By Alice Bosley and Patricia Letayf, Co-Founders of Five One Labs.

Investing in Iraq: Lessons Learned from 2 Startup Deals in 2019

2019 showed an exciting development for Iraq’s entrepreneurial ecosystem: the investments in two Iraqi tech startups – e-commerce company Miswag, which received investment from Iraq Tech Ventures, and Lezzoo, the first Iraqi startup to join Silicon Valley’s premier accelerator Y Combinator.

In October 2019 Five One Labs hosted its second delegation of regional and international investors to the Kurdistan Region to expand understanding of the Iraqi business environment and startup ecosystem; to build bridges between international and Iraq business communities; and to expose local entrepreneurs to global best practices.

Through conversations with both early- and growth-stage entrepreneurs and discussions with local businesses and government representatives, the group of 17 investors received first-hand information about the business environment and entrepreneurship ecosystem on the ground in Iraq.

We spoke with the investors from the trip and had conversations with Yadgar Merani, co-founder of Lezzoo, and Laura Olivier, Executive Director of Iraq Tech Ventures, to dive into key challenges and opportunities for investment in Iraq, from the investor and entrepreneur perspectives.

Iraq’s lack of market data and challenging regulatory environment make it hard for investors and entrepreneurs to agree on the level of risk and opportunity.

According to Merani, one of the main challenges Lezzoo faced when speaking to investors outside of Iraq was convincing them of the country’s market size and providing them with accurate answers to specific market-sizing questions. Obtaining accurate estimates of the market is of course important for investors as it impacts projections of cash flow and potential valuation.

While data on numbers of pharmacies or schools, for example, are publicly available in other countries, the lack of easily-accessible market data and the reluctance of certain government ministries to provide this data has forced entrepreneurs in Iraq to rely on assumptions when sizing the market. Merani says that while Lezzoo tried to gather this information from various ministries, the team was often told that the information Lezzoo was seeking was either unavailable or confidential.

Additionally, the lack of general understanding of the Iraqi market and the risks of investing in a post-conflict environment mean that entrepreneurs may need to provide potential investors with additional information — and this is a point that has been expressed by a number of Iraqi startups seeking to raise their seed rounds. Merani said that on multiple occasions when trying to raise funds in the US, he was repeatedly asked questions like, “What happens if the internet goes out in the whole country? What would you do?” And this uncertainty or concern over volatility in Iraq may result in lower valuations for startups.

This added scrutiny also extends to the investment itself. The syndicate of investors that invested in Miswag’s seed round (four angel investors and one institutional investor) experienced legal challenges from the outset. When trying to create a special purpose vehicle (SPV) for Miswag in the financial free zone Abu Dhabi Global Market (ADGM), ADGM repeatedly asked for more documentation given the startup was incorporated in Iraq. After several months, the investors eventually decided to invest directly into Miswag’s bank accounts in Iraq rather than through this SPV.

Olivier of Iraq Tech Ventures also mentioned another challenge:

“One difficulty we experienced recently was that many of the investors’ transfers were heavily delayed due to banks needing extra documentation due to the scrutiny that goes into processing transfers to Iraq.”

However, local and regional investors are willing to put in the work, and entrepreneurs are rising to the challenge.

One of the Five One Labs investor trip participants, Anas Elayyan, said:

“Since inception, iMENA Group has been on the lookout for extraordinary founders and startups operating in under-served markets. The new wave of founders and entrepreneurs that we met in Iraq in the last few months are the real assets for Iraq’s future. Those entrepreneurs have been hustling in the system to mark a new digital era for Iraq. We, at iMENA Group, are very excited to be part of that era.” 

For Miswag, the success of the syndicate’s investment can likely be attributed in part to the fact that the investors were familiar with the market. Four of the five investors were Iraqis who work in Iraq but live outside of the country. Because of their knowledge of the operating environment, they were willing to invest directly rather than establishing an offshore entity.

Both on the investor and entrepreneur side, there are key innovators who are willing to take higher risks in order to show that high-growth startups can be built and grown in Iraq. “There are so many opportunities for entrepreneurs in Iraq to take the lead,” Merani says, “because Iraq needs so much.

Looking ahead to 2020, we look forward to seeing more investments in Iraq’s tech startups and to welcoming another delegation of international investors to the Kurdistan Region later this year.

Please click here to download the full report in pdf format.

