Venture Capital and Entrepreneurship in the U.A.E.

Lisa Barrett Sweeny Chhabra Jaideep Dhanoa Nawaz Isaji

Abu Dhabi Action Learning Module 2013 Doing Business in the Middle East Topics

Venture Capital in MENA

While the VC industry in the region is still considered by some to be in the early phases of the industrys development life cycle, the increase in activity indicates there are a number of VC investment opportunities in the region and that the industry itself is growing despite the more macro level challenges. During the last three years 120 VC transactions were completed compared to 62 during the three years 2006 to 2008. This is in contrast to the wider private equity industry in the MENA region, which has seen a significant reduction in deal volume since 2009. The IT and the software sectors continue to be the most popular amongst the VC investors. Of the transactions in the region since 2006, 46 percent of the transactions were in these two sectors (representing 35 completed transactions since 2006). As compared to the US, where over half of the total transactions that took place were seed and Series A deals, this funnel effect is reversed in the MENA region, with more deals taking place at the Series B and C levels
This can be attributed to the fact that investors in the region remain relatively risk averse It also demonstrates that entrepreneurs and young growth businesses need to be better educated on the VC industry and the benefits that such investment can bring

Source: MENA Private Equity Association

Fares Boulos Affiliated Professor of Practice in Strategy

Venture Capital in MENA

Following a strong fund raising year in 2010, there were USD300million of VC funds raised in MENA during 2011. Although MENAs macro-economic fundamentals remain strong, the lingering effects of the global financial crisis together with the political instability in key markets such as Egypt has meant that fund raising remains difficult. Even so, entrepreneurial activity and start-up support in the UAE, especially in Dubai, is quite extensive.
In the past year, Baraka Ventures and Dubai for Acumen ran a business plan competition in the UAE. 60 entrepreneurs competed, representing 22 projects. Two groups won a prize of 100,000 UAE AED to startup their business, and received mentoring packages from three organizations to assist them with legal setup, branding and financial business planning. The Khalifa Fund provided 50% of the prize money.

The number of incubators and start-up support companies has also increased.
New incubation initiatives from free zone authorities, such as Dubai Silicon Oasis, Dubai Internet City, and potentially the Telecommunications Regulatory Authority (TRA), are expected to be launched. The UAE is also home to two Social VC companies, Baraka Ventures and Willow Impact Investors.

Source: MENA Private Equity Association

Fares Boulos Affiliated Professor of Practice in Strategy

Key Considerations for Entrepreneurs in the UAE

Ease of starting a business Ease of getting construction permits and registering property Availability of credit Attractiveness to investors (e.g. transparency, protection)

Taxation
Ability to enforce contracts Time and cost of doing business across borders

Process to resolve insolvency

Speed and ease of getting electricity

Fares Boulos Affiliated Professor of Practice in Strategy

Key Considerations for Entrepreneurs in the UAE

Indicator Highest Regional Performance (with Global Ranking) Saudi Arabia (10) Saudi Arabia (3) UAE (10) Saudi Arabia (1) UAE Global Ranking 42 12 10 6

Starting a business Dealing with construction permits Getting electricity Registering property

Getting credit
Protecting investors Paying taxes Trading across borders Enforcing contracts Resolving insolvency
Source: Doing Business 2012, IFC, World Bank

Saudi Arabia (48)

Saudi Arabia (17) Qatar (2) UAE (5) Yemen (38) Bahrain (25)

78
122 7 5 134 151

Fares Boulos Affiliated Professor of Practice in Strategy

Key Considerations for Entrepreneurs in the UAE

Global Ease of Doing Business Rank

Trading Across Borders

Getting Credit

Filtered Rank

Paying Taxes

Dealing with Construction Permits

Registering Property

Economy

Saudi Arabia United Arab Emirates Qatar Bahrain Oman

22 26 40 42 47

1 2 3 4 5

6 1 10 8 5

4 2 3 1 5

2 1 3 7 9

1 1 5 4 3

1 2 6 11 2

1 14 9 6 9

3 1 2 4 5

4 1 10 9 7

13 7 6 9 8

Source: Doing Business 2012, IFC, World Bank

Fares Boulos Affiliated Professor of Practice in Strategy

Resolving Insolvency

Protecting Investors

Getting Electricity

Enforcing Contracts

Starting a Business

10 9 2 1 6

Key Considerations for Entrepreneurs in the UAE

Amongst the countries in the Middle East, UAE ranks 2nd after Saudi Arabia. UAE ranks in the top 2 countries in the Middle East in terms of specific aspects doing business:
Getting Electricity Registering Property Paying Taxes Trading across borders Dealing with construction permits Getting credits

