UAE: Silicon Valley of Middle East
The UAE has started churning out success stories in startups like Careem, Fetchr, porpertyfinder.com and many more. This has certainly paved way for global venture capitalists (VCs) - who are shifting their focus and are open to tie up with local investors - to get the slice of most vibrant, buoyant and lucrative Dubai's startup industry. The city has bagged second spot in a latest research conducted by CBInsights under the theme 'Rise of the (global) rest - Identifying new startup and venture capital frontiers globally' and has placed the UAE at the sixth spot in top 10 frontier markets among the countries that take .01 per cent and .5 per cent of global disclosed VC deals.
Fawaz H. Zu'bi, founder, chairman and CEO of Silicon Badia, who has been at the forefront of the region's technology development efforts over the past 15 years, says: "Dubai has certainly caught the attention of regional VCs, and beginning to pop up more and more on the radar of global VCs as well, with some setting up offices too. The emergence of success stories out of the Dubai ecosystem is growing the confidence of investors to the potential of Dubai as a catalyst to capture fast emerging regional opportunities."
With the globe searching for new growth opportunities, Mena is seen as an untapped market, with Dubai as a critical gateway, complementing Amman, Cairo and Beirut. Regional VCs are recognising that some of the best talent are either in Dubai or want to be in Dubai. When attracting global talent to the region, Dubai is showing itself as a great fit as well. As far as global VCs, it is very important to understand, citing from examples in other emerging markets, that they in general like to be close to their investments and thus tend only to engage in a region or country seriously once they see traction and exits occurring, and an environment which will allow them the kind of proximity they have at home, says Fawaz, founder of Accelerator Technology Holdings, a venture capital group that has invested in over 50 technology companies globally.
Fawaz, who has also served as Jordan's Minister of Information and Communications Technology and current Chairman of the Crown Prince Foundation, says: "The UAE ecosystem, and in particular Dubai, I cautiously believe could be on a path to potentially rival New York, London, and Hong Kong as innovation and entrepreneurial hub, predominantly due to the fact that it operates like a global market, and not just a regional hub. I say cautious because in many ways, it is the newest and youngest of the innovation hubs, driven by a government that is known to invest and bring know-how from places that have done this before to try and introduce best practices. Having said that, in order to get there, a lot more work needs to be done as the UAE is not necessarily cost effective for startups to set up. It is not yet a frictionless startup ecosystem predominantly due to cost. Solving those challenges will equate to a startup industry where the talent, knowledge, transactions, and dreams are fully enabled to achieve their potential. While it is still a relatively young industry, founders and teams are quickly learning how to navigate opportunities, catching more and more attention of regional and global VCs. Do challenges exist, yes, but the expectation and trajectory have been mapped, and whether the tipping point happens in one year or in five, it is certainly going to happen, to the benefit of entrepreneurs, investors, as well as the regional technology landscape."
The CBinsight research points out that over half (58 per cent) of all VC deals globally go to companies located in the US. The UK, China, India, Germany, and Canada take the next highest
share(s) of VC deals, respectively. Other countries take between .5 per cent and 3 per cent of global VC deals. The disclosed VC funding in startup frontier markets has been estimated around $32 billion across 5,749 deals between 2012 - 2017 YTD (7/24/2017). During the same period disclosed VC funding in Dubai reached around $762 million across 64 deals 2012 - 2017.
The reports points out that Jakarta bags the top spot and takes the largest share of global VC deals since 2012, almost twice as large a share as Dubai, which is the next most-active hub among the markets that were identified. Jakarta companies saw 47 VC-backed deals last year. Dubai, Vienna and Istanbul are among the emerging hub cities and backed second, third and fourth largest shares of global VC deals. The frontier market unicorns - companies valued at $1 billion plus include GO-JEK, Careem Networks, LIfeMiles,
"Dubai is increasingly becoming an important hub for digital technology ventures. The Amazon-Souq transaction has recently sent ripples throughout the global investment community about the strategic opportunity in Dubai and the region as a whole, but we've actually seen steadily increasing investment appetite from international VC investors in Dubai-based startups over the past several years - notable examples include Lumia Capital's investment in Shedul and Careem, New Enterprise Associates' investment in Fetchr, Tiger Global Management's investments in Maktoob, Bayt, Souq and Wego, Naspers' investments in Dubizzle, Accel Partners' investment in HolidayME and 500 Startups' various investments in early stage companies," said Walid Hanna, founder, and CEO of MEVP.
"While Dubai is succeeding in attracting international investment, the international players seem to have a preference to co-invest with a local VC with on-the-ground presence in Dubai. For example, Lumia Capital invested in Dubai-based Shedul in a transaction led by MEVP. Thus, as the global investment appetite for investing in Dubai increases, local investors will have a strategic role in providing on-the-ground access and market expertise to internationals."
The key sectors like ecommerce, marketplace, fintech and healthtech are gaining the momentum in the region, Fawaz informs that he has invested in many companies that have a strong presence in the UAE, some of whom, like WeatherArabia, ReserveOut and Liwwa, lead in their industries.
"We see a growing footprint within the UAE. We trust our founders' instincts on where to grow, both their operations and their markets, and many have selected the UAE as a primary hub. Our plan is to continue to seek best of breed investment opportunities in the UAE. Previous generations have left major challenges in multiple sectors that are ripe for entrepreneurs to take advantage of today, such as in financial services, where our region has the largest number of unbanked globally. Another example is commerce, where eCommerce still make up less than four per cent of retail transactions. I invest in founders that are solving some of these real regional challenges or those that are truly enabling innovative solutions. Fintech is a particular area of focus, as are marketplaces and healthtech."
Venture capital investors are increasingly active funding private tech companies around the world. In tandem, technology and innovation hubs in emerging markets and the startups within them are becoming more prominent. "Regional VCs have no choice but to get involved in Dubai. We have one of the fastest growing and most comprehensive ecosystems in the Middle East. Global VCs have only just started really taking notice of our tech ecosystem: acquisitions like Maktoub by Yahoo and Souq by Amazon have brought their attention to this oasis of talent we've been fostering in the desert, Elissa Freiha, angel investor and founder of Womena.