Venture capital Islamic perspective

Is the concept of venture capital acceptable under the shariah?

shariah view on equity financing > acceptable under the contract of mudharabah and musharakah considered a necessity in contemporary financial system >facilitate efficient mobilization of resources

Is the structure shariah compliant?

shariah requirements relating to investment and financing must be observed

Shariah legitimacy of the nature and purpose of business.

Venture capital shariah framework

the doctrine of natural permissibility every transaction is allowed unless there is specific violations of the shariah principles : sharing of risk and profit > profit follows mutual agreement, loss follows capital modification of simple mudharabah in the classical fiqh books to multiple mudharabah in contemporary application multiple mudharabah enable accumulation of a large amount of capital the agent signs a separate mudharabah contract with each principal the combined profit will be distributed between the agent and the principal according to agreed upon ratio

 structure of the venture capital instruments represent sharing of profit/loss (participatory in nature) no guarantee of capital/return > ie debt or preferred stock proposed alternative > preferred stock with characteristics of pure preference share with predetermined varying profit ratios and a combination of vesting and covenants along with the issuance of common stock valuation of the company essential in achieving a target rate of return > ie benchmark againts risk-free securities shariah compliant alternative : valuation based on return on a project of a similar risk profile and the average return on a well-diversified equity portfolio