PALESTINE AS A START-UP
Opportunities for Investing in Small and Medium
Sized Businesses in the West Bank and Gaza
The University of Michigan Business School (UMBS)
Introduction
This presentation will highlight a new investment vehicle for the West Bank and
Gaza (WBG) region as it emerges into a new state.
State of Palestine
(expected in September 2000)
Presentation Purpose:
To demonstrate an opportunity for
investing in small and medium
sized businesses in the WBG.
Agenda:
Business Environment Overview
Small Business Needs Assessment
Investment Opportunities
Organizational Options
WBG Small Enterprise Equity
Investment Fund
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Business Environment
Reviewing the business environment uncovered serious economic challenges which
must be addressed with targeted investment to spur growth.
Per Capita GDP has dropped as Unemployment has soared
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Business Environment
To date, significant investment has been made in large infrastructure projects and
micro-lending programs...
WBG Businesses
(50,000 businesses)
Large
Small &
Medium
Micro
>100
5-100
employees
<5 employees
(95% of total businesses)
Capital Sources
International Finance Corp. ($87M)
Palestinian Investment Funds ($80M)
Commercial Banks ($minimal)
Microlending Programs ($25M)
– World Bank
– United Nations
– US Foreign Aid
Capital
Access
Very High
Low
Very High
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Business Needs Assessment
…but small and medium sized businesses still find it difficult to access capital and
business assistance for business expansion.
Non-Family Owned 5%
Investment
Gap Profile
Small &
5-100
Medium Sized
employees
Businesses
(2,500 businesses)
Family Owned
Family owned businesses have limited
experience with financiers
Growth limited by size and skills of family
Growth Companies 5%
Lifestyle
Companies
Lifestyle companies work to meet basic needs
Growth companies reinvest for expansion
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Business Needs Assessment
Much like a start-up business, WBG faces an ambiguous future with a series of
investment risks that must be mitigated to secure a return.
Business Risks in the WBG:
 Israeli obstacles (closures, trade
restrictions, etc.)
 Restrictive WBG/Israeli borders
 Unstructured legal and regulatory
environment
 Limited knowledge in international
marketing
 High unemployment
 Political uncertainty
The ¼ mile border crossing
into the Gaza Strip.
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Investment Opportunities
In light of the business risks, there are still promising WBG sectors. Strategic
investment coupled with innovative business models will lead to growth.
Potential Cluster
Growth Sectors
Construction & masonry
Specialty crafts
Information technology
Exotic agri-products
Potential Rollup
AgriProducts
Rollup
Micro Businesses
Software
Develop.
Web
Design
Info
Tech
Computer
Coding
ISPs
Israeli
JVs
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Investment Options
The UMBS team investigation uncovered a series of investment opportunities among
small and medium sized businesses in the WBG.
Investment Options
Individual Investment
Small Enterprise Equity
Investment Fund
$1 million
Work with SEAF to establish a development fund. Fund will be
managed by experts at SEAF.
Palestine Innovation
Technology Fund
$100,000
A revolving fund managed by a US subcontractor and a Palestinian
bank that will focus on private initiatives with a technology focus.
Masri Seed Fund
$100,000-$1 million
An off-shoot of the $60 million Peace Technology Fund that will
focus on seed investments in Palestinian start-ups.
Individual Projects
We identified many individual projects including, a shopping center
development project, an entrepreneurial training programs, a small
business resource center, etc.
$50,000-$1 million
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Investment Opportunities
A modified version of the venture capital model may prove to be the most effective
way to invest in Palestinian businesses.
Small & Medium
Business Needs
Traditional
VC Model
Expansion capital
Large investments ($Ms)
Management assistance
Limited assistance
New customers
Limited assistance
Risk mitigation
Not provided
Supportive environment
Limited network
Return on capital
Seek significant returns
Modified
VC Model
 Smaller investments ($50K$500K)
 Hands-on management
and technical assistance
 Active assistance in finding
new customers
 Extensive experience in
transition economies
 Extensive domestic and
international contacts
 Seek credible returns
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Organizational Options
Three options for creating an equity fund exist. Partnering with an existing fund
such as SEAF provides the highest value.
Go it Alone
Pros

Cons

Joint Venture
Invest in SEAF
• Complete control over
fund disbursement
• Shared management
burden across other
parties
• Shared risk
• Larger network of
human capital resources
• Expansive network of
business experts,
regional contacts, and
human resources
• Flexibility with level of
participation
• Bear 100% of risk
• Major time commitment
to manage projects from
abroad w/ small network
• Must have significant
funds to reach critical
mass (~$15M)
• Must have significant
funds to reach critical
mass (~$15M)
• Requires in depth
knowledge of the region
and business climate
• Projects chosen by fund
based on set criteria
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Selected Investment Option
After researching WBG’s investment climate, a team of UMBS students determined
that an equity fund managed by Small Enterprise Assistance Funds (SEAF) is the
best investment vehicle.
Business
Environment
Organization
Options
SEAF
Equity
Fund
Business Needs
Assessment
Investment
Opportunities
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SEAF Profile
The Small Enterprise Assistance Funds (SEAF) provide equity and quasi-equity
financing to small and medium-sized businesses in emerging markets.
SEAF Model
A well-documented methodology for firm identification, screening and
analysis, provisioning of management assistance, providing innovative
equity/quasi-equity instruments, and investment monitoring and evaluation.
Replicable
Model
SEAF Fund Location
1.
2.
3.
4.
5.
6.
7.
8.
# of Deals Invested to Date
Baltics
Bulgaria
Croatia
Macedonia
Peru
Poland
Nizhny Novgorod, Russia
St. Petersburg, Russia
Total Invested
13
25
11
5
15
41
18
10
138
$3,261,640
$6,169,489
$1,950,147
$1,680,665
$3,006,071
$17,234,646
$4,019,032
$2,592,305
$39,913,995
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SEAF Profile
SEAF has shown consistently that the provision of targeted capital and business
assistance to growth-oriented companies will drive economic development.
Average Annual Portfolio Revenue Growth vs. Economic Growth
SEAF Portfolio Growth
Percentage Change
Country GDP Growth
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SEAF Profile
The value of its network distinguishes a good venture capital firm from a great one.
SEAF will leverage its network to directly benefit its investees in WBG.
Local
Businesses
Aid
Agencies
Fund
Investors
Int’l
Businesses
SEAF
Equity
Fund
Business
Associations
Business
Assistance
Volunteers
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Investment Benefits
The purpose of this presentation is to encourage investment in the WBG for the sake of
developing a start-up nation and achieving a favorable return in the process.
Your $1 million investment will ...
Foster the link between economic self-sufficiency and
lasting peace
Tangibly contribute to the development of a new nation
by growing its business sector
Increase legitimacy and impact of SEAF equity fund
Realize a credible return
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Conclusion
The SEAF business plan for the WBG Equity Fund will be provided to all interested
individuals.
Purpose of presentation:
To demonstrate the need in the emerging state of Palestine and
the opportunity for sound investments.
To point you to SEAF as a high-impact and profitable way to
invest in the area.
Robert Sims
Retired CEO
Software Services Corp.
(734) 761-9491
bobsims@umich.edu
Small
Enterprise
Assistance
Funds
Tom Gibson
Chairman
(202) 737-8463
tgibson@seafweb.org
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