Affinis Labs’ $250mln Islamic tech fund bides its time, planning accelerators in Kuala Lumpur, Silicon Valley

| 13 April, 2017
 Leighton Cosseboom
Affinis Labs’ $250mln Islamic tech fund bides its time, planning accelerators in Kuala Lumpur, Silicon Valley

Six months after its launch, the venture fund for early stage tech start-ups in the global Islamic economy has yet to place a bet. Instead, organizers say it’s waiting until summer of 2017 to start making 45 investments per year in seed and growth-stage companies.

In October of 2016, Virginia, U.S.-based Affinis Labs announced a $250 million investment fund for seed stage tech start-ups operating in the global Islamic economy. However, six months later, it seems the fund is still biding its time, waiting for the right moment to strike with its first investment.

The plan and war chest were revealed by Affinis Labs’ chief technology officer (CTO) Shahed Amanullah, who stated that the fund was also brought to life by Malaysia Venture Capital Management Berhad (MAVCAP) and managed by Silicon Valley-based Elixir Capital. Amanullah claimed the fund would provide an “end-to-end ecosystem” for Islamic start-ups. Today, he stays on point.

“Global Muslim communities have pools of entrepreneurial talent, capital, and markets that have not been effectively harnessed, and by putting together a global ecosystem that connects far-flung entrepreneurs within this demographic, we can offer a concrete example of Muslim creativity and passion,” Amanullah told Salaam Gateway.

Elixir Capital’s co-founder and managing director Abrar Hussain is responsible for managing Affinis Labs’ tech investments. This means Hussain hands out series A-round ticket sizes of between $1 million and $5 million, working out of Elixir’s offices in Palo Alto and Kuala Lumpur.

“A normal seed round is expected to be $150,000, depending on the specifics of the company’s business model and growth needs, in return for 7 to 8 percent of the company,” he explained. In other words, this means Affinis Labs aims to assign each of its seed stage portfolio companies an approximate valuation of somewhere between $1.5 million and $2 million – barring unusual circumstances.

“We plan to start deploying funds by the end of this summer, in sha Allah,” said Hussain. “One of the reasons we announced the fund in October was to prepare the entrepreneur environment for what we have planned. This means establishing our global entrepreneur networks from which we pull companies, establishing relationships with existing regional accelerators that we can link with our graduate accelerators, and getting other funds to co-invest with us.”

According to Hussain, Affinis Labs is looking to back companies that are poised to meet “aggressive growth targets.” He added that while the fund doesn’t want to limit the spaces in which it throws down money, Affinis Labs is looking at a range of verticals, including fintech, e-commerce, waste management, food and travel, logistics, education, healthcare, and others.

Amanullah said the fund will have a life cycle of approximately eight years. This means it will make 40 seed stage investments and five growth stage deals per year until the fund’s capital is fully deployed.

ELIXIR

Regarding the kinds of companies Affinis Labs wants to back, Hussain added: “While we haven’t deployed money from our current fund, Elixir’s previous fund has some excellent examples of types of companies we want to target. For example, Binting Makhmur Prima, an Indonesian plastic recycling company, was founded by a husband and wife team in Surakarta, Indonesia. They came from a poor background and had to drop out of school to support their family. By necessity, they started by collecting trash plastic and, over time, slowly built up the company to just over $1 million in revenue over 13 years. With Elixir’s commitment of $4.5 million, they were able to increase their revenue to over $15 million in 18 months. The company now employs over 1,200 people, 90 percent of whom are women, and has changed the basic perception of entrepreneurship in the city.”

Despite managing Affinis Labs’ early-stage fund, Elixir Capital actually brands itself as a private equity fund manager with offices in San Francisco, Kuala Lumpur, and Jakarta. The difference between venture capital and private equity is nuanced to those who are not familiar with the investment game. But essentially, it boils down to stage and scale.

Typically, private equity players don’t get involved until companies are more mature, when valuations are worth tens or hundreds of millions of dollars. In this respect, it is unique to see a self-proclaimed “private equity” player like Elixir getting in on seed and series A plays.

But Elixir also does not limit itself to Islamic start-ups. Back in 2014, the firm set up a $150 million fund targeting Southeast Asia’s tech start-ups in general. The fund is called Straits Fund I. In January of 2016, Elixir invested $1.4 million in a series A round for Malaysia-based truck booking website TheLorry.com.

One of the firm’s larger early stage investments was a $7 million series A bet back in 2014 on Colorado-based agriculture intelligence software aWhere.

MAVCAP

Meanwhile, as Affinis Labs waits for the right time to pounce, MAVCAP is on the move. Earlier this month, the government-owned VC – once again in partnership with Elixir – announced a $50 million first close for two of its new startup-focused funds that will launch in 2017. They are called the ASEAN Growth Fund (Meranti Fund) and the Global Islamic Economy Fund. The combined size of the two investment entities will be about $450 million, executives told the media.

Most recently, on April 13, Muslimmarket, an Indonesia-based e-marketplace for Muslims, closed a series A round of funding that brought its valuation to $10 million. US-based VC 500 Startups and multiple undisclosed investors participated in the round. With these in mind, it seems Islamic tech start-ups around the world with traction will have little trouble finding the money they need this year.

ACCELERATORS

But beyond just writing checks and collecting equity, according to Amanullah, Affinis Labs’ fund managers are planning to launch two accelerators to help its seed stage companies prepare for robust short-term growth. Usually, tech accelerator programs provide fledgling founders with money, mentorship, resources, network capital and more to help their ventures hit a growth inflection point.

Affinis Labs’ accelerator for emerging markets will be based in Kuala Lumpur while the “Western-focused or technology-heavy” companies will be based in Silicon Valley. Each accelerator is slated to process up to 20 companies per year, said Amanullah.

Hussain added, “Ideally, we’re looking for a large exit, but if we can manage 10 times growth regardless of size, we’ll aim for that, particularly in emerging markets where scaling to large sizes is difficult.”

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