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UAE Freezones Biz News Updates
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Funding to accelerate for UAE tech companies
Google commissioned the study in 2017 as part of a six-country study
including Turkey, Russia, South Africa, Nigeria and Saudi Arabia
Funding for UAE technology companies, which reached $1 billion in 2016, will
rise amid increasing interest from foreign investors and more exits,
according to a survey.
The UAE, the Arabian Gulf’s second-largest economy, is responsible for
nearly 40 per cent of the Middle East and North Africa region’s top exits –
the point at which an entrepreneur sells his stake in a company to another
business or investors –said the Google-commissioned report compiled by OC&C
Strategy Consultants in collaboration with Wamda.
Souq’s acquisition by Amazon in 2017 for nearly $600 million set the record
for the region, and it was quickly followed by deals involving Namshi ($151m
for a 51 per cent stake) and JadoPado (for an undisclosed amount) in the
same year.
“We strongly believe that funding for venture financing for early-stage
technology companies [in the UAE] will continue to increase,” said Walid
Faza, partner at Wamda Capital, on the sidelines of the report's release in
Abu Dhabi on Tuesday.
The study also recommended that UAE tech companies go cross-border,
typically into Saudi Arabia and/or Egypt, to achieve scale-up level.
Scale-up refers to a company that has already validated its product within
the marketplace and has proven that the unit economics are sustainable. Most
companies achieve this after successful funding rounds and most of the UAE’s
largest scale-ups operate in up to 13 countries, said the report.
“Companies receiving the investment will look to grow their businesses on a
regional basis with particular focus on the GCC, the region's largest
market,” said Mr Faza.
As businesses scale up and establish a regional footprint, they will
naturally begin to attract potential acquirers that are interested in a
regional multi-country presence, he said. “Thus fuelling M&A activity and
exits, and in turn validating the risk taken by the VCs.”
In the UAE, business set up and first-year operating costs for tech
start-ups are some of the highest globally, although the low tax nature of
the ecosystem means that ongoing costs are lower than in other places, added
the report.
Most UAE start-ups are in e-commerce and infrastructure/software as a
service domain (69 per cent), while more than half of them (52 per cent) are
B2C ventures.
Selim Edde, head of public policy and government relations at Google in Mena,
said UAE entrepreneurs still face key challenges such as high operating
costs, complex set up requirements and limited cross-border linkages.
"We have recommended key improvement areas in policies and regulations that
better enhance the tech entrepreneurship ecosystem in the UAE.
“[These range from] from reduction in set up costs to digital policies that
support sustainable operations growth for new businesses, as well as
encouraging youth to become entrepreneurs without the fear of failure,” said
Mr Edde.
Google commissioned the study in 2017 as part of a six-country study
including Turkey, Russia, South Africa, Nigeria and Saudi Arabia.
Given the relatively high costs of employment within the UAE at the early
stages of a tech company, Egypt and Jordan are key markets these companies
to source tech talent from, the report said.
“Egypt and Jordan markets provide a sizeable pool of talent at a favourable
cost. Although the governments have invested to improve the tech and coding
skills of the local population, most of these initiatives will take time to
be fully realised,” it said.
February 13, 2019 |
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Courtesy The National
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