STC Venture CAPITAL FUND Status Report

Report
Potential Initiatives by Private Sector to Support SMEs
STC Ventures
Dr. Fahad Mushayt
Vice President, Corporate Strategy
STC Group
February 7, 2012
0
Overview
 STC Group Overview
 STC’s Strategic Motivation for a VC fund
 Venture Capital Fund in MENA
 Challenges in MENA and KSA
 Venture Capital Overview
 STC Ventures Fund
 Questions
1
STC Group Overview
2
In a 10 Year Period Saudi Telecom has become the leading and
most profitable telecommunications company in the Middle East
Turkey
Kuwait
Bahrain
Saudi Arabia
Malaysia
India
A Promising Reality...
•Customer Base of more than 160.2
Million Customers
•Revenues Exceeding SR 56 Billions
• A Market Value Exceeding SR 68
Billions
Indonesia
South Africa
3
STC Major Historical Milestones
Milestones
1998
 Transformation of STC to operate on commercial basis under its current name
2002
 Sending 30% of STC shares into IPO
2005
 Launching the new identity of STC (We work together for a brighter future)
 Competitor Mobily launched operations in May 2005
2006
 Launching of STC internal and external expansion strategies.
2007
 Launching of (FORWARD) Strategy
 Expanding the scope of strategic investments to include Malaysia, Indonesia, and India).
 STC won 3rd mobile license in Kuwait
2008
 STC continues to expand its strategic investments including Turkey and
South Africa
 Launching the new identity of STC Group
2009
 STC won 3rd mobile license in Bahrain
 STC implemented changes to the organizational structure
2010
 Launching of (LEAD) Strategy
4
As leader in a world of constant change , we strive to exceed
our customer’s expectations so that , together we reach new
horizons
STC LEAD Strategy
VC Fund
Driver
NextGen
Broadba
nd
Lead in Next-Gen
Broadband
Differentiate through
Integrated Customer
Experience
Become the broadband operator of choice offering
ubiquitous access and innovative content and
applications to all customers
Delight customers with an integrated experience, tailored
and high-quality services, effective marketing and sales,
and next-generation customer service
Consolidate
International Leadership
Optimize international investment portfolio, further
expand in the MENA region, drive products, technology
and supply chain synergies, and build-up international
management capabilities
Invest in People Capital
Invest in leadership and talent development, increase
employee engagement, and build a winning corporate
culture
Drive Financial
Performance and Agility
Provide shareholders with above average returns by
streamlining financial controls and embedding financial
agility that ensures long-term profitable growth
Be recognized as the catalyst for technological, economic
Promote Leading
and social development by effectively communicating
Reputation and Brand strategic objectives and achievements
5
STC’s Strategic Motivation for a VC Fund
6
For STC, VC Fund is not only Investment
 Innovation is important aspect in Lead Strategy
– Large companies typically only see innovation when it is profitable, reaches a “tipping point”, or in
the news
– Seed and early stage VCs see it every day
 Regional Lead
– Fund will provide to STC antenna function to new local and international partnerships to drive its
growth strategy domestically and internationally
 Profitability
– Any venture fund, even in-house corporate venture funds, need to generate returns to be a viable
and long-term addition to corporate strategy
– STC chose to outsource 100% of the fund to an experienced and top-tier fund manager (Iris
Capital Management)
 Economic & Social Contribution to KSA
– Promote entrepreneurship and innovation in KSA and the region
– Support the building of infrastructure and platforms for the knowledge based economy in KSA and
the region
– Attract entrepreneurs and innovators to the KSA and region
7
Since 2010 there has been a surge of regional activity related to
entrepreneurship, VC investment and economic diversity
 Within KSA
– The creation of the BADIR program by KACST and various regional startup
groups (e.g. Riyadh Geeks, Jeddah Geeks, etc.)
– The country has also been establishing all-encompassing technology parks
in the main regions of the country – Jeddah, Riyadh and Dhahran. These
parks are referred to as ‘Techno Valleys’.
