Dubai’s long-standing status as the de facto travel and business hub of the region is evolving – the emirate’s government is keen to drive investment in the region and is actively doing so thanks to several initiatives including The Future District Fund and Hub 71.
And, as more tech savvy entrepreneurs choose to base themselves in Dubai, it’s also time for investors outside the region to sit up and take notice of the opportunities that abound in the emirate – where there has been a swift increase in VC activity thanks to several factors: more startups and VC fund managers living in the region, increasing inbound investment, and increased activity from Middle Eastern sovereign wealth funds.
VC investors traditionally like to invest in their ‘own backyard’ but, in tandem with the evolution of Dubai’s VC culture, this trend has also been changing. Does this make it the ideal time to invest in Dubai businesses?
“Dubai is a unique, centrally located ecosystem that brings together interesting entrepreneurs from all over the world. Emerging markets are adopting tech from the West, providing opportunities for entrepreneurs to create and service markets in a way we haven’t seen in years,” says SPV’s Alex Bertha. SPV is a venture capital firm based in the US, focusing on equity investments in early-stage technology companies in frontier markets.
But the fact remains that the Middle East is still relatively unknown to US investors. US firms that don’t have a presence here haven’t been willing to go in and invest, but Bertha believes that is about to change.
“As more companies start to exit the environment and sustainable companies are established, Dubai will not just be a place for fundraising, but also a central tech hub for the region where people come from all over the world to create and incubate companies.”
Bertha is upbeat about entrepreneurship in Dubai. “It is refreshing to see the calibre of entrepreneurs that migrated to the region. It is a unique subset of entrepreneurs, people with global networks and proficiencies working across markets – that is exciting for us to see.”
Rupert Tait, co-founder of Procurified, recently closed their $1.1m seed round. Having secured strong local and international investors, he notes it wasn’t that easy to find the right local investors. He found that they take a different approach when looking for investment opportunities, focusing more on revenue as an indicator of success for startups.
“There is a distinction between considering a startup early in the seed stage based on revenue generation, and considering a startup based on the founders. It speaks to the experience of the investor and the confidence they have in themselves too. Considering investing in a startup based on the calibre of the founders is, in my opinion, bold and smart,” Tait comments.
“We absolutely look for good traction and potential markets but, especially at seed stage, we are less focused on the revenue element and more focused on who’s really behind building the company,” adds Bertha.
“At seed stage, things change so fast, so I’d rather get to know the founders at a more personal level, look deep into their entrepreneurial background, observe their work ethic and see if we think they are the kind of person to take a seed stage company to a billion-dollar exit,” says Bertha.
“We want to invest in entrepreneurs that, even if they fail, are the type of entrepreneurs that are good at what they do; building, creating and making things happen,” says Bertha. “We look at people who are relatable to us, easy to talk to, who can listen and take advice. More often than not, these people have a track record of creating businesses, they’re not first time CEOs, and these ‘repeat founders’ are what attracts us too.”
Tait reflects on past calls with regional investors: “I was not asked enough about my past experiences or if I can deliver on what I say. There were very few VCs that I’ve spoken to that actually go into that level of understanding and generally there is a reliance on monthly recurring revenue or MRR.”
“When Alex and I first met, the conversations we had at the early stage were based on getting to know each other. We spoke about my passion for trail running almost as much as the business opportunity at Procurified. It’s refreshing to see VCs looking at startups as a product of a person rather than a person creating a product,” Tait adds.
“Yes, there are traits in people that attract us. In Rupert’s case, anyone who has the dedication and persistence to train for and compete in ultra-marathons, I believe, can take a seed stage company from A to B and get it done. We really value that,” says Bertha.
“Dubai seems to be a hotspot for entrepreneurs from all over the world working and creating together. For seed investments, we see the same type of passion, drive and massive market opportunities we’ve come to recognise in the US. The city has created an environment that facilitates all this through some early-stage accelerators and financial incentives and that’s exciting for entrepreneurial development.”
In the Middle East, the UAE is, unsurprisingly, receiving the most funding at 71 percent (mainly through financial centre free zones, such as Dubai International Financial Centre, and ADGM).
And with that investment comes expectation of returns. So what do overseas investors expect from a booming new market like Dubai?
“I think we realise that returns might be a little different in this market. We also recognise that it might take longer to reach profitability. With longer runways, we’re hoping that startups will manage cash flow better, this is key. If we can see that an entrepreneur can manage that, they have a big advantage. If a startup such as Procurified can bootstrap their company for two years on $100,000, then we know they are cash efficient operators and paying close attention to business fundamentals. They can make more happen with less,” says Bertha.
“Dubai will be a key driver and a central hub for technology over the next decade. It has already begun to lay the necessary infrastructure for entrepreneurs all over the world which will facilitate creativity and innovation in tech. I believe as more great minds move to and start creating in and around Dubai, there is no doubt that some of the greatest companies of our time will be created in the region.”