Shuaa, Key Capital launch the region’s first venture capital secondaries fund

Shuaa, Key Capital launch the region’s first venture capital secondaries fund: Dubai-based investment manager Shuaa Capital and Abu Dhabi-based venture capital secondaries asset manager Key Capital are launching a USD 50 mn venture capital secondaries fund, targeting MENA and EMEA markets, according to a statement (pdf). The fund has already closed two transactions and is structured as an ADGM limited partnership.

The fund will be targeting shares of individuals like angel investors, founders, and employees — anyone who’s on the cap table, but not LP positions as of now, Key Capital Managing Partner Basil Moftah tells EnterpriseAM UAE. “We think they have the biggest need, [because] it impacts their life directly,” he explains.

Secondaries are not completely new to the region — but this is the first ever dedicated fund for the asset class in the region. “Secondaries have been part of previous funding rounds, and they usually only happen during a round,” Moftah explains. “Our advantage is that we give liquidity to those shareholders at any time during any part of the cycle.”

Secondary sales and immediate liquidity, of course, tend to come with a haircut. “Generally speaking in the region, [reductions] are anywhere between 20% and 40% for immediate liquidity based on current valuations,” Moftah tells us. It’s natural, considering “you’re holding an illiquid asset that you need to sell now.”

Why now? “With everything happening around the world, liquidity is an ever-growing need… it’s always been a necessary tool for people to manage their portfolios, but now with everything happening globally, especially companies taking longer to go public and investors holding onto companies for longer, we see an even bigger [window] in the region,” he adds.

Demand for this type of asset class is growing by the day, Moftah tells us. “[It] has grown by anywhere between 20% and 25% in the last month,” he estimates.

Our take

The region’s VC ecosystem is beginning to mature, but most exits still take too long to execute, and with IPO windows remaining tight this year against the backdrop of regional tensions and market volatility, this likely won’t be letting up anytime soon.

That makes this type of fund a great option for early investors and employees who are holding valuable equity with no way to spend it. Whether it’s due to an immediate need for liquidity or to allow early backers to recycle capital back into the ecosystem today rather than waiting years for an uncertain exit, this type of fund provides optionality for investors.

The data backs it up: Key Capital estimates the regional secondaries market is already worth over USD 1 bn.

What’s next?

Who’s doing what: Under the agreement, Shuaa will be providing the institutional advisory and capital markets muscle, while Key Capital manages the sourcing and investment strategy. Moftah declined to comment on the sectors or types of investments the fund will be targeting, clarifying that the nature of VC secondaries should be confidential.

What’s next? The fund is currently approaching its first close, for which Moftah declined to disclose a timeline.