• OQAL, an angel investors network in Saudi Arabia and Bahrain, in collaboration with the Saudi Venture Capital and Private Equity Association (VCPEA), has announced a Shari’ah-compliant financing mechanism called the OQAL Note, to fund early-stage startups in Mena.
• The new product is a financing instrument, such as the 500 Startups KISS and YCombinator SAFE, in which an initial investment is structured as a debt before being converted into equity at a future point. 
• OQAL Note provides entrepreneurs with three key advantages: compatibility with Islamic Shari’ah principles, available in both Arabic and English, and subject to both the Saudi and English legislative systems.
• Founded in 2011 by Faris AlRashed, OQAL is an endowment platform connecting startup founders with angel investors to develop innovative enterprises.

Press release:

OQAL, the Angel Investors Network in Saudi Arabia and Bahrain, today announces a trailblazing new financial product called the OQAL Note; an innovative new structure that can revolutionise early-stage funding in the Mena region.

The OQAL Note is the first standardised Shari’ah-compliant financing mechanism modelled on startup funding instruments, such as the 500 Startups KISS and YCombinator SAFE, in which an initial investment is structured as a debt before being converted into equity at a future point. The three key advantages of the OQAL Note are i) its compatibility with Islamic Shari’ah principles, (ii) its availability in both Arabic and English languages, and (iii) its conformity under both the Saudi and English legislative systems.

OQAL Angel Investors Network, the sponsor of the initiative in collaboration with the Saudi Venture Capital and Private Equity Association (VCPEA) "As an early-stage investor, we have noticed that founders and investors are becoming more comfortable with financing on such financial instruments,” Faris AlRashed, founder and chairman of OQAL Network commented. “However, we are always faced with questions or concerns with regards to its Shari’ah compatibility. With the OQAL Note, OQAL Network and our partners aim to induce further comfort and convenience in using such instruments. Another critical benefit of the OQAL Note is that the document is provided in both Arabic and English, so it is accessible for international investors."

Aspects of conventional convertible debt and equity instruments ran afoul of Shari’ah and arguably have limited enforceability in Saudi Arabia. Shari'ah-compliant investors and startups had faced challenges structuring their financing rounds in a Shariah-compliant manner, something the OQAL Note complied with.

“OQAL Note will be a game-changer for Shariah-compliant startups in Saudi Arabia and the wider region, who have historically been hindered by complexities, costs, and a lack of standardised contracts when raising early-stage capital on a Shari’ah-compliant basis,” continued James Stull, Partner at King & Spalding, which was Legal Counsel on the establishment of the product. “The OQAL Note offers investors and startups alike a genuine solution to streamline and simplify financing rounds while transacting on a compliant basis. The OQAL Note is a unique solution where the financing will be converted into future equity (similar to existing convertible instruments such as the SAFE or a KISS), but underpinned by first-of-a-kind, Shariah-compliant standardised documentation.”

“We are delighted to announce our participation in the launch of the Shari'ah-compliant OQAL Note, which can open a new horizon for investment in entrepreneurial companies. The Note provides 3 advantages: (i) its compatibility with Islamic Sharia principles, (ii) its availability in both Arabic and English languages, and (iii) its conformity under both the Saudi and English legislative systems. We aim for the OQAL Note to be adopted by a great number of investors and entrepreneurs as it has been prepared in a manner that intends to preserve the rights of all parties involved in the investment,” said Qusai AlSaif, CEO of the Saudi VCPEA. “Having such an instrument, drafted for the benefit of all parties involved, will standardise the terms of investment in the note future issuances in the region, speed up the process of closing investment rounds, and significantly raise the efficiency in the VC sector.”

“We believe the OQAL Note by OQAL Network is an exciting solution for realising successful, Shariah-compliant startup funding,” concluded Mohammed AlAmmar, Managing Partner of the Law Office of Mohammed AlAmmar (in association with King & Spalding LLP). “It is a straightforward investment document that offers a blend of risk and reward that incentivises both investors and entrepreneurs, ultimately opening the door to future funding and investment. The Note will allow ambitious startups in the region to really think big while remaining comfortable that their transactions are consistent with local regulations and Shari’ah.”

The OQAL Note has been reviewed and endorsed by an initial group of venture capitalists, angel investors, law firms, and the Shari’ah Review Bureau. Access and further information on the OQAL Note can be found on OQAL’s website.

King & Spalding served as legal counsel to OQAL Network on the establishment of the OQAL Note. Along with advisors from the Saudi VCPEA, Shari’a Review Bureau, angel investors, and founders.