ALKHOBAR, 13 November 2007 — With much fanfare, two years ago, two announcements were made involving Intel Capital, Intel Corporation’s venture investment program. Many analysts thought these announcements would have a major effect on the development of the information and communications technology (ICT) sector in the Middle East.
Arab News discovered this week that those programs are dismal failures and despite evidence to the contrary, Intel has placed the blame on others for the supposed difficulties it has found in investing in the ICT sector in the region.
In that first November 2005 announcement, the Saudi Arabian General Investment Authority (SAGIA) and Intel Capital, put forward plans to establish an independent $100 million venture capital firm to invest in technology companies either located in or with a connection to Saudi Arabia. The new firm was supposed to focus on emerging technology companies that were developing innovative value-added services and software as well as using new business models. Intel was to serve as a consultant to the new firm and was to have the option of co-investing in all of its investments. SAGIA played a central role in helping establish the new firm’s focus and was to act as a liaison with the Saudi government for foreign investors. Neither Intel nor SAGIA was to invest directly in the firm.
This week an Intel executive revealed that since the anchor investor dropped out for the venture capital firm, no other major investor has been found to take its place. So essentially the plans for the venture capital firm are in limbo and no disbursements of the theoretical $100 million have been made.
Additionally, back in November 2005, Intel Chairman Craig Barrett stated that Intel would establish a $50 million venture capital fund to invest in technology companies developing innovative hardware, software and services in the region covering the Middle East and Turkey.
At that time, Arvind Sodhani, president of Intel Capital, advised: “The $50 million Intel Capital Middle East and Turkey Fund will help stimulate technological innovation and the continued growth of the IT industry in this emerging region. We will invest in companies to accelerate technology adoption locally and foster development of unique and innovative technologies and content with potential for regional distribution.”
What has Intel Capital done with that $50 million? Not much.
According to Feroz Sanaulla, director, Intel Capital, Middle East, Turkey and Africa, in May 2006, Intel Capital announced an investment in Orascom Telecom WiMAX Limited, a joint venture with Orascom Telecom of Egypt. The exact funding was not disclosed. Intel Capital also invested $500,000 in Berytech in Lebanon.
That’s it. Those are the only investments the company has made from the fund in two years.
What does Intel intend to do with the $50 million fund for the future?
“Intel Capital will continue to assess prospective investments on their potential for strategic and financial success and may adjust its investment amounts accordingly. Intel Capital looks for lucrative opportunities to make prudent business decisions for its shareholders. The criteria for investment are complex and include the need for a sound business plan, minimum turnover, disruptive technologies and a demonstration of traction,” said Sanaulla. “Intel Capital continues to meet with companies in the region and to look for investment opportunities.”
That the investments involving Intel are going nowhere has been clear for a while. Back in April, Dr. Barrett blamed the situation on a lack of entrepreneurship in the Middle East. Barrett advised that Intel planned to switch its focus to “incubator” style projects to help develop business ideas. So far there has been no movement on such a strategy.
When a major international figure criticizes the “lack of entrepreneurship” in the region, that’s something to take seriously. So Arab News set out to find a company that would be worthy of Intel’s investment and there in Riyadh we discovered a great one.
The company is a Saudi IT company that has a long history of profitability, runs all its internal systems paperless, services the financial sector, has created its own intellectual property and local content, and due to its excellent international reputation has more offers for projects than it has staff to manage them. Seemed like a perfect investment opportunity for Intel Capital — but it wasn’t.
It was actually shocking when after a week of chasing Intel Capital’s investment executive by phone from Turkey to Dubai to the UK, the company was turned down for one reason. The CEO was told to come back next year, once the company had doubled its revenue. The executive from Intel Capital told the Saudi firm’s CEO that a turnover of about $10 million was preferred before Intel Capital would consider investment. Intel has now denied that the $10 million turnover is a criteria for investment, but the Saudi IT company’s CEO is holding to his account of the conversation. The bottom line is that “small” ICT companies in the region don’t have turnover of $10 million.
In the past there have been games played by companies who claim to be interested in Saudization. These firms will advertise for staff, putting forward conditions that in the end no Saudi could meet or accept. Hard as it is to believe, it seems that venture capital investment can be played with in the same way as nationalization initiatives. The losers — the small companies in the Middle East who should not expect venture capital support from Intel.
(Comments to: [email protected].)