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Five One Labs is a start-up incubator that helps refugees and conflict-affected entrepreneurs launch and grow their businesses in the Middle East. Launching first in the Kurdistan Region of Iraq, we aim to empower individuals to rebuild their lives and livelihoods and to contribute to the economic growth of their communities.

Five One Labs entrepreneurs are provided with training; mentorship by world class entrepreneurs from the USA and the Middle East; and a community of creative changemakers to share their experiences with. 

Our vision is to develop an inclusive network of innovators and entrepreneurs that have the support, skills, and connections to positively change their communities and countries.

Abu Dhabi National Energy Company PJSC (TAQA) has announced that its subsidiary, TAQA Atrush B.V. (TAQA Iraq), has set a new production record from the Atrush oil field in the Kurdistan Region of Iraq.

For the first time since the field commenced production operations in July 2017, the total monthly production volume exceeded 1 million barrels of oil in July 2019.

The 1 million barrel mark is a key milestone in TAQA Iraq’s ongoing production improvement and expansion plans for the Atrush block and is a testimony to the effort, professionalism, and commitment to deliver safe and efficient operations in Iraq.

The current rate of gross production at the Atrush block is approximately 34,000 barrels of oil per day, which is line with the company’s targets for Q2 2019. The increase in production was largely due to new wells coming on stream and the impact of de-bottlenecking work over the past few months, which has increased the capacity of volumes handled by the production facility.

The facility has continued to meet targets at minimal spend and is a result of a focus on integrated planning and optimization.

Speaking on the milestone, TAQA Chief Executive Officer Saeed Al Dhaheri said:

This significant achievement is a direct result of our Iraq team’s technical expertise and strategic planning efforts. As a global energy player with operations spanning four continents, our operations in Iraq have allowed us to strengthen our expertise as a leading developer of greenfield projects.

“We look forward to building on this achievement to continue to deliver energy to our strategic partners in the Kurdistan region, and to continue to forge strong relationships with local communities around the Atrush block.”

AbdulKhaliq Al Ameri, Managing Director of TAQA Iraq, added:

“Our focus for the past two years has been to improve the value of our asset while ensuring cost-optimization and uphold our commitment to health and safety. I am particularly proud of our team, which comprises more than 300 people, many of whom are from the Kurdistan region. This achievement is a result of their hard work and dedication to TAQA’s vision.”

The Atrush field is located 85 km northwest of Erbil and is one of the largest new oil developments in the Kurdistan Region of Iraq. The field was first discovered in 2011 and production started in 2017. In its two years of production, the Atrush field has produced of 17 million barrels of oil, with increasing efficiency.

In May 2019, TAQA Iraq completed the acquisition of an additional 7.5% working interest in the Atrush block from Marathon Oil KDV B.V. With this acquisition, TAQA Iraq’s working interest in the Atrush block increased from 39.9% to 47.4% and represents an AED 116 million addition to the company’s assets.

TAQA Iraq is the operator of the Atrush block and has a 47.4% working interest under the Atrush block Production Sharing Contract. TAQA Iraq’s partners in the project are the Kurdistan Regional Government (25%) and General Explorations Partners, Inc. (27.6%).

(Source: TAQA)

By John Lee.

Abu Dhabi National Energy Company PJSC (TAQA) has announced that the group’s oil and gas business delivered strong performance with an 11% increase in revenue, mainly driven by increased production volumes from its assets in Europe and Iraq.

In its financial results and operational highlights for the six-month period ending June 30, 2019, it said its overall capex also rose to AED 957 million in the first six months of 2019, a 15% increase when compared to the same period in 2018.

The increase in Oil and Gas capex was largely driven by the AED 116 million acquisition of an additional 7.5% working stake in the Atrush Block from Marathon Oil Kurdistan B.V. in May of this year. The acquired stake increases TAQA’s working interest in the project from 39.9% to 47.4%.

“Additional capex in Iraq was focussed towards bringing new wells on stream and the impact of debottlenecking work to increase the capacity of the current production facility. This has proven to be a worthwhile investment, with TAQA’s entitlement production increasing to 5,728 boe/d in H1 2019, a 149% improvement compared to the previous year.”

It added that this has proven to be a worthwhile investment, with TAQA’s entitlement production increasing to 5,728 boe/d in H1 2019, a 149% improvement compared to the previous year.

The average production by the oil and gas business for the first half of the year increased 3% to 124,760 boe/d, aided by strong well performance in Europe and Iraq.

