x Abu Dhabi, UAESunday 23 July 2017

Gulf start-ups surge as venture capital floods in

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.

The technology investor Prasant K Gulati says his open-ended Smart Start Fund will make angel investments of between $50,000 and $100,000 to help develop high-tech ventures. Razan Alzayani / The National
The technology investor Prasant K Gulati says his open-ended Smart Start Fund will make angel investments of between $50,000 and $100,000 to help develop high-tech ventures. Razan Alzayani / The National

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.

 

rjones@thenational.ae

bflanagan@thenational.ae