Proprietary & Confidential – Not for External Disclosure Page 1 VENTURE CAPITAL IN MENA MARKETS November 2007 MXV CAPITAL © 2007 All rights reserved

Proprietary & Confidential – Not for External Disclosure Page 1

VENTURE CAPITAL IN MENA MARKETSNovember 2007

MXV CAPITAL © 2007 All rights reserved


A Shift in Global Economics

1. Outsourcing in India and manufacturing in China have demonstrated the power of such shifts and the magnitude of its impact globally.

2. We are also beginning to see the effect of almost $100/barrel oil prices from this region…planes….project finance…property

3. The next wave of changes that fundamentally impact business economics globally, will come from emerging markets

4. Over the next decade this will result in a shift in global GDP profile, flow of FDI to and investments in high growth emerging markets, increase in WTO participation by developing nations and impact of their open trade policies will drive these changes

5. Emerging markets will go through tremendous changes and will need to gain sophistication across a variety of sectors, as they connect to the rest of the global economy


MENA IMPACT

• MENA is one of the fastest emerging markets globally, yet lagging significantly in sophistication at both business and consumer levels

• The region has a population of over 400M, yet the GDP is only 1/5th of USA. Some of the underlying factors for this include high unemployment and very fragmented markets, restricting trade and unification across borders

• For MENA to evolve its social and business environments, it will require creation of various Next Generation Businesses (NGBs), that bring sophistication and efficiency through commoditization of new services and products

• Real estate is very much needed, but will not be enough to build a complete socio-economic fabric for the region

We need to layer assets with services


The markets within the GCC in particular are beginning to migrate to global capabilities

• Political and social reforms to develop a more liberal environment

• Governments at various stages of joining WTO and developing FDI friendly economies

• Privatization of state assets and restructuring of companies occurring as competition increases

A fundamental shift in the mindset…

Tremendous surplus and liquidity

Leading to large scale investments in…

• Commercial and residential infrastructure

• Expansion of hydrocarbon production capacities

• Development of tourism industry

• Expansion of airline and shipping industries

• R&D and education initiatives

• Regional governments are projected to have a current account surplus in the range of $337 Billion in 2006 as a result of the recent oil boom

• Repatriation of capital from US alone to the region over the past few years has been in the range of $300 Billion

Key Reforms Affecting Private Sector

Increasing…• Investors in capital markets• Consumers of new services• Mobiles & Internet users• Inter-regional travel & leisure• Users of information• Small businesses• Awareness of global issues• Competition• Consumer sophistication• Expatriates & resident multi-

national enterprises

Capital Market Reforms: International standard regulations, liberalizations, new instruments

Knowledge Based Initiatives: Emphasis on education, training, research, Centres of Excellence

Financial Sector Development: Entry of top global banks, insurance and investment companies

Clusters of diverse industries being developed: Energy City, Internet City, Media City, QSTP, Economic City, QFC, DIFC, Industrial Free Zones


In the venture capital arena, there is a gap that exists in MENA markets compared to the global markets’ venture capital business model norm…

Availability of investors for this asset class: Investors that are willing to participate in the PE/VC asset class with a long-medium term (3-7 year) return perspective with IRR of 30%

Skills to manage the VC value chain exists: Sophisticated skills for raising funds, identifying and selecting deals, managing growth of new companies and finding high value exit routes exist

Strong flow of ideas & entrepreneurs exists: Continual flow of entrepreneurs with innovative ideas and deep understanding of markets, risks and rewards

Scalable and homogenous market structure: Large, homogenous market and infrastructure to scale immediately exists (laws, channels, connected audience from marketing perspective)

Profitable exit markets: Sophisticated capital markets for IPOs and/or exit market opportunities for acquisitions exist

Competitive markets and businesses: Sophisticated businesses in competitive markets that are willing and need to improve performance continually through innovation

Global Early Stage PE Model

Traditionally MENA markets lacked such investors as they have not seen such models work and hence were not convinced of returns.

VC skills to manage the entire value chain were not particularly strong as it is not a widely practised business/model and few could operate this asset class

Quality and quantity of deals available for such investments are low (hence it is hard to balance risk/reward equation). Markets not as well established for adoption

Markets tend to be more fragmented/disjointed and unsophisticated, cost of scaling is significant due to inefficient channels

Exit markets were not very readily available (M&A and trade sale) and capital markets were not very sophisticated. Lack of firms w/ global footprint in the region

Due to governance, market dynamics, ownership structure,

lack of transparency, businesses didn’t feel the urge to be as innovative, competitive or open to adopting change

Historical MENA issues


…but this gap Is slowly being reduced

Availability of investors for this asset class: Investors that are willing to participate in the PE/VC asset class with a long-medium term (3-7 year) return perspective with IRR of 30%

Skills to manage the VC value chain exists: Sophisticated skills for raising funds, identifying and selecting deals, managing growth of new companies and finding high value exit routes exist

Strong flow of ideas & entrepreneurs exists: Continual flow of entrepreneurs with innovative ideas and deep understanding of markets, risks and rewards

Scalable and homogenous market structure: Large, homogenous market and infrastructure to scale immediately exists (laws, channels, connected audience from marketing perspective)

Profitable exit markets: Sophisticated capital markets for IPOs and/or exit market opportunities for acquisitions exist

Competitive markets and businesses: Sophisticated businesses in competitive markets that are willing and need to improve performance continually through innovation

Global Early Stage PE Model

Traditionally MENA markets lacked such investors as they have not seen such models work and hence were not convinced of returns.

