ABU DHABI & DUBAI // Here are some comments and information that I’ve mined to provide any of you with an insight of the startup and Venture Capital landscape in the UAE.
The positives about start ups in the UAE is that once established it is easy to leverage of the infrastructure in the region, and the UAE serves as a central hub for the MENA region and doing business on a wider Middle East basis is fairly uncomplicated.
Additionally the transient nature of the majority of the population allows for customer loyalty to be retained and spread internationally, which is great for online and service oriented businesses.
The two biggest issues facing start-ups in the region are the lack of early stage capital and a talent pool that caters for this stage of business.
The talent pool is small both in terms of full time management resource, technologists, and board level experience. Many start-ups face the dilemma of having to import talent but not having the financial resource to support this talent, and often times, many hire resource that is either not right for the stage of business or don’t have the relevant talent.
Capital is perhaps the biggest challenge for start up’s in the UAE. There isn’t an established angel and venture capital community like there is in California, Boston, London, and Mumbai. Whilst angel investors do exist, it is fragmented and not structured, and in most cases funds are made available from friends and family.
In addition, there are entities such as (i.e. Seed Start-Up, Dubai Silicon Oasis, and Wamda) that provide support for start-ups, but again resources are scarce and the competition fierce.
Another challenge in the UAE is that start-up costs are high, in order to establish a business in the UAE, you need to be licensed as either a freezone or LLC company and start-up costs, as a minimum, will be approximately $10,000
What is available
Establishments such as The Khalifa Fund and Dubai SME provide financial and other support and experience to start-ups, however their remit is limited to UAE nationals.
In 2014 alone, Aramex founder, launched a $75m fund as part of Wamda Capital, part of the private equity firm Abraaj Capital. Middle East Venture Partners announced a $50m fund in March, while the Lebanon-based Berytech has a $30m to invest in technology start ups.
Another big fund is Dubai-based i360, which signed up to a $100m global fund of which 25 per cent is allocated to the Mena region.
Other companies investing include the Jordan-based Oasis500, Sawari Ventures, Seed-Startup and Abu Dhabi’s twofour54 Ibtikar.
For the VC model to work, you need to have large companies that can acquire small companies to create exit opportunities. Where you have seasoned professionals who have been in the industry for 10 to 15 years, and who can become mature founders who can start new companies.
Furthermore, the VC model is based on being in a mature system (like Silicon Valley) when you have specialised funding across the growth stages – angel, seed, early, growth, late – where a company can sail seamlessly from seed and early to late stage funding in two years, without having that much friction with investors.