– Tuqnia Global Technology Fund
– Various private and corporate VC funds launching
 Across the MENA and Levant regions
– Organizations like Oasis 500 (Jordan) supporting entrepreneurship and
Inovent (Turkey) seeding the innovation pipeline
– Considerable social network activity related to the ecosystem
 Internationally towards the region
– Arabic entrepreneurs studying abroad are starting to seek capital from the
region to come back or to expand into the region
– Top-tier foreign VCs are seeking access to KSA and the region
8
VC Fund Growth in MENA
Number of VC Transaction
in MENA
20
18
16
14
12
10
8
6
4
2
0
VC Fund Raising in MENA
350
300
USD M
250
200
150
100
50
0
2006
2007
2008
2009
2010
2006 2007 2008 2009 2010
Source: Zawya PV, 2011
9
Example of Venture Capital Firms in MENA
Firm
Region
Stage
Investment
Size USM
Sector
STC Ventures
MENA &
International
Seed/Early/
growth
0.1 -7
ICT/TMT
Accelerator
Technology
MENA
Early Stage
0.5M-5M
ICT/TMT
Catalyst PE
MENA
Early Stage
1-7M
Energy and
Technology
Dubai Silicon
Oasis Fund
MENA
Seed & Early 100K-5M
Hi-tech
twofour54 Ibtikar
Abu Dhabi
Seed/Early/
growth
500K-5M
Media and
entertainment
Malaz Capital
MENA
Round B/C
1-2M
TMT
Riyada Enterprise
MENA +
Turky/Pakistan
Growth
0.5-15
Various
Source: Zawya PV, 2011
10
VC Fund Challenges in MENA
11
Specific challenges to KSA ….
 Access to contiguous risk capital funding
– Regional entrepreneurs must have access to risk capital from Seed stage through
to growth stage
– There is currently very little risk capital available at the Seed and early stages
 Mentorship & Coaching
– To become a viable company, KSA entrepreneurs need access to mentorship,
coaching and experienced advisors in building out their companies
 Legal Structure
– Legal/Regulatory need to be improved to stimulate VC Fund investments
 Access to Highly Qualified People
– As good new technology companies grow, sourcing and hiring experienced
technolgy resources will be a challenge
 Access to External Markets
– KSA companies must have access to external and international markets
12
STC Ventures lead a 2010 study that made specific
recommendations to the Council of Ministers to improve the VC
investment environment in KSA
– Overarching goal is to encourage
continued innovation in the Kingdom
of Saudi Arabia
– Offer the Kingdom a modern,
attractive, “marketable”, workable and
efficient legal and tax infrastructure for
the financing of knowledge-based
industries
– Through improvement of
legal/regulatory and tax regimes and
structures that will:
– Stimulate VC and private equity investment
– Facilitate early stage company formation
– In the context of the existing Saudi
Arabian investment infrastructure,
policy and laws
13
Venture Capital Fund Overview
14
Key stages in the innovation life cycle and average VC deal
sizes*
Research
(Invention)
Big Idea
(Innovation)
Prototype
Product
Cashflow+
M&A /IPO
(Entrepreneurship)
(Business Model)
(Management)
(Business Model)
Seed Investors
$250K – $1M
(Founders, Family, Angels, Seed VCs)
Common Shares
Early Stage VC
$2 – $4M
(Series A, Series B)
Preferred Equity
Late Stage VC
$5 – $8M
* Deal size figures will typically be higher for deals in the materials,
energy and cleantech sectors, particularly those involving
extensive R&D facilities and specialized equipment and highly
qualified R&D personnel
(Series C, Series D, etc)
Preferred Equity, Debt
> $10M
Growth, Buyout,
Mezzanine
(Equity, Debt, Bonds, etc)
Image Sources: zcreationszs, pixomar, filomina scalese, simon howden, jennifer renee
15
STC Ventures Focus: seed, early-stage and later-stage deals in
emerging and established innovation ecosystems
Governments and Regional Innovation Ecosystems
Education + Research
University
Post Grad
Research
Private Sector Investors
Seed & Early
Stage
Later Stage
Pre-Seed
Seed
Early Stage
Cashflow +
Technology Transfer Offices
Seed Investors
5-7 years to liquidity
Early Stage VC
IP Commercialization
3-5 years to liquidity
Later Stage VC
1-3 years to
liquidity
16
STC has outsourced fund management to a highly experienced
and connected VC fund manager
Research
(Invention)
Big Idea
(Innovation)
Prototype
Product
Cashflow+
M&A / IPO
(Entrepreneurship)
(Business Model)
(Management)
(Business Model)
Seed Investors
Early Stage VCs
1. Effective Sourcing
2. Effective Due Diligence
– Direct and trusted relations with a
broad range of funding organizations,
investors and professional advisors
– Efficient screening of deal flow and get
to “no” efficiently
– Proactive approach to sourcing deals in
key sectors and regions of interest to
the fund
– Can spot teams that can be helped to
build a good business and those that
can’t
– Maintains a strong advisory network
