Conventional funds — the best sources of Islamic venture capital

Does it sound like an oxymoron? Well, in reality, it may but it is not. The industry of Shariah compliant tech is growing by double digits, while Islamic venture capital firms are still trying to find their way. So, the development money funnel has to turn to conventional funding sources… to promote well-being of the global Ummah.

The prime example of such symbiotic financing relationship is Indonesian fintech Hijra (formerly known as ALAMI). The company tapped financial markets seven or eight times already, and almost every single investor was a conventional venture capital fund. This time the Islamic fintech company raised an impressive $15 million from Intudo, East Ventures, AC Ventures, Quona Capital and Golden Gate Ventures.

Dima Djani, the founder of ALAMI

There are many other similar examples of Islamic startups receiving non-Islamic investments — from online investing platform Wahed to Islamic charitytech Payzakat.

Listed below are some key reasons why Shariah compliant businesses and conventional venture capital funds make a good fit:

I. The engaging features of conventional investments funds:

· There are just too many of them, and they have plenty of “dry powder”. The global venture capital market size reached US$233.9 billion in 2022 and is expected to reach US$708.6 billion by 2028. The Islamic venture capital market represent less than 2% of that amount;

· Many VC companies possess formidable track record. Having invested for years, many conventional funds developed sets of skills and experienced professional teams which are able to spot the winners;

· With dozens of investees, the large VC firms often offer corporate governance and mentorship services to the “newly-invested” entities. Many tech companies are built around a single concept and often lack skills in marketing, accounting and general management;

Art of Mentorship

· The life cycle of a startup investor involves joining in “on the cheap”, and exiting for “mounts of cash”. Experienced investors often have many years of industry experience and help properly mold a young company toward secure and prosperous future with multiple exit opportunities;

· Due to the inherent high risk business profile, most conventional venture capital firms carry no Haram features, especially riba-based debt.

II. The pulchritudinous features of Shariah compliant tech companies:

· Shariah compliant companies often operate in less competitive environments with a limited number of similar startups, such increasing their chance for survival and effective development;

· Many industries in Halal segment of business are technologically underserved, thus providing significant opportunities for early entrants;

· Shariah compliant charitytech, takafultech, remittance and crowdfunding businesses provide venture financiers with unique opportunities to diversify their portfolios;

Some of this data will presented by the author in KL

· Irrespective of their primary intentions, funders of Shariah compliant businesses that benefit Ummah, get to earn advantages in the afterlife.

From MAVCAP in Malaysia to Andreessen Horowitz in the US, the universe of conventional finance is awaiting successful Shariah compliant startups. Gobi Partners from China is already one of the largest investors in Islamic tech in the South East Asia.

And now Malaysia’s public service retirement fund Kumpulan Persaraan (KWAP) just launched a MYR 500 million vehicle to invest in startups and venture capital funds.