A Progressive Perspective: Areije Al Shakar, Fund Manager, Al Waha Fund of Funds The Senior Vice-President and Head of Development Services at Bahrain Development Bank -who is also the Fund Manager at Al Waha Fund of Funds- on how her country's initiatives are enabling not just its own but the region's entrepreneurial ecosystem

"Look what Bahrain did, they were able to build a program that was ultimately able to build the venture capital capacity in Bahrain, and across the region." That's Areije Al Shakar, Senior Vice-President and Head of Development Services at Bahrain Development Bank (BDB) and the Fund Manager at Al Waha Fund of Funds, imagining how people would be talking about her country in ten years' time.

It sounds like an ambitious dream for a country that is often described as the smallest of the GCC economies; however, in recent years, Bahrain's startup ecosystem has benefitted from a number of significant initiatives and reforms as part of the country's Economic Vision 2030 initiated by HRH Prince Salman bin Hamad Al Khalifa, the Crown Prince, Deputy Supreme Commander and Chairman of the Bahrain Economic Development Board (EDB). These include a reduction in the minimum capital required for starting a business, measures to enable onshore crowdfunding in conventional and Sharia-compliant finance, and the introduction of a regulatory sandbox. Nevertheless, until last year, one important part of this puzzle was still missing. "One thing that we always hear, and something that always comes up for startups, is access to funding," Al Shakar tells me during our chat at the Unbound Bahrain event in Manama last March. "The fact is that funding exists in the region, but investors also need to be encouraged to support those opportunities. We come from a region where the traditional asset class is investing into things that are real estate -things that you can touch and feel- but with venture capitalists, it's all about trust and belief, and that whole belief that technology will revolutionize whatever industry you are investing in. Venture capitalists also need that support, they need the ability to breathe. And they need partners."

In June 2018, BDB announced that the Al Waha Fund of Funds had successfully closed its US$100 million fundraising round, making it the first active venture capital fund of funds in the region. The fund's purpose is to provide additional capital to innovative and technologydriven startups in Bahrain and across the Middle East through venture capital funds currently established in Bahrain as well as by attracting new funds to the region. "I think we are lucky because we are small and agile," says Al Shakar, responding to what armed this small Gulf island to fight for an asset class that many investors still fear. "Other countries in the region are doing it as well, but they are larger economies with a lot more stakeholders, so it might take them a little longer. But that doesn't mean they aren't doing it, because right now, we are in discussions to collaborate, as each one of us wants to build the region. If a company in Saudi gets funding and wants to expand into Bahrain, that's a success, regardless of whether it's for Saudi or for Bahrain, it's a success for the region. I always say that Bahrain might be great for one startup, but for another startup, it might be better to be in Saudi, and ultimately, each person will find what they are looking for. What I can say about Bahrain is that we are efficient, fast, agile, we have talent, and, at the same time, we have the ease of living. Because, sometimes, when a startup comes, it's not about just the company, but that they are bringing their whole family over here."

The fund's limited partners include Bahrain's sovereign wealth fund Mumtalakat, National Bank of Bahrain, Batelco Group, Tamkeen, and Bahrain Development Bank, which serves as the general partner managing the fund. "All of us came together, put the $100 million together, because ultimately this is the asset class of the future," Al Shakar reiterates. "Regardless of whether you are the big guys, such as the sovereign wealth fund, or you are the smaller one, like Bahrain Development Bank, the venture world is important. Also, regardless of whether you are tapping into identifying innovation and the next in-class products or services that could disrupt you as an organization or an incumbent, it is ultimately about diversifying your investment pool." The idea has been well tested– decades before Silicon Valley became known as home to the majority of the world's unicorns, the US government had been one of the biggest customers of the research projects carried by Stanford professors and students which, eventually, led to creating ideal economic conditions for technology innovation and business growth and diversification that Silicon Valley is known for today. "Our fund does tap into the emotions of the people, in the sense that Silicon Valley started out with the support of the government. And another beauty of Silicon Valley is that they have a local talent mixed in with foreign talent, so when we get a question here: "Oh, but how are you controlling the competition? How are you protecting the locals?,' I always say that it's not about that, because the best of the best will survive in any type of environment, but it's about creating opportunities [for everyone], and about the fact that in Bahrain, you will always see a Bahraini working in a team with a non-Bahraini [and vice versa]."

Related: Keeping The Momentum: Bahrain's Key Players On What It'll Take To Invigorate The Startup Scene

The formula for this new initiative is simple: the Al Waha Fund of Funds will distribute financing to existing global and regional VC funds, which will further allocate funding to startups. The fund has already allocated 45% of its inaugural $100 million to venture capital firms, namely BECO Capital, Middle East Venture Partners, Wamda Capital, 500 Startups, and European fund manager Finch Capital, and aims to deploy the remaining part within the next couple of years. "So, with this $100 million, we are saying that it's not just us investing into a regional venture capital fund, or funds that have a regional angle -although it is true that we are ultimately trying to build the region- but that we can do much more for them [partners from abroad]," Al Shakar says. "When a venture capital firm comes to a country, not only do they want money (because the truth is that there is money everywhere), but they want tration, which is the EDB, or with creating and coordinating their deal flow, identifying talent, and so on. Also, we can give them business partners. If their portfolio companies are looking to expand in the region, we have the EDB to support them straight off the bat. It's kind of becoming a platform to help venture capitalists fund managers not only to be able to get that fuel, but also to scale them up and help them succeed in building their portfolios."

