Zebras versus unicorns
The case for impact investing
By Samer Choucair
Illustration by Margaret Riegel
Fostering innovation and entrepreneurialism is a top priority across the MENA region, and the UAE has been at the forefront of this quest. It appears to be bearing fruit, with the region now reportedly home to the highest proportion of millennial entrepreneurs in the world. It boasts a growing number of global success stories and promising start-ups from farther afield increasingly look to the region as an attractive source of venture capital.
Societal consciousness is stirring, driving investors to do more than merely seek to grow company valuations and find the mythical “unicorn” whose valuation will hit $1 billion. What is the social impact of a business and what is its purpose, aside from performance and profitability?
Unlike the unicorn, “zebras” embrace a duality, simultaneously profitable and charitable. Zebra companies are both black and white in that they hold making money and helping to solve societal problems in equal regard.
While the Middle East and North Africa region hardly lacks in societal challenges, it does lag in the impact investment market. Worldwide, impact investment assets amount to $502 billion, according to the Global Impact Investing Network. However, just 2% of assets are allocated to the MENA region, with less than 1% of investment organisations headquartered in the region.
In a UBS study last year, three quarters of UAE investors said they believed sustainable investment would become standard within 10 years—the highest of all countries surveyed.
Regionally, Crescent Enterprises, a UAE-based multinational, puts a long-term focus on capital generation, sustainability and social impact, with a five-step evaluation process for new investments that includes environmental, social and governance criteria. The longevity of any business depends on business strategies that deliver long-term social equity.
Since 2015, CE-Creates, the business incubation platform of Crescent Enterprises, has been developing early-stage concepts which can deliver sustainable social impact. They focus on meeting real needs. They also have the potential to scale and grow beyond the region.
ION is a sustainable transport joint venture between CE-Creates and Bee’ah, an environmental management company. ION has deployed fleets of electric vehicles to complement the transport network across the MENA region and to eventually include autonomous transport. Hubs across the UAE is only the beginning of a journey to provide sustainable transport solutions, helping to shape policies that will accelerate the adoption of electric vehicles.
CE-Creates has also recently launched Shamal, which uses the latest fabric technology to make garments for construction, municipal and other outdoor workers who are exposed to ourregion’s extreme summer temperatures.
Crescent Enterprises is also focused on impact entrepreneurship through its corporate venture capital platform, CE-Ventures, which launched in 2017. CE-Ventures aims to invest $150 million in high-impact start-ups globally by 2020.
CE-Ventures is also committed to making 50% of its investments within MENA, helping to address key challenges the region faces. One of the most urgent issues here is getting consistent levels of healthcare: CE-Ventures supports Vezeeta.com, a digital booking platform that lets patients access a wide range of health services. Other key investments include ColubrisMX, a state-of-the-art, minimally invasive, micro-surgical robotic device, and XCath, a next- generation steerable robotic micro catheter.
While not every zebra company will reach a $1 billion valuation, these businesses all have the potential to make a significant impact on perhaps the most important measure of all—the effect on peoples’ lives. What the zebras deliver is priceless.
Fostering innovation and entrepreneurialism is a top priority across the MENA region, and the UAE has been at the forefront of this quest. It appears to be bearing fruit, with the region now reportedly home to the highest proportion of millennial entrepreneurs in the world. It boasts a growing number of global success stories and promising start-ups from farther afield increasingly look to the region as an attractive source of venture capital.
It is no surprise then that some of the Gulf’s biggest companies, including family owned businesses and government-owned investment firms, are seeking to tap this burgeoning ecosystem with corporate venture capital, or CVC, investing. Many global corporations such as Royal Dutch Shell, Novartis and GE operate active CVC arms for the same reasons. In fact, 75 of the Fortune 100 companies are active players in the corporate venturing space today.
Going back to basics, venture capital investing generally refers to an investor providing funding to support the growth of a start-up or early stage venture in exchange for an equity stake in the business. Corporate venture capital is a similar concept, but the investor is a well-established business, investing in smaller ventures with a view to generating a return, while also gaining a strategic advantage in sectors that it has an interest in.
This strategic component is perhaps the biggest difference between these two models. While a traditional venture capital fund will often have a number of limited partners providing capital to be invested, CVC divisions are usually supported exclusively by their parent company. That’s why CVC investors generally target start-ups that have natural synergies with the industries that their parent company operates in. It’s also why, when they do make an investment, they tend to play a more active role in the oversight of their portfolio companies than a regular venture investor might.
That’s certainly how we have approached this space at Crescent Enterprises, since we launched CE-Ventures in 2017. We have consistently looked to invest in innovative ventures that can help us embed new technology into our existing businesses and industry sectors, such as ports and logistics, energy, and healthcare, while also scanning the horizon for tech-enabled start-ups with the potential to disrupt traditional business models. Today, CE-Ventures is on track to invest US$150 million in high-impact start-ups globally by 2020.
What’s in it for us is clear. The companies we invest in don’t just gain financial capital but also the support and credibility that comes with the backing of an established strategic investor. They can benefit from the knowledge and expertise of our people, and from exposure to our global network of partners and suppliers. Through our operating platform, CE-Operates, we provide tactical and strategic guidance to our venture portfolio businesses. We can also leverage the knowledge and experience of our private equity investment platform, CE-Invests, to help founders put in place best-practice corporate governance frameworks and structure their businesses for sustainable growth.
Perhaps most importantly, by teaming up with an investor that is frequently looking to deploy new tech-based solutions in the field, start-ups get the opportunity to test their ideas in real-world, real-time environments. This generates invaluable insights and experience for start-ups, helping them to identify additional market opportunities early on in their growth journeys.
There is no one-size-fits-all approach to developing a successful start-up or investing in one. When done right, CVC investments enable promising start-ups to scale up more quickly with the support of an established company that is eager to put new technology and solutions into practice. For a UAE-based, diversified business such as Crescent Enterprises, CVC investing is a mutually beneficial way to bring promising talent, new ideas and viable businesses into our ecosystem, with a view to generating financial returns alongside organisational agility and resilience.
Samer Choucair is director of CE-Creates.
