Dubai best place for venture capitalists

Tie-ups with global VCs offering new generation of entrepreneurs the right platform for their innovative ideas

  
Image used for illustrative purpose. The multi-faceted and all-inclusive incubator and accelerator model will focus on growing, incubating and funding talent.

Image used for illustrative purpose. The multi-faceted and all-inclusive incubator and accelerator model will focus on growing, incubating and funding talent.

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The rapid growth of the UAE's startup industry is evident as Dubai is being eyed as a gateway to the region by global venture capitalists (VCs) trying to spread operations in the Middle East.

The local community too has witnessed layers of growth. Local venture capitalists have not only consolidated their position here but are open to tie-ups with global VCs offering the new generation of entrepreneurs the right platform for their innovative ideas.

"It's obvious that the UAE technology investment community is becoming a place where traditional and non-traditional capital converges, which is a benefit for all stakeholders - especially entrepreneurs. We are seeing international founders and professionally seasoned entrepreneurs express interest in what is happening in the UAE, and in particular Dubai. That is partially due to the excitement and opportunity that Dubai is projecting on a global level but also the confidence founders have in global investors investing locally," said Ramzy Ismail, director, Techstars Dubai.

Techstars Dubai, in partnership with Ginco, is the first US accelerator and venture capital fund to establish an office in the UAE. It has invested in over 1,300 startups globally alongside top global companies such as Sony, Barclays, Amazon and now Ginco.

The UAE investors and those deploying capital in the country have begun to come in all shapes and sizes - from family offices to MNCs to growth stage capital getting involved in earlier stages. Again, that has a net positive effect on the ecosystem. From word of mouth, it seems that a few of the well-known VC funds in the UAE should be closing new funds in the second and third quarters of this year, which is another positive sign for the community.

"I think the next step of maturity is the transparency that comes with investment disclosure, data availability and fund managers beginning to lead the way in creating the next layer of data that groups like Arabnet, MENAPEA, and startups like Magnitt are building. Diversity of investors would be the next step as well," added Ismail.
Some of the top trends expected in the second quarter is mergence of new family offices playing in the VC space and existing VCs in Saudi Arabia, Egypt and the UAE actively looking for opportunities to invest. The highlights would be TechStars Demo Day, ArabNet competition and MiT Finals taking place in Q2, according to the latest Q1 report released by Magnitt.

From previous years' reporting, we see a general lag in funding announcements since the beginning of the year. "Q2 is generally the most active quarter of the year. We have seen VCs closing funds, new VCs and family offices entering the market. With Ramadan and an extended summer period, I anticipate there will be a rush of announcements leading up to the summer months with a strong Q2 period similar to previous years. How to create an environment where founders are able to cost effectively startup, go through the possibility of failing while still be incentivise to startup again. Entrepreneurs and founders learn a lot from their journey, being able to share this experience and be incentivise to do so is key," said Philip Bahoshy, CEO and founder, Magnitt. "There need to be more access to early stage funding to help fuel early stage ideas and to create a framework for individuals, angels and family offices to make early stage investments within a legal framework that is a win win for all parties."

The second quarter will see an uptick in investments leading up to and during Ramadan before the summer lull with increase in activity in number of deals and amount invested across the Mena region.

The Magnitt report states that the market is awaiting confirmation of VCs to close their new funds to start deploying with several deals that have been closed but yet to be publicly disclosed. There has been discussions that Careem is doing a $500 million late stage fund raising; this would put Mena firmly on course for a record year of funding.

Magnitt's first-quarter report for 2018 shows a total of 62 deals and the disclosed amount invested is $35.54 million. The fourth quarter recorded 74 deals with disclosed investment of $69 million. However, year-on-year figures show a surge in deals and decline in value.

"I think we should not look at each quarter in isolation. That said, we tend to witness generally an increase in the number of investments completed in Q2 and Q4 of a certain year. However, the number of investments completed is not necessarily correlated to the dollar value of the investments," Walid Hanna, founder and CEO, MEVP, said.

"For instance, as Mena market leaders in the region grow further, they start looking for later stage capital and we at MEVP are trying to bridge that gap now. Later stage opportunities require more money as well as more time to conduct a solid due diligence and to bring other investors onboard. We still believe that 2018 will be a great year from a fundraising standpoint with more and bigger deals taking place as companies mature and the ecosystem develops."

The UAE's startup ecosystem has multiple players including government, investors and entrepreneurs and each player has to contribute to the creation of a viable technology ecosystem. Government support can be related to encouraging and facilitating the creation of startups, supporting incubators and accelerators as well as regulating the sector.

"The government's support to educational institutions is also crucial to catalyse the R&D space. Investors on the other hand should be focused on picking and backing winners; real leaders who will enter markets and win business across the region. It also helps to be regulated as this increases investor confidence overall. This is something we have done by securing an asset management licence from the DFSA and we invite other VCs in Mena to follow suit as it is in the best interests of the whole VC ecosystem. But most importantly we need to have investors covering all 'stages' of investments, ranging from idea stage-up to late stage investments. There is a lot of solid early stage UAE investors, but we believe there exists a market gap at the Series B+ level, which we're actively working on bridging with our latest MEVF III fund," added Hanna.

500 Startups- a venture capital firm on a mission to discover and back the world's most talented entrepreneurs -has invested in over 2,000 companies via our 4 global funds and 14 microfunds dedicated to either specific geographic markets or verticals. Our 100+ team members are located in multiple locations worldwide, with 500 Startups' global portfolio of investments spanning over 60 countries

Sharif El-Badawi, Partner, 500 Startups, said: "We witnessed a record year in 2017, and while Q1 2018 was somewhat flat in terms of total dollars invested for the region (roughly $36M in each), we do see a spike in number of deals to almost double year on year (62 deals vs 35 deals), according to MAGNiTT. The UAE continues to lead in terms of funding round size and absolute dollars invested in startups in the region, whereby fewer deals are garnering larger individual investments. This can be compared to Egypt which leads in terms of number of deals getting funded, but not absolute dollars. I expect Q2 to continue growing strong in the UAE and the region. Many companies we've talked to will be coming up on their anniversaries of previous funding rounds and starting the fundraising process again for their next round. Overall, investment rounds in the UAE are becoming bigger at all stages and there's no reason to expect that not to continue."

Badawi also thinks, UAE VCs are among the most sophisticated in the region and continuing to define themselves and bring value the to their portfolios. "Being in the UAE helps tremendously in terms of the connectivity they have with industry leaders across the spectrum, which ultimately helps startups connect with regulators, customers, partners and potential M&A. What is known in the business world to be attractive about the UAE also holds true in the startup ecosystem. Even in the connected world we all live, face-to-face, proximity and serendipity still play a crucial role in business and the UAE holds the crown as such as a hub. Where we can improve, is to somehow enable a stronger technical talent pool in the UAE as I believe the talent crunch will be felt as the leading startups try to grow and expand." -sandhya@khaleejtimes.com

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