Panel discussion

With the growth in innovative entrepreneurial initiatives that support small and medium enterprises (SMEs) in the marketplace, KPMG in Bahrain and the EDB held a collaborative event to raise awareness on global best practices in fundraising for startups and new businesses using ‘Convertible Notes’, which has been recently introduced as a part of the Bahrain’s Company Law. Viewed as a mean to fast and simple financing at the early stage of a start-up, Convertible Notes would be an additional option available to businesses that are looking for financing within a recovering and rapidly evolving marketplace. Held under the theme "Funding startups, SMEs and new ventures in a recovering marketplace / Use of Convertible Notes", the event engaged with several entrepreneurs, business owners, investors and bankers that attended the event in Bahrain to highlight the alternative option to raise capital.

Convertible Notes are a debt instrument aimed at facilitating raising moderately sized funding which would be converted to an equity for the benefit of the purchaser of the notes at a certain time or on the triggering of certain events. The point at which the conversion happens is agreed upon at the time of purchase between the company and the purchaser. Over the years, Convertible Notes have evolved internationally into a more modern and less onerous instrument for businesses to launch, to support them to survive, strive, and grow within the Kingdom’s business landscape. Given that ‘Convertible Notes’ do not have a specific predefined format nor does it have a preset structure, they can be easily drafted to include mutually agreed upon terms and conditions suitable for both parties, while ensuring that they are aligned to regulatory norms. In Bahrain, Convertible Notes were introduced in the Commercial Companies Law to enable convertible note securities to be issued by closed joint stock companies placing Bahrain in the lead of the GCC and Arab countries to introduce such financial instruments in the marketplace.

Nicolas Ribollet, Deal Advisory Lead Partner at KPMG in Bahrain, welcomed the guests at the beginning of the event and said “I am pleased to have worked with the Bahrain EDB on developing their latest publication titled ‘Interpreting Convertible Notes’, a useful guide on the newly introduced fund-raising instrument. Bahrain’s ecosystem and strategic geographic location at the heart of the GCC region continues to make it the perfect environment for Startups to find the appropriate resources to test, launch, grow, and scale-up across the regional market.”

I believe introducing Convertible Notes as a part of the Company Law is a positive step towards facilitating the fund-raising process for Startups and private companies, placing Bahrain in the forefront and as the first country in the GCC to have legislated for and formalize convertible notes.”

“The ease and speed of effecting a Convertible Note makes it an attractive tool for investors and entrepreneurs, alike. With the right approach, a business owner can raise funds while delaying, and potentially avoiding, giving away equity at an early stage and circumventing a potential valuation on a business, that is yet to achieve its higher potential. Dr. Jameel Al Alawi, Senior Legal Advisor at Bahrain EDB added in his opening remarks that “at the moment, Convertible Notes are available to joint stock companies having a minimum capital of BD 250,000. However, discussions are underway with the relevant authorities to explore the possibility of reducing that capital threshold.”

During the seminar, Camille Geadah, Deal Advisory Director at KPMG in Bahrain, provided an overview on Convertible Notes, including their form, usage, key features, main terms while listing some advantages and disadvantages to their usage.

The guests were also privy to valuable insights from key industry leaders, and an eminent panel of legal experts during the panel discussions. In the first panel, Jarmo Kotiliaine, Chief Strategy and Data Analytics Officer at Tamkeen; Dalal Buhejji, Executive Director of Financial Services at Bahrain EDB and Harish Gopinath, Partner and Head of KPMG Enterprise in Middle East South Asia and Caspian region; discussed the leading role of alternative financing in changing the composition of the local economy by enabling a shift in the mindset of entrepreneurs and SMEs. As ‘fundraising’ is one of the main challenges facing startups, they welcomed this new development as a part of the initiatives taken in Bahrain to foster a strong 'Startup’ ecosystem and to empower entrepreneurs at a national level. Meanwhile, the second panel provided a legal perspective on Convertible Notes by sharing practical insights from Steven Brown of ASAR; Benjamin O’Brien-McQueenie of Trowers & Hamlins; and William Reichert of Charles Russell Speechlys. To conclude the seminar, the delegates were also provided with an investors’ perspective on the new fund-raising tool by Suhail Algosaibi, Chairman of Tenmou; Founder and the CEO of Falak Consulting.