Qatar Development Bank launches QR365mn equity fund for SMEs

Qatar Development Bank (QDB) has launched yesterday the QR365mn ‘SME Equity Fund’ aimed at providing capital growth to owners of innovative startup companies and small and medium-sized enterprises (SMEs).
QDB chief executive officer Abdulaziz bin Nasser al-Khalifa said the SME Equity Fund aims to support economic diversification by providing growth capital to Qatari entrepreneurs.
Describing it as the “first of its kind” and the largest at QR365mn, al-Khalifa said the SME Equity Fund, the first product under QDB’s “Istithmar” investment offering, will deploy investments for startups and SMEs “to support value creation.”
“The bank aims to support a successful transition towards the country’s overall economic diversification. This initiative is an unprecedented milestone for entrepreneurs to receive equity investments and is in line with QDB’s long-term support offerings designed to drive forward existing Qatari entrepreneurs and SMEs’ potential success and growth,” al-Khalifa explained.
The bank’s chief executive also said the SME Equity Fund gives QDB a less than 50% stake in the business by having a seat on its board of directors, which “puts value and support in the company.”
“The bank will not in any way interfere with how the owner will run the business but having a position in the board will help steer and guide the company, provide advice on critical decisions, and enable close co-operation with the entrepreneur,” al-Khalifa said.
Speaking to Gulf Times, QDB executive director on Investment Mohamed al-Khater said 20% of the QR365mn equity fund is allocated for innovative startups and 80% for SMEs.
He said the ticket size for startups ranges from QR1.5mn to QR7mn, and QR3.5 to QR18mn for SMEs, “although exceptions will be reviewed on a case-by–case basis.”
According to al-Khater, the fund is open to a wide scope of industries and follows a “sector-agnostic approach” that is focused on supporting viable businesses with preference for strategic sectors (except construction, contracting, and trade).
With a fund term of eight to 10 years (five years for deployment and three to five years holding period), al-Khater further explained that the SME Equity Fund has a “unique” equity buy-back option.
“During the investment transaction phase, the SME Equity Fund and the candidate company owners may agree on a share repurchase option (SRO) to be included as part of the investment documentation such as the Share Purchase Agreement (SPA),” he said.
He said the SRO allows the owners to buy back the shares owned by the SME Equity Fund at the time of the fund’s exit “at a pre-determined and agreed upon discount from the fair market value (FMV) of the company.”
“The other types or mechanisms of clearance during exit phase involves selling the shares to strategic buyers such as other companies or banks, or put the shares in the stock market,” al-Khater said.