Commenting on the positive performance, Saeed Mubarak Al Hajeri, Chairman of TAQA, said:

Our solid performance in H1 2019 is underpinned by our strong operational performance.  The Group’s balance sheet remains healthy, and with stable revenues and a further reduction in debt coupled with strong liquidity we remain on course to meet our long term objectives. The recent ratings affirmation from Moody’s is a testament to the stability of our operational performance.

“We also made exciting progress in advancing our strategy of maintaining capital discipline with focused investments in our core assets, such as the Atrush Block. Looking ahead, we remain optimistic and believe that our investments in the UAE and other strategic markets will contribute to a sustained growth story.

(Source: TAQA)

By John Lee.

The state-owned Trade Bank of Iraq (TBI) is reported to be planning to expand its operations in China and the Gulf.

Chairman Faisal al-Haimus [al-Haimus] told Reuters that the bank want to increase revenues from retail banking and international operations from 25 percent to 30 percent by 2022.

He added that it plans to open a representative office in China in 2020, and will upgrade its license in Abu Dhabi from a “representative office” to “asset management company“.

More here.

(Source: Reuters)

By John Lee.

Pearl Petroleum is reportedly planning to raise additional funding for its drilling and development in Iraqi Kurdistan,

According to Reuters, Patrick Allman-Ward, the chief executive of Dana Gas, which is the majority owner of Pearl Petroleum, told reporters that the funding will “comprise a mix of bank debt, a bond, Exim bank financing as well as contractor and vendor financing.

The company is developing that Khor Mor and Chemchemal gas fields in Iraqi Kurdistan.

(Source: Reuters)

By John Lee.

Dana Gas has said it has received $43.8 million in dividends from Pearl Petroleum Company Limited for condensate and LPG sales in the Kurdistan Region of Iraq (KRI) in the first half of 2018, including a $7 million payment for the month of June.

The company added that the capacity to process gas and condensate from the Khor Mor field (pictured) will increase by 580 MMscf/d and 20 mbbld, respectively, with the expansion programme is on track to deliver an increase in output of 80 MMscf/d by Q3 2018.

(Sources: Rudaw, Mubasher)

By John Lee.

Zawya reports that the Iraqi cabinet has asked the National Investment Commission (NIC) to go ahead with the huge Al-Rashid City project planned for Baghdad.

The $10-billion development is to be carried out by Dubai’s Emaar Properties and Abu Dhabi’s Eagle Hills, and will include the building of “up to” (sic) 64,000 new homes, has previously been estimated by Iraqi officials to have an investment value of about $10 billion.

Emaar Properties told Thomson Reuters that it will make appropriate disclosures when the agreements are finalised.

(Source: Zawya)

(Picture: Construction at Bismaya New City)

By John Lee.

UAE-based Crescent Petroleum is reportedly planning a significant increase in its production of natural gas at its Pearl Petroleum operations in Iraq.

President Badr Jafar (pictured) is quoted as saying that there will be an investment of $1 billion to boost production to 500 million cubic feet of gas per day by 2020, up from about 330 million cubic feet  and about 20,000 barrels per day of condensates at present.

According to Reuters, Pearl is owned 35 percent by Crescent Petroleum, 35 percent by Crescent’s affiliate Dana Gas, 10 percent by Austria’s OMV, 10 percent by Germany’s RWE, and 10 percent by Hungary’s MOL.

(Sources: Gulf News, Reuters)

By John Lee.

The Abu Dhabi National Energy Company PJSC (TAQA) has confirmed that production from the Atrush Block in the Kurdistan Region of Iraq is expected to ramp up towards the 30,000-barrel-per-day project capacity (gross) in 2017.

Oil production at Atrush started in July.

TAQA is the operator of Atrush and has a 39.9% working interest in the Production Sharing Contract. The other co-venturers are the Kurdistan Regional Government (25%), General Explorations Partners, Inc. (a wholly owned subsidiary of ShaMaran Petroleum Corp) (20.1%), and Marathon Oil KDV B.V. (15%).

(Source: TAQA)

By John Lee.

Oil production at the Atrush block is expected to start “around late June to August“, according to a report from Rudaw.

The pipeline (pictured) from the oilfield, in Kurdistan’s Duhok governorate, is reported to be nearing completion, with initial production expected to be about 30,000 bpd.

The website of the Abu Dhabi National Energy Company (Taqa), which paid $600 million four years ago for an initial stake of just more than 53 percent in the project, states that it is estimated to have between 1.5 billion and 2.8 billion barrels of oil in place with recoverable oil columns of 670 million barrels.

(Source: Rudaw)