PALESTINE AS A START-UP: 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: Introduction This presentation will highlight a new investment vehicle for the West Bank and Gaza (WBG) region as it emerges into a new state. Agenda: Business Environment Overview Small Business Needs Assessment Investment Opportunities Organizational Options WBG Small Enterprise Equity Investment Fund State of Palestine (expected in September 2000) Presentation Purpose: To demonstrate an opportunity for investing in small and medium sized businesses in the WBG.


Business Environment: Business Environment Reviewing the business environment uncovered serious economic challenges which must be addressed with targeted investment to spur growth.


Business Environment: Business Environment To date, significant investment has been made in large infrastructure projects and micro-lending programs... 100 WBG Businesses (50,000 businesses) Capital Sources Capital Access Large Small & Medium Micro International Finance Corp. ($87M) Palestinian Investment Funds ($80M) Commercial Banks ($minimal) Microlending Programs ($25M) World Bank United Nations US Foreign Aid Very High Low Very High


Business Needs Assessment: Business Needs Assessment …but small and medium sized businesses still find it difficult to access capital and business assistance for business expansion. Lifestyle companies work to meet basic needs Growth companies reinvest for expansion Family owned businesses have limited experience with financiers Growth limited by size and skills of family 5-100 employees (2,500 businesses) Small & Medium Sized Businesses Investment Gap Profile


Business Needs Assessment: 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.


Investment Opportunities: 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. Growth Sectors Construction & masonry Specialty crafts Information technology Exotic agri-products


Investment Options: 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 Work with SEAF to establish a development fund. Fund will be managed by experts at SEAF. A revolving fund managed by a US subcontractor and a Palestinian bank that will focus on private initiatives with a technology focus. An off-shoot of the $60 million Peace Technology Fund that will focus on seed investments in Palestinian start-ups. We identified many individual projects including, a shopping center development project, an entrepreneurial training programs, a small business resource center, etc.


Investment Opportunities: 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 Expansion capital Management assistance New customers Risk mitigation Supportive environment Return on capital


Organizational Options: Organizational Options Three options for creating an equity fund exist. Partnering with an existing fund such as SEAF provides the highest value. Pros Cons


Slide11: 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 Needs Assessment Organization Options SEAF Equity Fund Investment Opportunities Business Environment


SEAF Profile: SEAF Profile The Small Enterprise Assistance Funds (SEAF) provide equity and quasi-equity financing to small and medium-sized businesses in emerging markets. Replicable Model Baltics 13 $3,261,640 Bulgaria 25 $6,169,489 Croatia 11 $1,950,147 Macedonia 5 $1,680,665 Peru 15 $3,006,071 Poland 41 $17,234,646 Nizhny Novgorod, Russia 18 $4,019,032 St. Petersburg, Russia 10 $2,592,305 Total Invested 138 $39,913,995


SEAF Profile: SEAF Profile SEAF has shown consistently that the provision of targeted capital and business assistance to growth-oriented companies will drive economic development. Percentage Change SEAF Portfolio Growth Country GDP Growth


SEAF Profile: 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 Business Associations Int’l Businesses Aid Agencies Business Assistance Volunteers Fund Investors SEAF Equity Fund


Investment Benefits: 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 Investment Benefits Your $1 million investment will ... 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.


Conclusion: Conclusion The SEAF business plan for the WBG Equity Fund will be provided to all interested individuals. Small Enterprise Assistance Funds Tom Gibson Chairman (202) 737-8463 tgibson@seafweb.org Robert Sims Retired CEO Software Services Corp. (734) 761-9491 bobsims@umich.edu 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.