Not long ago, many young people in the UAE found it difficult to secure funding for a start-up or new business idea. Risk-averse banks were reluctant to listen to entrepreneurs and scrutinise their business plans, and even if they were willing to support a start-up with funds, they would do it at a hefty interest rate and not necessarily without collateral.
But things have changed over the past few years. The UAE economy dominated by large family conglomerates needs to be more flexible and allow an ecosystem of entrepreneurship and innovative small to medium-sized enterprises (SMEs) to develop as its strong economic position based on oil and trade will not last forever and disruption of traditional structures is the dictate of the moment.
Arif Naqvi, Group Chief Executive of Abraaj Capital, the region’s largest private equity firm with more than $6 billion (about Dh22 billion) under its management, goes even further to say, “one of the most dramatic changes in the region’s economic thinking since the Arab Spring was the realisation that smaller firms, not big state-linked ones, would be the engine for growth because they could create more jobs.”
Christopher M. Schroeder, a US internet expert, venture investor and author of Startup Rising, a book about the entrepreneurial scene in the Middle East, says he feels that there is nothing less than an entrepreneurial revolution taking place in the region, with thousands of talented entrepreneurs between Dubai, Amman, Beirut, Istanbul, Cairo and Damascus developing IT innovations, building e-commerce and social networking sites.
Financing enterprise
Banks in the UAE have started paying attention to SMEs and the government has set up initiatives to support them, such as the Khalifa Fund for Enterprise Development in Abu Dhabi, as well as an equity fund and other financial help by Dubai SME — Dubai’s supporting body for small and medium businesses. Funding opportunities by the Mohammad Bin Rashid Establishment for Young Business Leaders — a government incubator — are also being offered.
However, many local start-ups are still struggling to collect cash for their endeavours and have to look for private financing. This is where a growing number of venture capital and seed funding firms come to the rescue. With the perception that the Arab world has embraced the refreshing breeze of entrepreneurial spirit, a new world of opportunities is opening up in the fields of innovation and ideas as well as with regards to new investment and profit opportunities.
Among the larger initiatives to pop up is the start-up fund Riyada Enterprise Development Fund created by Abraaj Capital and its subsequent foundation of an early stage fund named Wamda Capital, which defines itself as an “entrepreneurship-enabling company for the Middle East and North Africa”.
“The Arab world is teeming with aspiring entrepreneurs who need nurturing, guidance, mentoring, financing…,” says Fadi Ghandour, Chairman of Wamda. Its fund invests in early stage start-ups in the Middle East and North Africa (Mena), targeting both tech and non-tech-focused opportunities. Ghandour also co-founded seed investor MENA Venture Investments, a seed capital firm that is focussed on early stage tech companies in Mena and beyond.
“Large pools of money are now being set up to invest in the right venture. More than before, investors believe in the economic, social and financial value of seeding start-ups,” Ghandour says.
Apart from the aforementioned venture capital firms, a number of others have been set up in the recent past, such as East Capital Partners, Emerge Ventures, twofour54, MBC Ventures, i360, Envestors, Beco Capital and Oasis500. Additionally, crowdfunding platforms such as Eureeca and Aflamnah have also entered the scene.
Banks are finally realising the new situation and have started opening up for small businesses. Financing initiatives for start-ups and SMEs include the SME Advance programme of Gulf Finance Corporation, which provides specially designed loan packages, as well as the SME funds of Emirates NBD and HSBC UAE, and dedicated SME loan and banking services provided by the National Bank of Abu Dhabi, among others. Financial support of these initiatives includes term loans for new enterprises, working capital finance, bank guarantees and letters of credit for SMEs.
Other opportunities to find funding or at least accelerator support come from several semi-government and private initiatives in Dubai such as
Tecom Investments, which oversees Media City, Internet City, Knowledge Village and Studio City and can help with office space and funding. In the telecoms sector, the ICT Fund, created by the UAE’s Telecommunications Regulatory Authority, can assist start-ups, as can the Dubai Enterprise Centre, a business incubation hub located at Dubai Airport Free Zone. Dubai Silicon Oasis has launched its own venture capital fund and is also nurturing a network of technology-focused venture capitalists for additional funding.
The other option is SeedStartup, one of the first private business accelerators and seed funding companies founded in Dubai. It focuses on digital media, web, mobile and software start-ups, normally investing $20,000 for a 10 per cent equity stake. It is open to all Middle East start-ups as well as start-ups from around the globe and offers a three-month mentorship-focused accelerator programme.
Start-up Saudi
Looking beyond the UAE borders, Saudi Arabia also has a strong start-up support landscape that includes N2V, a venture capital fund that supports Arabic consumer web and mobile enterprises in e-commerce, digital publishing, social media, games, web forums and user-generated content. Its subsidiary, StartAppz, focuses on bringing early-stage mobile applications to the market, whereby such start-ups can be located anywhere in the Gulf, and it will send its mentors there.
Saudi Telecom and its competitor Mobily have recently launched their own respective funds to invest in and support the development of seed-stage start-ups and tech firms throughout the Mena region.
