Happy New Year, dear Islamic venture capital industry!
Last year was pretty tough for the global venture capital industry — according to PitchBook Research, in just a year the global funding decreased from US$ 531 billion to US$ 345 billion, and the global fundraising dropped from US$ 307 billion to US$ 161 billion. Alternatively, the Islamic VC market grew 64% in 2023 reaching US$ 5.1 billion. Nevertheless, as our research shows, over 82% of investments in Shariah compliant startups are made by conventional financiers, so the trends in the conventional venture capital are worrisome.
The end of the year 2023 saw several key venture capital trends crystallizing, namely:
· The major liquidity infusions by the GCC sovereign wealth funds into new alternative investment vehicles that will funnel cash to Islamic and conventional startups. Malaysia’s MAVCAP and even Singapore’s Temasek are formidable players, but they are no match for the GCC sovereigns in liquidity and determination. With clearly established economic strategies, and set development goals, these giant funds will become reliable funding sources for venture capital providers. Thus, in late December, Lendo, a Shariah compliant debt crowdfunding marketplace in Saudi Arabia has raised SAR 105 million (US$ 28 million) in series B round from Sanabil Investments, a wholly owned entity of the Public Investment Fund.
· A substantial relocation (or brain-drain) of Islamic fintechs from the South East and Central Asia to the GCC. This exodus will be fueled by government-sponsored funds from Saudi Arabia, Qatar, Abu Dhabi and Dubai, aiming to build competitive high-tech non-oil economies in their respective countries. Well, some smart startups will be able to do some serious “investor shopping” by playing off one GCC giant against another. A formerly CIS-based aggrotech AgroBalm is now relocating to the KSA to supply the kingdom with agro-additive “MbS-Balm”(what a great commercial name!) — to help it win the declared food security pledge.
· Intensive search for climate-tech startups. With some industrial and financial giants declaring, perhaps recklessly, to become net-zero by as early as 2030, the costs of accomplishing these goals will have to become secondary to actually fulfilling the pledge. Since effective carbon capture and utilization are still years away, any tech ventures that “manufacture” carbon offsets will be much in demand. And of course, Shariah compliant tech startup XTCC will package these voluntary carbon credits with investment grade Sukuk to make profitable and secured investment instruments.
And now, on a lighter note: a new Islamic startup is looking for Islamic venture capital in… Israel. The startup will offer financing services to religious Jews during the celebration of Pesach (Passover). During Pesach every Jew has to get rid of all “chametz”. Chametz is translated as “leavened” and generally relates to any food product made from wheat, barley or rye that has come into contact with water and been allowed to ferment and “rise.” So, the chametz will be sold to a Muslim-owned company in a Tawarruq-type transaction with a later repurchase.
The spread of Islamic finance becomes truly global.
