As the UAE is set to become the innovation capital of the region, it has also managed to lead in venture capital funding. In 2022 Abu Dhabi was announced as “the Capital of Capital” and with it the “Falcon Economy”. The business-friendly environment has attracted an immense talent pool from across the world and the UAE continues to create opportunities that help it dominate the realm of venture capital investing.
The business landscape is changing fast in a hyper-connected world, with more than 75% of companies looking to adopt emerging technologies in the next five years. But the UAE has solidified its position as a leading hub for startups and venture capitalists alike. In 2022, amongst the $4bn raised in the MENA region by startups, the UAE stood on top, fetching the most investments to the tune of $1.85 bn across 250 deals.
I’m a Start-Up Founder, Where’s the Money?
It is important for startup founders to identify the right source of capital for their business idea. They should approach firms that have previously invested in companies like theirs and also ensure the firm invests in the stage of funding they seek. Once you identify investors interested in your startups and projects, set the foundation for your relationship by making sure your expectations match. Getting connected to the right VC to fund your business takes a thoughtful and targeted approach that begins with research.
These are the different types of startup investors in the UAE, each with their own unique approach to investing and varying incentives for doing so:
Traditional VC Firm
Individuals or firms with a set of General/Limited Partners that are more likely to invest in early-stage, high-potential startups in exchange for equity or ownership in the company. These classic venture capitalists have a reputation for providing significant funding to early-stage startups.
International VCs
According to a report by startup data company Magnitt and Emirates Development Bank, international (non-MENA) investors accounted for 51 percent of total active investors backing UAE-based startups. Even Ray Dalio, the founder of Bridgewater Associates, a hedge fund giant, is expanding his operations in the Middle East, particularly in the UAE, by opening a branch of his family office in Abu Dhabi.
Native VCs
Web3 and Blockchain native VCs are venture capital firms that specialise in investing in startups that are building decentralised applications and Blockchain-based solutions. These firms typically have a deep understanding of the underlying technology and are focused on identifying and supporting the most promising projects in the space. They may also be associated with Blockchain-focused accelerators or incubators.
Angel Investors
They are typically high-net-worth individuals who invest their own money in startups in exchange for equity in the company. They are often the first investors in a company, providing seed funding to help get the business off the ground. Angel investors often have a good understanding of the local market and culture, and they help their portfolio companies with funding, advice, and connections. Angel investors in the UAE may invest differently than angel investors from other regions, depending on the local economic and political situation and the sectors that are relevant to the UAE economy.
The Emirates Angels Investors Association, a non profit organisation that was established in 2020, supports the early stage investment Ecosystem through their network of angel investors, who focus on tech based startups across different sectors.
Family Office
Family office VCs invest the wealth of a single wealthy family or a small group, providing funding to startups for equity. Investment is based on business interest aligned with the family’s portfolio. With the surge in Ultra High Net Worth (UHNW) individuals in the region, the family office market in the Middle East is undergoing significant change. Family offices follow mainly traditional legacy, yet investment strategies are changing under the leadership of a younger population. Instead of preserving wealth, family offices are looking to diversify to enhance their wealth. There is a focus on the digital and Fintech sector, ESG investments and sustainability. In March 2023 The Emirates Family Office Association was officially launched at the Abu Dhabi Global Market (ADGM) led by ADGM’s CEO Mr. Dhaher Bin Dhaher Al Mheiri, signifying a major milestone in the development of family offices in the UAE and globally.
Sovereign Wealth Fund (SWF)
A Government-backed investment fund, sovereign wealth funds pool capital from a country’s reserves to invest in various asset classes, including venture capital. When it comes to investing in early-stage startups, SWFs usually take a cautious approach, as these investments are inherently risky. However, some SWFs have established specialised venture capital arms that focus on investing in startups with high growth potential. Anyone looking for investments for their seed funds should consider other venture capitalists or specialised growth funds such as the Dubai Future District Fund (DFDF) because sovereign wealth funds provide significant amounts of capital to startups with innovative ideas and high growth potential.
If you’re able to focus on the right investor audience, from the diverse pool of investors, raising capital in the UAE should not be too challenging. Venture capitalists have their unique goals, preferences, and expectations and it is critical to understand the target audience and tailor your startup pitch accordingly. Whether pitching to local angel investors or global venture capital firms, entrepreneurs need to be strategic and focus on building strong relationships and communicating their value proposition clearly.
The UAE’s National policies are a testament to the Government’s dedication to establishing the UAE as a haven for startups and entrepreneurs. With the transition of the UAE into a knowledge-based digital economy, the Crypto Oasis is committed to sustaining the Ecosystem that helps connect startups with a diverse range of VC firms.