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| Source: Dubai Chamber. Cover for the white paper. |
The report, Helping Startups Access Funding, was published in collaboration with Roland Berger, and released during Dubai Startup Hub’s Entrepreneurship Advocacy Series event in March. Dubai Startup Hub is the entrepreneurship arm of the Dubai Chamber of Commerce and Industry. The initiative provides clarity and direction in the journey of a startup entrepreneur through a wide range of programmes, workshops and training.
The white paper also called for allocation of more investment for startup incubators and accelerators, as well as for closer cooperation between universities, government agencies and investment funds to expand the scope of investments, to support the growth of startups in the UAE.
Navigating the complex local funding ecosystem, high hurdle rates to qualify for equity capital, and insufficient risk appetite of debt lenders were listed as key challenges for startups in the UAE. In addition, many banks still require startups to have an established company track record of at least three years before they can qualify for funding. The report also found that investor appetite is limited to a select number of business models, technologies and sectors.
Although the UAE has successfully attracted a diverse set of investors, interest in startups as an asset class is still relatively new, the white paper noted, with the bulk of investment still primarily directed towards other asset classes such as real estate and commodities. The document added that a lack of reliable market data adds complexity, cost and uncertainty when it comes to due diligence.
Building sector and technology specific ecosystems is the way forward to further elevate the role of startups in the economy, the report said. This in turn would help drive the UAE forward in its mission to be a world leader in innovation, and develop an entrepreneurial ecosystem where startups, small and medium sized enterprises (SMEs), and major corporations can promote the use of modern technology, leading to the diversification of the economy, and the creation of new job opportunities.
The white paper also underlined the need to build more incubator capacity to cater to the growing number of entrepreneurs, adding that most of the currently available spaces still come at a cost that require start-ups to run on a self-financed basis for a fair period.
Startups still continue to experience some degree of difficulty in opening a bank account in the UAE, largely due to the various risk policies adopted by banks, the report said, calling on government entities to play a leading role in reducing the risks incurred by banks in financing early-stage startups.
On a positive note, the report said the building blocks for a thriving ecosystem are now in place, noting that the number of startups in the UAE has grown considerably in recent years as the country has become a preferred regional destination for entrepreneurs operating across a wide variety of sectors and fields.
Results of the new white paper were based on insights obtained by a survey of banks, startups, venture capital firms, angel investors, incubators, accelerators, and government entities in the UAE.
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