Venture capital and entrepreneurship have emerged over the last two decades as two of the most powerful economic forces the world has ever experienced. Entrepreneurship helps create innovative enterprises which provide foundations for building a nation’s competitiveness. Enterprise creation needs risk capital. Venture capitalists provide risk capital and facilitate the development of entrepreneurship.
The recent announcement that the Saudi Arabian General Investment Authority (SAGIA) and Intel Capital, Intel’s venture investment program, will create a $100 million venture capital investment company (fund) to invest in technology companies located in, or having a connection to, Saudi Arabia represents a significant milestone toward helping creating sustainable growth, development and competitiveness. Studies indicate that there is a direct link between entrepreneurship and economic growth, and that entrepreneurship has made significant contribution to the growth of many emerging economies, such as Singapore, India and Ireland. The investments of the SAGIA supported fund will focus on early and growth stage companies, emphasizing entrepreneurship and continued growth of the ICT industry in the region.
With the increased attention in venture capital and entrepreneurial finance, come a similar increase in the field of entrepreneurship development and entrepreneurship education. The recent growth and development in programs around the world devoted to entrepreneurship and new-venture creation have been remarkable. According to recent studies, the number of colleges and universities that offer courses related to entrepreneurship has grown from a handful in the 1970s to over 1,600 in 2005. Some of the key questions relating to fostering venture capital in the Middle East are:
• What factors have facilitated or hindered the development of entrepreneurs in the Middle East?
• What role can venture capital play in fostering the growth of entrepreneurship in the Middle East?
• What do entrepreneurs look for from venture capitalists other than capital in the growth of their enterprises?
• Will the establishment of regional venture capital funds in the Middle East create an entrepreneurially led knowledge-based economy?
• Are venture capital skills available in the region to manage such funds?
Studies also indicate that factors responsible for the slow growth of entrepreneurship and the weak innovative spirit in many regions of the world include: The education system, absence of proper incentives and environment to innovate, lack of proactive and favorable government policies, non-availability of risk capital, stage of development of the country’s capital markets, and a country’s mindset favoring comfortable lifestyles and work ethics.
The good news is that SAGIA appears to have taken into consideration the critical success factors for creating a viable venture investment environment, by acting as a liaison to the Saudi Arabian government, and by offering investment facilitation packages to investors, and by committing to working with the fund on an ongoing support basis, and by bringing an international partner with the skill sets that are necessary to run a successful venture capital program.
There are several issues relating to promoting venture capital in the region that deserve serious discussion. One issue relates to the institutional voids, which occur when specialized intermediaries (such as specialized headhunting firms, certification agencies, judicial dispute resolution services or property rights enforcement) are absent. The challenge facing Saudi Arabia in having a viable venture capital industry is to develop a strategy to deal with the institutional voids or the absence of specialized intermediation that make markets work. Country level institutional factors do matter and institutional voids have a significant impact and can affect industry structure, positioning, and sustainability.
Leading universities and business schools around the world have recently been focusing on incubating innovation. Building an innovation culture and economy depends on the cooperation of education leaders with community and business leaders. Universities and business schools do not exist to serve their own ends, or even to ensure that their students move up the career ladder; they are an integral part of the process of innovation itself. All these views point to the dynamic role which universities in the region are now playing in setting the future agenda in the business arena. The key challenge for our universities and business schools is: How best can they help businesses to flourish and grow? The recent strategic planning process that the higher education system is going through at this stage in Saudi Arabia represents an important milestone in the history of higher education. Saudi universities have been playing an important role in helping particular sectors to wrestle with the challenges they face, especially the challenges related to WTO membership, and are expected to play an even more significant role in fostering venture capital, entrepreneurship and the economic transformation of Saudi Arabia.
“We are here to invest in companies that we believe can succeed, companies with both management teams and purpose that we can wholeheartedly embrace, companies that it will be fun to work with as we build and companies of which we will be justly proud when we succeed.” — Mission Statement for J.H. Whitney & Co. in 1946, one of the first formal venture capital firms in the United States.
(Dr. Adnan Soufi is a professor of business administration at King Abdul Aziz University, former dean of its Faculty of Economics and Administration, and currently is on sabbatical at Oxford University, as senior associate member at St. Antony’s College. He can be reached at: [email protected])
