2021: The pool of capital for Shariah compliant tech companies is increasing

Over the years, many Islamic finance practitioners kept appealing for the emergence of Shariah compliant venture capital and private equity funds to support Islamic tech. Largely, it had not happened — the number of active Shariah compliant funds is still under 1% of their conventional equivalents.

On the other hand, we all know the time-proven expression by Dan Xiaoping: “It doesn’t matter whether a cat is black or white, as long as it catches mice”. Rephrasing — it does not matter whether the fund is Shariah compliant or conventional, as long as it promotes the development of the Islamic economy.

Last week witnessed yet another revolutionary equity investment round by ALAMI, the premier Indonesian peer-to-peer lending company, which raised US$17.5 million. And guess what? Just like all previous ALAMI’s rounds, almost all of the funds came from conventional sources.

So, we applaud the growth of the overall private equity market in the first half of 2021 — by 21.9% (data by PWC) and the venture capital market — by whopping 149.9% (data by FactSet Research Systems). The moneys for the good Islamic tech projects are widely available.

This year was significant for the number of new funders for the Islamic tech — Provident Fund (Malaysia), Ethos Invest (UK), Watheeq Financial Services (Saudi Arabia) and Yas Liquidity Fund (US-UAE) — to name a few key players. At least two more players in the GCC are about to make similar announcement in October.

Still, there is a new trend that may prove significant for the Islamic VC markets — the emergence of the “solo VCs” — venture capital funds featuring a single large physical investor. These funds are easier to operate — no General Partners relations officers, no General Partners meetings, etc. And needless to say, the investment policies of such VC funds are largely shaped by their single General Partner’s investment preferences and attitudes.

It is an open secret in Silicon Valley that this group of investors is willing to offer founders better terms and higher prices than the traditional VCs in exchange for a chance to back fast-growing startups. Another advantage of solo VCs: They make deals quicker than regular venture capital firms.

Basu Trivedi provided the definition of the “solo capitalists” as the next evolution from super angels, where the brand of the fund is linked to the individual (there’s no investment team) and the solo GP raises larger, US$50 million+ funds.

The current leading solo VCs include Harry Stebbings, Oren Zeev, Lachy Groom and others. But the idea is now floating around the GCC family offices, so I am confident that we will see some new funds largely backed by the Guld sheikhs and HNWIs with Shariah compliant investment priorities as early as 2022.

Lachy Groom

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A former Medical Doctor turned VC/PE enthusiast

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