Venture capital is flooding into the Middle East as a host of new funds set up shop, promising new hope for struggling start-ups seeking investment.
At least five new funds are in the process of scouring the Middle East for the next Facebook, Google or Aramex as investors clock on to the growing number of small businesses in dire need of funding.
The five funds - Beco Capital, Y+ Ventures, Smart Start, Envestors and Virtuvest - are looking to invest tens of millions of dollars in start-ups and small businesses in the next few years. Individual investments vary depending on the fund but could be anywhere between US$50,000 (Dh183,640) and $2 million.
"The basis of every single economy is really the SME [small to medium enterprise] sector," said Salam Saadeh, the former managing director of investment banking at Shuaa Capital and now the co-founder and managing partner of Y+ Ventures, based in Dubai.
"Before in this region we did not have any help for such start-ups. There's been very little for budding entrepreneurs."
Most of the funds focus on the technology, mobile and media sectors but several are willing to consider any business model.
"It's about giving people money and a hell of a lot of mentorship," said Dany Farha, the co-founder of Beco Capital. "There are a lot of successful business models that have not extended themselves into this market yet."
The technology investor PK Gulati, based in Dubai, said his open-ended Smart Start Fund will make angel investments of between $50,000 and $100,000 to help develop high-tech ventures.
"We have the first $2m on the table, and $50,000 to $100,000 is what we are going to put in a typical deal - it could be individual or co-invested."
Neil Petch, the chairman of Virtuzone, said the free zone plans to invest in companies registered through it.
A sister company called Virtuvest is set to launch in the fourth quarter of this year and plans to invest in about 40 start-ups over the next two years. Typical investments will be in the region of $200,000, Mr Petch said.
Apart from investments from government-backed initiatives such as the Khalifa Fund for Enterprise Development and the Mohammed bin Rashid Al Maktoum Foundation, which generally support only Emiratis, early-stage funding and financing from banks has been difficult to come by in recent years in the UAE.
But lenders and investors are now seemingly more willing to part with cash this year as the demand from entrepreneurs grows.
Emirates Money, a consumer finance company and part of Emirates NBD, estimates there are currently 50,000 SMEs seeking capital or financing for their businesses in the UAE.
"The Khalifa Fund and the Mohammed bin Rashid Al Maktoum Foundation are purely for Emiratis. For the expat looking for funding here [in the UAE] at a start-up level, there's been no support, basically," said Edward Roderick, the co-chairman of Envestors, a company that links investors and small businesses and that is also now looking to launch a $20m fund to invest.
"The banks have not been lending at all unless you have three years of accounts and you need the money less after three years."
In the wider Middle East, the US government's finance arm, the Overseas Private Investment Corporation (Opic), said last week it would invest $150m into the $400m Riyada Enterprise Development Growth Capital Fund set up by Abraaj Capital.
This year, Saudi Telecom also helped launch STC Ventures, a $250m fund aimed at investing in companies in the information technology, telecommunications and digital media sectors.
On top of five funds setting up in Dubai, there are also three new incubator programmes based in the emirate.
SeedStartup, Silicon Oasis Founders and i360accelerators are all now starting to mentor, finance and nurture the next generation of start-up businesses throughout the Middle East.
SeedStartup will showcase the first seven graduate companies from its incubator programme to potential investors on a demonstration day on Thursday.
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A foster couple or family must:
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Name: Yousef Al Bahar
Advocate at Al Bahar & Associate Advocates and Legal Consultants, established in 1994
Education: Mr Al Bahar was born in 1979 and graduated in 2008 from the Judicial Institute. He took after his father, who was one of the first Emirati lawyers
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The National's picks
4.35pm: Tilal Al Khalediah
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6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
World Cricket League Division 2
In Windhoek, Namibia - Top two teams qualify for the World Cup Qualifier in Zimbabwe, which starts on March 4.
UAE fixtures
Thursday, February 8 v Kenya; Friday, February 9 v Canada; Sunday, February 11 v Nepal; Monday, February 12 v Oman; Wednesday, February 14 v Namibia; Thursday, February 15 final
Top 10 most polluted cities
- Bhiwadi, India
- Ghaziabad, India
- Hotan, China
- Delhi, India
- Jaunpur, India
- Faisalabad, Pakistan
- Noida, India
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UAE tour of the Netherlands
UAE squad: Rohan Mustafa (captain), Shaiman Anwar, Ghulam Shabber, Mohammed Qasim, Rameez Shahzad, Mohammed Usman, Adnan Mufti, Chirag Suri, Ahmed Raza, Imran Haider, Mohammed Naveed, Amjad Javed, Zahoor Khan, Qadeer Ahmed
Fixtures:
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Wednesday, 2nd 50-over match
Thursday, 3rd 50-over match
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Dubai World Cup nominations
UAE: Thunder Snow/Saeed bin Suroor (trainer), North America/Satish Seemar, Drafted/Doug Watson, New Trails/Ahmad bin Harmash, Capezzano, Gronkowski, Axelrod, all trained by Salem bin Ghadayer
USA: Seeking The Soul/Dallas Stewart, Imperial Hunt/Luis Carvajal Jr, Audible/Todd Pletcher, Roy H/Peter Miller, Yoshida/William Mott, Promises Fulfilled/Dale Romans, Gunnevera/Antonio Sano, XY Jet/Jorge Navarro, Pavel/Doug O’Neill, Switzerland/Steve Asmussen.
Japan: Matera Sky/Hideyuki Mori, KT Brace/Haruki Sugiyama. Bahrain: Nine Below Zero/Fawzi Nass. Ireland: Tato Key/David Marnane. Hong Kong: Fight Hero/Me Tsui. South Korea: Dolkong/Simon Foster.
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Occupation: Key marker and auto electrician
Hometown: Ghazala, Syria
Date of arrival in Abu Dhabi: May 15, 1978
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Favourite place in UAE: Abu Dhabi
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Ms Yang's top tips for parents new to the UAE
- Join parent networks
- Look beyond school fees
- Keep an open mind
