Saudi Arabia is raising $10 billion from a consortium of global banks as the country embarks on its first international debt issuance in 25 years to counter dwindling oil revenues and reserves.
The landmark five-year loan, a signal of Riyadh's newfound dependence on foreign capital, opens the way for Saudi Arabia to launch its first international bond issue. It comes as the sustained slump in crude encourages other Persian Gulf Arab governments, such as the UAE, Qatar and Oman, to tap international bond markets, news outlets reported.
The oil-rich kingdom, which last weekend blocked a potential deal among oil producers to freeze output and bolster prices, has burnt through $150 billion in financial reserves since late 2014 as its fiscal deficit is set to widen to 19% of gross domestic product this year.
Strong interest in the loan, especially from Asian banks, came despite rating agency downgrades on Saudi creditworthiness since the oil price collapsed. The government raised the amount it wanted to borrow from $6 billion-$8 billion to $10 billion after the deal was oversubscribed.
"The deal is very successful, with very competitive pricing," said Elyas Algaseer, deputy regional general manager at Bank of Tokyo-Mitsubishi. "There was immense market appetite."
Saudi Arabia may now raise its first global bond in the wake of the loan deal, bankers said. Institutions that loaned the most would be set to benefit from a mandate to help Riyadh raise the bond.
The strategy of raising debt overseas aims to slow the drawdown of foreign reserves and reduce pressure on local banks, which have been supporting state related companies and buying Saudi domestic bonds for almost a year.

Under Pressure
Saudi Arabia has problems. The country is facing pressure from a variety of angles. Even its long-standing relationship with the United States is on the rocks, with renewed public scrutiny of alleged links between Saudi officials and the 9/11 plotters just the tip of the iceberg.
On Monday Saudi Arabia is set to release the widely anticipated “Vision for the kingdom of Saudi Arabia,” a blueprint for diversifying its economy away from its reliance on the country's gargantuan oil industry and to stop wasting billions of dollars each year.
"How many billions were wasted exactly? Well, we know that Saudi Arabia ran a deficit of $98 billion last year," and in a lengthy new profile from Bloomberg Businessweek, Mohammed Al-Sheikh, a financial adviser to the Saudi state, reluctantly estimates that over the past few years, there had been "$80 to 100 billion of inefficient spending.”

Slashing Subsidies
Oil had long been the country's only viable export, accounting for 90% of the state budget. In the new reality of cheap oil, things are going to have to change: The Saudi government has already begun slashing some of the more generous subsidies it gives Saudi citizens—raising the price of gasoline within the country by 50% in December (though it still stands at a remarkably cheap 24 cents a liter).
A variety of other moves have also been rumored: further cuts to state benefits and subsidies, the introduction of a value-added tax on luxury goods and sugary drinks, attempts to tap into new mining resources and a new tourism push are all said to be under consideration.
In an earlier interview with the Economist, Mohammed bin Salman had suggested that what Saudi Arabia was planning bore some similarities to the privatizations of state industries in Britain in the 1980s. "Most certainly," the prince had responded when asked whether "this was a Thatcher revolution for Saudi Arabia."

Massive Unemployment
Mohammad's ambitious economic "vision" to diversify the economy could include five million new jobs for the kingdom.
About 70% of the population of Saudi Arabia is under 30, and more than 30% of that is unemployed. Five million new jobs would mean one new job for roughly every six people in the country.
Unemployment is rated as one of the world’s highest for a national unemployment rate. As for unemployment among women, it has reached 32.8%. The figure is the highest in the world, according to the International Monetary Fund.

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Published: 23 April 2016

Clear business model
At minimum, we need to see a working product with clear demand in the market, possibly with referenceable users and a clear path to revenues plus a clear customer acquisition plan. At best, you are generating early revenues and are executing on a clear and affordable customer acquisition strategy. We love SaaS and other subscription models.  We are less keen on models that require huge volumes of customers as they tend to be hard & expensive to acquire.
World-class CEO & team

    Complementary leadership team
    Relevant past experience
    Consistently successful
    Data-driven
    Hires great people & delegates to them effectively
    “Lean”
    Listens and speaks clearly
    Really knows the customer and understands the problem

Huge market
We want yours to become a global business and are looking for exits >£100m. If your market is >£0.5B in the UK & you have typically high software margins, this suggests a large enough global market to grow into a great sized business for Episode 1, but we use that number only as a rule of thumb.
What we are NOT looking for

    A founding team of individuals who have over-lapping skills and little experience in their market
    A CEO who has found a gap in the market, but there is no market in the gap – a lifestyle business
    A product with no business model and no prospect of sales traction in the very near future (we know that means we would not have invested in Facebook and Twitter or Pintrest, but hey, every VC needs its anti-portfolio)
    A business in a fiercely competitive market with little differentiation

Resources & Advice
What to present

    Something that can easily demonstrate what the product does, why it’s different and important (and who you compete with), how big the addressable market is (and how you worked that out), what your financial forecasts are, what your sales pipeline is, why your team is awesome, what you’re raising at what expected valuation and what you’re going to use it for
    Usually this ends up being a 10-20 slide PowerPoint deck, but we don’t care what it is, as long as it works, but we care that there’s something to structure the meeting beyond just your voice.  Not 45 pages of A4.

How to present

    Tell us what you plan to present and ask us if there’s anything else we’d like to hear (when we read the business plan ahead of the meeting, questions can come up that require extra attention)
    Run through your presentation slowly and keep an eye on us sending signals we’d like to ask a question – it’s a dialogue, not a monologue
    If you bring team members, bring them for a reason – let them present relevant material, or at least answer relevant questions
    Get through your material in 30-40 minutes so we can chat and question for 20-30 minutes
    It’s not complicated and it shouldn’t be nerve-wracking – it’s just a dialogue between 2 parties who want to find a way to help each other

How to prepare

    The best thing you can do is to meet us early, before you need investment, but once you have an alpha that you are testing and a pretty clear idea of what your business model will be.  We have set up our Open Office for just these kinds of meetings.  We like to meet you early so we can track your actual progress against what you promise you will achieve.  This makes our decision making better and faster when the time comes for you to raise money from us
    It’s also very useful to practice your pitch with your existing investors before coming to us.  They know the business well, are likely to be investors in many other startups and so will know what we, as a VC, will want to hear and, as your parents told you, practice makes perfect

Term Sheet
We pride ourselves on being open with entrepreneurs - we have nothing to hide and prefer to be transparent in all our interactions.  As part of this transparency we think it would be helpful for you to see our Term Sheet.  This is the Term Sheet every one of our entrepreneurs receives, with no “funnies” added.  It is based on the Seed Summit standard term sheet with a few changes to make it more entrepreneur friendly.  For example we removed the equalization of terms clause because we don’t think it’s great for entrepreneurs.  Our term sheet is also more entrepreneur friendly in terms of the founder vesting. Our standard says that 28% of your shares are vested on the date of investment and 2% per month then vests over 3 years instead of straight line vesting of 0 up front and 1/36 per month for 3 years in the SeedSummit term sheet. We hope you find it useful to read and look forward to discussing it with you should the opportunity arise.

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Published: 17 April 2016