with direct access to deep domain
expertise
3. Proper Funding
– Structures win-win-win deals
(Founders-Seed Investor-VC) with
alignment of the parties
Later Stage VCs
4. Effective Portfolio
Management
– Rigorous commitment to spending
regular and structured time with
portfolio companies
– Proactive problem resolution skills
– Maintains deep networks for building
out teams, product-market strategies
and business model development
– Good network for follow-on financings
and exits
– Strong co-investment network
17
Fund’s goal is to properly fund portfolio companies and to
actively monitor and mentor their achievement of specific
milestones
Portfolio Development Goals
Seed
Early Stage
Fully-fund to reach each
of these goals:
Management Team
Typically Founder or
Founder +1
Gaps in senior team
Properly staffed team with hiring
plan for next round
Business Strategy
“Napkin or envelope”
Initial business plan
Validated business model &
detailed development plan
Often unprotected IP or
in-licensed IP,
unprotected concepts or
know-how
IP exists and may be
partially protected
Actively managed and protected
IP Strategy
Conceptual or limited
product-market
analysis
Product specification
may exist, incomplete or
unqualified demand
creation assumptions
No customers
Beta customers may
be using a prototype
Technology & IP
Product-Markets
Customers
Product in use with
compelling product-market value
proposition and clear competitive
positioning
Referenceable customers
that validate business model and
its assumptions
18
18
STC Ventures Fund
19
Linking an untapped large market with the proper fund
Large Untapped Market
Critical Hurdles
The Concept
 Limited experienced
entrepreneurs and startup
initiatives
 Link local entrepreneurs with an
international network of
entrepreneurs and ventures
 Limited ecosystem for quality
deal flow
 Start with exclusive access to
incubation and venture initiatives
 Growing $ for
regional/local investment
opportunities
 Limited support platforms for
entrepreneurs and ventures
 Largest technology company in ME
as anchor investor of the fund
 Limited VC industry
 No experienced VC managers
 Strong governments drive
for innovation and
entrepreneurship
 Internationally experienced VC to
manage the fund
 Long time to ROI for young
ventures in region
 Fund will also invest in later stage
deals for faster ROI
 Large consumer market
 Growing ICT/TMT spend
 20% of global exported
investments from GCC
20
The fund's key characteristics
Large investment
pool
 Fund target size of $250M; largest ICT/TMT VC fund in the region. Initial drawdown of $50M
Experienced
fund manager
 Fund managed by a successful and experienced VC focused on ICT/TMT investments with
a proven financial record and multi-regional presence
Viable anchor
investor
 Anchored by STC, a strong leader in the market, with large scale cash positioning and
committing to a large share of the fund (50%)
Industry focus
 Fund is specialized in the ICT/TMT sector which has large current demand and potential growth
in the region
Geographic
coverage
Value-adding
Mix
Contribution to the
Knowledge Based
Economy
of the region
 Fund will invest in KSA, MENA region and internationally
 Fund manager will strategically add value to the fund through:
– Active opportunity sourcing
– Providing expertise to portfolio companies
– Helping companies access MENA market for faster portfolio development and growth
 Fund will promote the knowledge based industry of the region by:
– Promoting entrepreneurship
– Promoting innovation
– Developing the ICT/TMT sector, a pillar in building the KBEs of the region
– Create employment opportunities for skilled and unskilled
21
Questions ?
22
Thank you
Saudi Arabia’s National Companies & Venture Capital
STC Ventures
Dr. Fahad Mushayt
Vice President, Corporate Strategy
Saudi Telecom Company
[email protected]
23
For the first three quarters of 2011, U.S. based VCs invested 20%
more dollars in 3% more deals than the same period in 2010. True
VC investment in MENA is at its earliest stages
Source: PwC MoneyTree Report (Q3 2011)
24
Investment by U.S. VCs by sector. Software at its highest levels
since 2001, followed by biotech. Internet deals declined. In the
MENA and KSA regions, most deals are Internet and softwarebased.
Source: PwC MoneyTree Report (Q3 2011)
25
Investment by U.S. VCs by stage of deal. The MENA and KSA
ecosystems are just beginning to populate angel groups and VC
funds at each stage of growth
Source: PwC MoneyTree Report (Q3 2011)
26
Investments by U.S. VCs by region. Many Silicon Valley and Route 128
entrepreneurs from MENA and KSA are seeking regional co-investors
Source: PwC MoneyTree Report (Q3 2011)
27

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