, and we think that it makes really good synergies within KFG Group, we initiate a proof of concept due diligence," he adds. "That means that we sit with the founder andthe technology team, and we make sure that their product fits well with the group. This is how we make sure that we take the company from one level to another, and that they stay on a really good linear growth stage." Going forward, he sees only one potential threat to regional startups. "The only threat is that big legacy companies could turn around, and fight them back," Almarzouq says. "Startups come into business segments and markets that big legacy companies are not looking at, so the only threat is that they might turn around, and look at those small corners. Usually, they don't have time, but acquire those smaller companies to continue doing that under their umbrella, but it might happen."
In Almarzouq's opinion, the region's startup and VC landscape, Almarzouq says, is developing year by year. "It's not mature enough yet, but it's growing. One of the signs is that we've been seeing a couple of mega investors from Europe and Asia setting up offices here, and looking at regional startups. I would say that ten years from now, we will have a very good VC landscape.