Fares Boulos Affiliated Professor of Practice in Strategy

Entrepreneurship in the UAE for UAE Nationals

Factor
Logistics of starting a business

Notes from the Khalifa Fund

Khalifa Fund provides support Competitiveness Office seeks to remove as many barriers as possible (e.g. waste management fee is waived until business actually produces waste)
Private, soft loans that are interest free (toxic assets the bank will not take on) Minimum equity contribution of 10% from entrepreneurs (waived if low enough family income) Education system does not currently naturally support entrepreneurship Khalifa is looking to create better base conditions (e.g. education) for creating entrepreneurs Currently most attractive for small-scale projects Looking to grow social entrepreneurship sector (e.g. female handcrafts) There may be room for non-nationals to partner with nationals to leverage available resources, although there are limited examples of true risk-taking

Funding and credit

Start-Up Support

Start-Up Ecosystem

Other factors

Source: H.E. Abdullah Saeed Al Darmaki

Fares Boulos Affiliated Professor of Practice in Strategy

Entrepreneurship in the UAE for Non-Nationals

Factor
Logistics of starting a business

Notes from INSEAD alumni

No bankruptcy law and no rights for non-Emirates Easy and fast, in dedicated Free Zone All business must be focused outside of the UAE Option of 49% equity, alongside 51% local partner, to start a company that targets the UAE market
Equity is a new concept in the region, funding can come from other geographies Cash flow can be a challenge if physical space is needed; to open an office requires significant spend right away Dedicated centers to gather and work together: free public work spaces with free wi-fi, good furniture, and coffee bars Free start-up weekends, but largely do-it-yourself training Strong network among INSEAD alumni Supportive culture, including strong informal networking Some say ecosystem is still young, with a somewhat limited number of true, full-time start ups Real estate and property development, as well as retail and luxury goods, are overall strong, consistent markets Direct access to government officials, small town feel, and strong networking culture are worth considering
Fares Boulos Affiliated Professor of Practice in Strategy

Funding and credit

Start-Up Support

Start-Up Ecosystem

Other factors

Source: Conversations with entrepreneurs in Dubai

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Profiles of expatriate entrepreneurs in the UAE

Profile Banker-turnedEntrepreneur Comments On the Start-Up Scene The fashion and design scene is booming. It is easy to start a consulting business. On what is different here no where else like it. People are willing to spend for perceived brand value. Networking is everything. Everywhere you go, you see people you know. Youre always networking. Other Factors to Consider

Left investment banking to pursue a fashion-related start-up ` in the UAE

Start-Up Enthusiast

On the Start-Up Scene I love it. The creative energy is amazing. I get to coach companies trying to launch here and expand. On the Start-Up Scene There is a small handful of people turning a profit. There is a larger circle of people who are part of the lifestyle but do not run their own start-ups. some huge successes, including e-commerce.

On what is different here Free work space is better than Silicon Valley, and it is easier to collaborate and find synergies. On what is different here Cash flow is challenging. Just paying for space can mean youre spending at least $4,000 a month from the start. The UAE is trying to foster entrepreneurship, to make risk taking-taking more acceptable here. Depending where you are from, the tax benefits are the key reason this is an attractive place to launch. This place is fun if you want to make your own map. I thrive on just figuring stuff out. 10

Created a niche coaching MENA entrepreneurs

` Start-Up-Starter on the Side

Works full time in a traditional role, running internet start-ups ` on the side

Fares Boulos Affiliated Professor of Practice in Strategy

The Ease of Setting up Shop in the UAE

Foreign investors setting up a company in the UAE are not required to have a UAE citizen act as 51% shareholder if they set up a company in a UAE Free Zone. A minimum of one director and one shareholder are required. Zero tax on corporate profits and personal income. Furthermore, there are no capital gains taxes in the UAE.

Regulatory Environment

Jebel Ali port is the worlds largest container port between Rotterdam and Singapore.

Connectivity
Easy access to 4th busiest airport in the world Dubai International Airport.

While starting a business in the Free Trade Zone requires renting physical space, there are ways to minimize costs.

Other
Ease of recruiting skilled and unskilled expatriate labour to support operations.

Source: Conversations with entrepreneurs in Dubai

Fares Boulos Affiliated Professor of Practice in Strategy

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