Bashar Masri's Siraj Palestine Fund, the first large private equity fund for Palestinian high-tech, has closed $60 million out of the $80 million it intends to raise. In 1994, Masri founded Massar International Ltd., a Ramallah-based holding company that invests in financial, real estate, and consultancy firms.
Investors in Siraj include George Soros's Soros Development Fund, the US federal agency Overseas Private Investment Corporation (OPIC), which has provided half the funding to date, Pension Boards of the United Church of Christ and Crescent Investments LLC of the United Arab Emirates.
Massar is developing the planned Palestinian city of Rawabi, north of Ramallah. The company plans to develop a city with a computer and telecommunications infrastructure that will include high-speed Internet and fiber optics to the home and a commercial center with infrastructures for IT companies.
Masri, a chemical engineer by training, also develops real estate projects in Jordan and Morocco, and tourism projects in Egypt. He achieved global recognition when the World Economic Forum named him a global leader of the future.
The launch of Siraj, with its emphasis on supporting technological change is reflected in its name, "oil lantern" in Arabic. Masri told "Globes" that he chose the name because it harks back to "ancient technology that lit the way, and we believe that it will light our way into the future."
Siraj aims to achieve an annual internal rate of return (IRR) of 15%, which will triple investment over a decade. This is a conservative return, and is unusual for equity funds in emerging markets. Siraj senior manager Huda El Jack said that the low return reflects the fund's commitment to invest in social projects.
Siraj is committed to justifying its investments obtained from more socially ideological funds, such as Soros's fund, which expect lower returns. El Jack nonetheless emphasized, "We are not a charity. We have to balance social needs with the return we promised our investors. A return of 15% seems appropriate."
Siraj plans its final closing in three months. El Jack names a long list of parties interested in investing in the fund, including US financial institutions, Michael Steinhardt, and other private investors. Siraj plans to utilize the high demand from investors to raise more funds in the near future.
Masri earlier said that Siraj's deal flow would include up to 30% of investments in technology companies. Siraj's mandate is to invest in sectors, such as agriculture, logistics, transportation, infrastructures, and health. "In emerging markets, support for technology promotion in companies can drive a company forward," says El Jack. "We believe that helping create this change is relevant in a range of industries."
Siraj also has an Israeli connection. Masri is well known in Israel and cooperated with Israeli venture capital funds after the Olso Accords to establish an Israeli-Palestinian fund in the mid-1990s. El Jack says, "There was interest, and there were talks with Israeli investors. But it seems to us that, in the current climate, we're still not ready for Israeli investors. However, there may be some in other funds."
Siraj had little trouble raising its current fund, Masri told "Globes" a few weeks ago. "There were investors who were not interested at all because the region is politically dangerous, but we mostly approached people whom we knew would be interested. Immediately after I called Soros, he decided to conduct due diligence. We knew that he wanted to invest in the region. Some people want to help build the Palestinian economy."
Now that the fundraising is complete, there remains a question about the number of companies suitable for investment. Masri does not see a problem. "We have a surfeit of requests for investment. There's a huge number of companies to invest in, and I think that the number will only grow in the years ahead." He added that, in the past two years, the business climate in the Palestinian Authority has changed. "We see a substantial deal flow," he says.
El Jack says that the telephones at Siraj's office in Ramallah do not stop ringing.
Siraj is carrying out due diligence in dozens of companies. El Jack says that the first investments will be made within a month. While he does not rule out investing in Israeli companies, any Israeli company seeking investment must have extensive operations in the Palestinian Authority.
Siraj is the second fund investing in Palestinian technology companies that has announced progress in the past few weeks. In early December, Cisco Systems Inc. (Nasdaq: CSCO) announced a $5 million investment in the Middle East Venture Capital Fund (MEVCF), established by Yadin Kaufman and Saed Nashef, as part of financing round of several score million dollars that the fund plans to raise.
Conversations with Siraj managers gives the impression that raising the capital was not especially difficult. This stands in contrast to the difficulties facing Israeli venture capital firms in raising new funds.
"Globes": Nechemia (Chemi) Peres, do you eat your heart out when you see capital flowing to Palestinian fund?
Pitango Venture Capital managing partner Nechemia (Chemi) Peres "Why? I am happy for them. I am pleased that a Palestinian investment fund has been founded and that it has raised capital. This means that there are entrepreneurs seeking money and who now have somewhere to get it. It also means that there are investors who think that there are very good investment opportunities. That's good for them and it's good for us."
Peres sees many similarities between the financing round by Siraj and the beginnings of Israeli venture capital. "I look back 20 years at how we started, and the funds were a lot smaller. Now we have investments that create multibillion-dollar companies."
Peres and Pitango's other partners know Masri well through his investment in Al Bawader, which invest in Israeli-Arab companies and in which Pitango is a partner. Peres says, however, that Pitango will not invest in Siraj. "I think that they found the money in the US, just like us. They don’t need to rely on Israel for this. It's fantastic and testifies to good business capability."
Do you think that there will be a role for Israeli investors in such a fund?
"Not really. Besides, Israeli investors are barely prepared to invest in Israel."
Published by Globes [online], Israel business news - www.globes-online.com - on February 9, 2011
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