VC skills to manage the entire value chain were not particularly strong as it is not a widely practised business/model and few could operate this asset class

Quality and quantity of deals available for such investments are low (hence it is hard to balance risk/reward equation). Markets not as well established for adoption

Markets tend to be more fragmented/disjointed and unsophisticated, cost of scaling is significant due to inefficient channels

Exit markets were not very readily available (M&A and trade sale) and capital markets were not very sophisticated. Lack of firms w/ global footprint in the region

Due to governance, market dynamics, ownership structure, lack of transparency, businesses didn’t feel the urge to be as innovative, competitive or open to adopting change

Historical MENA issuesInvestors are seeking alternative investment vehicles and are becoming more sophisticated with venture finance

A new breed of PE firms are being formed in MENA that target early stage ventures and have the skills to identify and develop next generation enterprises for the region

Quality deals still lack in volume, but regional talent from US/EU market is beginning to return to MENA and catalyze the development of new businesses

While fragmentation is still an issue, early stage interregional cooperation has set the stage for new market wide solutions

Exit options are building within MENA’s regional capital markets and from international/regional players looking to enter MENA’s new market frontiers

Markets are becoming competitive and international standards are being adopted across the region; this has led to the market requiring higher standards of sophistication and quality in services and products

Shift in MENA VC Market…


MENA’s VC sector is beginning to show an additional focus on investments in early stage, sophistication-driven services…but pure play VC firms may still be a few years away

Stage: Early Stage

Scale: MENA Region

MENA PE shift over the next 24

months

MENA PE shift over the next 24

months

• The projected trend over the next 12 months is for a significant increase in investment and development of early stage businesses.

• This is being driven by the natural continued evolution of regional economies on the path to self sufficiency beyond energy asset dependence.

• These investments will create a foundation of new businesses for the late stage and buyout markets downstream

• PE/VC funding will focus on business and consumer services, product manufacturing and distribution, where current latent market demand is most significant

• This focus shift has historically been typical in emerging markets, and MENA’s economic progression is continuing accordingly

Type: Services & Products

• New businesses will increasingly be built to target the full MENA regional market opportunity as opposed to a single or small group of nation(s).

• This scale shift is resulting from the creative use of IT/eBusiness – enabling the improvement of information transparency and sophisticated but inexpensive new market channels

Up until now, the Private Equity market in MENA has been focused on investments in capital intensive, asset based sectors, such as infrastructure, energy, property & real estate.

With the foundation of these base asset building blocks now in place, the market is now turning its attention the next logical phase of opportunities for development. In response, investment focus has begun to shift to creating a new era of regional level services and products.


What will the VC business model need to take into account…

1. Lack of entrepreneurs in early stage, next generation services businesses

2. Market fragmentation; There are over 15 countries in MENA, hence it is very difficult to scale seamlessly. Legal, operational, cost, HR issues…

3. Several new businesses in MENA are not necessarily innovative at a global level. These businesses tend to be more “catch up” with global markets as opposed to containing the risk of a true innovative offering


Our approach is to extend the traditional PE cycle by proactively identifying and catalyzing new initiatives

1) Maintaining relationships with investors

2) Reviewing proposed investments, and overseeing those that are selected

3) Managing the exit of investments

4) Identifying and catalyzing new initiatives–Proactively identifying and planning high impact

opportunities for MENA with proven business models– Identifying and recruiting standout leadership from

international and regional markets– Identifying and evaluating strategic process and

infrastructure partners to lower costs, accelerate development and mitigate risk

–Operationalizing new ventures from an optimal legal and physical foundation perspective

–Assisting initiative leadership in initiative ramp-up with our deep regional and international know how and relationships

–After a transition, stepping aside effectively to board review positions, enabling leadership to exercise their ownership of end results and find their own optimal approaches for success

Traditional GP PE RolesAdditional Role

+


Some of the interesting areas where we are focusing to develop next generation services & products enterprises for MENA

Key sectors for early

stage enterprises

in MENA

Information Enabling Tech &

Services

HumanResourcesServices

SophisticatedFinancialServices

Travel, Lifestyle &

Media Services

IndustrialServices

AdvancedEducationServices

BusinessProcess

Efficiencies


Key aim is to bring….

Sophistication

Efficiency

Enablement

…to MENA markets

Documents

Proprietary & Confidential – Not for External Disclosure Page 1 VENTURE CAPITAL IN MENA MARKETS November 2007 MXV CAPITAL © 2007 All rights reserved