Al Shakar speaking on a panel at the Unbound Bahrain event in Manama last March.
Source: BDB

Bahrain's open arms position towards startups has been shown through many programs of the Bahrain Development Bank, including Rowad, a program launched in 2015 to offer coaching, training, mentorship, incubation, and funding of up to $66,000 (BHD25,000) through its accelerator for early-stage startups Seed Fuel. SeedFuel currently has seven portfolio companies of which three have received follow on rounds of funding with the support from the BDB Rowad team. Furthermore, Rowad hosts a number of incubators, including the Bahrain Business Incubator Centre (BBIC), Bahrain Women Incubator Center (Riyadat), and the ICT Incubator Rukn.me. Other initiatives the country has enacted include Flat6Labs accelerator program, an initiative of Bahrain's employment fund Tamkeen in partnership with Cairo-headquartered Flat6Labs, or a new national bankruptcy law which was brought in last year, and all of them, Al Shakar says, have given results. There is no reason, she adds, to expect the opposite from the Al Waha Fund of Funds. "What we are seeing already is that people want to do this, meaning that family offices are creating funds which they are calling micro or mini VCs to tap into this asset class," she says. "That didn't exist two years ago. Actually, now people are quitting their jobs and saying: "You know, we want to create our own VC, and come together as brothers and sisters to ultimately start our fund.' What happens next is about the culture- the best VCs will stay alive and they will continue, and they will attract the best deal flow. And there will be other ones who will die off. That's how I see it."

The capital deployed by the Al Waha Fund of Funds will be invested across the board, in startups at a seed, Series A, or Series B funding stage; however, the fund might be open to including some later stage investments in the future as well. Al Shakar adds that their primary target are MENA-based startups, although the VCs supported by the fund are not prevented from exploring the opportunities abroad. "They are the experts, we are not, but what we want them to do for us is to build the venture capital fund capabilities here," she explains. "They will come and spend time here. Some of them are setting up offices here, and they will hire locally. So, it's about building that capacity and way of thinking for those investments, because traditional investing is very different from venture capital investing."

At the same time, Al Shakar is acutely aware of the criticism of the region's nascent startup investment landscape, which local entrepreneurs share on social media quite often, such as the complaints that regional investors are too afraid to say "no,' and keep on endlessly dragging the negotiations with the funds-seeking founders, or that they are still too risk-averse and wait for an anchor investment before committing funds themselves. When asked about these issues, she explains, "Yes, we come from a culture where we don't want to hurt people's feelings, and we don't want to say no to your face, but that is something that will eventually evolve. Today, you will find some venture capital fund managers who will tell you upfront: 'Sorry, this is not what we are looking for.' And we have to look at the positive element coming out of thatthe people who are pitching are actually getting feedback. So then, the startups need to think why the fund is not putting money into them because the ones that are really creating an opportunity will always have investors fight over them. Ultimately, it's how you position yourself." Furthermore, Al Shakar adds that one of the reasons behind rejections often is the fact that venture capitalists are ensuring that they invest in ideas which they are more knowledgeable about and can help develop. "I respect fund managers who say sorry, we can't do it," she says. "And it's not because you are not a good thing, but because I can't help you expand and grow to another market, or I don't have the expertise, as opposed to you getting stuck with an investor who thinks that you are great, but then doesn't open any doors for you. Sometimes that can happen. So, I think, as much as VCs need to do due diligence on the startup, the startup needs to do due diligence on that VC. There are good startups and bad startups, and there will always be good investors and bad investors."

Areije Al Shakar is the Senior Vice-President and Head of Development Services at Bahrain Development Bank (BDB) and the Fund Manager at Al Waha Fund of Funds.
Source: BDB

Although Bahrain acts as the test bed for innovations in all sectors, at the moment, Al Shakar specifically advises fintech startups to consider setting up in the country. The Bahrain Central Bank recently published framework regulations on a range of activities relevant to crypto assets, covering areas from licensing and governance to cyber security. Furthermore, Bahrain Fintech Bay, a public private partnership platform that provides physical space for fintech companies which was established last year, has already registered 36 companies from 15 different countries. "We have two companies which graduated from the regulatory sandbox that were able to influence the regulations," she explains. "In cryptocurrency, there are just few people around the world doing it, but those startups here had such a strong impact because they were able to speak to the head of that department on a dayto- day basis and build a close relationship because the regulators are also on this journey. So, I do think that Bahrain has a strong angle when it comes to the financial services. It's a very competitive and challenging environment because you are up against the incumbents and the bigger financial institutions, but there are huge opportunities in that sector."

Al Shakar has the dreams and ambitions of a generation in her reach, and noting that privilege and responsibility, she says, "My message is that no matter how crazy your idea is, there are so many people that are here, in Bahrain, such as mentors, coaches, and venture capitalists who are opening their doors and hosting office hours in Bahrain for you to come and talk about your idea. So, I encourage you to explore the opportunities that are out there, because we will support you."

Related: Bahrain Development Bank Launches US$100 Million VC Fund