Start-ups head to Saudi Arabia for capital

  • Article by: WENDY LEE , Star Tribune
  • Updated: January 27, 2011 - 12:18 PM

The financing discussions were part of a relationship with a Saudi-U.S. development firm.

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Three scientists stood behind Dr. Nassar Al-Khalifah, left foreground, and Thomas Johnson as they listened to Dennis Zeug describe Fresh EcoHarvest’s technology.

Photo: Cheryl Matter , BioBusiness Alliance of Minnesota

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Kristine Sundberg of Fresh EcoHarvest has struggled to gain the money she needs to prove that her company's technology to grow fruits and vegetables indoors works.

Sundberg says none of the Minnesota investors she's talked to over the past year have called the concept a bad idea. But many were too skittish to give the $5 million to $10 million her start-up needs to demonstrate how it can grow produce without sunlight or soil.

Now, she's seeking that investment in Saudi Arabia.

Fresh EcoHarvest was one of five Minnesota businesses that traveled to Saudi Arabia earlier this month as part of a larger initiative by the BioBusiness Alliance of Minnesota to improve investment in start-ups. The companies went for a variety of reasons, whether it was to find a distributor or clinical site, set up a strategic partnership or land financing.

The BioBusiness Alliance set up a business relationship with Al Khaymah Establishment USA, a Saudi-U.S. development firm. The other participating Minnesota companies were ethanol production systems manufacturer Easy Energy Systems, diagnostics firm Ativa Medical, drug development company Exsulin Corp., and molecular engineering company Odin Industries.

The alliance is targeting companies involved in agriculture, water, renewable energy, health care and pharmaceuticals. Al Khaymah would be paid based on its performance if a Minnesota company lands a deal in Saudi Arabia.

"This was a test run," said Dale Wahlstrom, the alliance's CEO. "Our goal is, if we can make this work and it works well, we hope to establish this as a system."

Sundberg, a partner at Fresh EcoHarvest, said she has received more interest in Saudi Arabia than ever before. She said the product is a natural for Saudi Arabia, given its desert conditions, and she hopes to gain some business opportunities.

"They are more interested in what is really the latest cutting-edge technologies and they want to be involved in it," Sundberg said.

A drug, not a device

Exsulin CEO Lisa Jansa said it's been challenging for her company to get funding through traditional sources in Minnesota because some investors are more comfortable and familiar with investing in medical devices. Exsulin is developing a drug to treat diabetes and is looking to raise $25 million.

"We are a little bit different in the Minnesota region," Jansa said. "We're not a device. We're a bird of a different feather."

This wouldn't be the first time Middle Eastern investors helped finance Minnesota companies. For example, the firm Arcapita made a $100 million investment to gain a controlling stake in Duluth-based Cirrus Aircraft in a 2001 deal secured by investment bank Aethlon Capital.

Arcapita's capital comes from more than 300 prominent individuals and institutions, most from the Arabian Gulf region, said Sima Griffith, Aethlon's managing principal.

Griffith said institutional and sovereign wealth funds in the Middle East like private equity and venture capital because it diversifies them away from oil and into asset classes such as real estate that can offer strong returns.

"Companies that are unable to access capital in the U.S. should consider international markets as an alternative," Griffith said.

But some analysts caution that financing models in a place like the Middle East can be different from the United States. For example, under Islamic banking principles, institutions do not believe in charging interest on loans and prefer an equity stake in companies.

"It's a whole new field that companies would need to decide if they would be comfortable with that," said David Vang, chairman of the Finance Department at the University of St. Thomas' Opus College of Business.

Wendy Lee • 612-673-1712

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