Iraq: MENA's next emergent ecosystem?

Euphrates Iraq Fund is a New York-based hedge fund managed by Geoffrey Batt and Grant Felgenhauer, who have invested $173M in Iraq’s Publicly listed equities.

Recently, Euphrates Iraq Fund announced the launch of their new Euphrates Venture Capital fund. The new venture fund was joined by Rawaz Rauf, one of Iraq’s leading tech entrepreneurs, and Shwan Ibrahim Taha, Chairman of Rabee Securities, an Iraqi investment bank. The new fund Euphrates Venture Capital aims to invest in Iraq’s emerging startups.

As Iraq continues to develop as a startup ecosystem and with positive trends on the horizon, including a youth boom coming of age and greater tech adoption, we caught up with Euphrates' Partner, Grant Felgenhauer, to learn more about Euphrates, why Iraq is currently an opportune market for investors, some of the challenges for local startups, and more.


What is the inspiration behind setting up Euphrates Ventures?

The last three years have seen a burst of activity among startups across Iraq. As privately held firms, these companies fall outside the primary mandate of the Euphrates Iraq Fund, which will remain focused on the leading public equities traded on the Iraq Stock Exchange. This new venture is a natural outgrowth of our existing business and is complementary to it. Indeed, our hope is that listings on the Iraq Stock Exchange will be one of the ultimate outcomes for many of these young companies. By investing across the life-cycle of companies in Iraq, we expect to gain deeper insights into managing business – and risk more generally – within Iraq.

What are the partners bringing to the table that differentiates you to other VC funds?

Euphrates has been investing in Iraq since 2010 and manages the largest investment fund operating on the Iraq Stock Exchange. We hold significant stakes in many of Iraq’s leading private companies and sit on their boards. This work brings with it an deep understanding of the operating environment within Iraq and an appreciation for what it takes to build a successful business.  This perspective is absolutely unique among both regional and international investment funds, and it is impossible to replicate in the short term. We expect it will be crucial to the success of our investment process.

Why is now the time to invest in Iraq?

Iraq has a large, growing and young population.  An estimated 90% of people between the ages of 18-44 own a smartphone with access to the internet.  This degree of smartphone penetration, together with a price of data that has collapsed 87% in the last five years, is creating a potent mix: a tech-savvy population with rising personal incomes and a growing ability to spend online. An impressive cohort of ambitious and talented entrepreneurs are creating businesses to take advantage of these trends. We are being invited to invest in these firms by virtue of the network we have in place in Iraq, and we expect the best-managed firms will be excellent investments over the long term.

The continuing scarcity of capital in Iraq means those who have capital are able to invest at very attractive valuations.  It’s not perfect, but for the valuations we pay, it doesn’t need to be perfect. If you invest in those places where the shortages of capital are most severe, not everything needs to go right – even most of the time – to make money.

A challenge with Iraqi based startups is the legalities and structuring of companies to make them investable. What advice do you have for Iraqi founders to help them and what insights can you share with other investors to see more investment in Iraq?

When we invest in a company – public or private – we are investing in the people who manage the company as much as we are investing in the business plan.  The most decisive factor for us is the quality of the management team and the alignment of their incentives with investors. Without talented management and aligned incentives, even the most compelling business will be a bad investment. So the advice to other investors is to focus on people above all else.

What do you see as the current biggest opportunities in terms of sectors/industries that are interesting for investors?

One of the most compelling aspects of the current startup landscape is how broad the opportunity set is. Iraqi entrepreneurs are addressing the same market demands that their peers outside Iraq met ten or fifteen years ago. The market is new and most sectors are dramatically unpenetrated. We don’t have a sector specific focus primarily because the range of attractive businesses is so broad.

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