The International Startup Guide: Dubai
Part of the “Entrepreneurship Unplugged” Blog Series: Blog 3
Reflections on Dubai’s Startup Ecosystem from the “Entrepreneurship Unplugged” World Tour.
For those of you who follow me on Medium or any of my social media channels like Twitter or LinkedIn, you will know that I have embarked on a new project this year: an “Entrepreneurship Unplugged” World Tour. If you haven’t had a chance to read about my tour yet, then feel free to catch up here.
I just completed the first leg of my journey a few days ago, during which I spent two weeks in Dubai. In that time, I was able to learn A LOT about their unique startup ecosystem. Having had my boots on the ground and meeting with so many entrepreneurs, the knowledge I gained about “starting up” in the Middle East is abundant.
For many of the 3M+ expatriates in Dubai, the city is the gate to a better, safer, and more prosperous life. While there are many ways of leveraging the resources in Dubai to achieve whatever dream you may have, starting a business is what I know most about and therefore the experience I will speak to here. In the first part of the blog, I’ll focus on starting a business in Dubai by providing a guide on how to find the right sources for entrepreneurship and cost estimates. The second part will give you a “30,000-Foot-View” of the MENA (Middle East and North Africa) startup activity in the context of Dubai as its hub. These are two key things to know about before pursuing any sort of startup dream.
STARTING A BUSINESS IN DUBAI: A COST BREAKDOWN 💰
Starting a business in Dubai, no matter if you decide to work with a local partner or launch in a free zone, isn’t cheap. So, before jumping it, you first need to decide which route you’ll take and weigh the relative costs. The following fees are an approximation, of course, but do offer an idea of the financial burden of being an entrepreneur in Dubai. These costs will vary depending on the actual size and type of the company, location, and other business needs.
1) Limited Liability Company (LLC)
LLCs can be formed by a minimum of two and a maximum of 50 people whose liability is limited to their shares in the company’s capital. LLCs offer flexibility in local trade, meaning you’re not restricted to the borders of a trade zone like in a Free Zone. Foreign equity in the company cannot exceed 49%; thus, a local partner is necessary and they must hold a majority share in the company. Generally, the minimum capital is Dhs 300,000.
2) Free Zone
Setting up a company in a Free Zone has many benefits, including having 100% ownership and being exempt from all import duties. The costs and benefits vary depending on the location and type of business. With 45 Free Zones in the UAE, there are many options to choose from; Dubai has 20 alone (see Gulf News’ “45 free zones in the UAE: Find the right one for your new business” for a great breakdown).
For more details on the costs of both LLCs and Free Zones, click here.
A “30,000-FOOT-VIEW” OF THE MIDDLE EASTERN STARTUP ECOSYSTEM 🌍
According to Investopedia, MENA, the Middle East and North Africa region, encompasses approximately 22 countries (see here for details). As there is no standardized definition for the area, different organizations define the region as consisting of different territories. The region accounts for 381M people — roughly 6% of the world’s population — and is a significant source of global economic stability (60% of the world’s oil reserves and 45% of the world’s natural gas reserves can be found in the region).
Dania Saadi of The National reports that MENA’s wealth is forecasted to increase annually by 8.8% in the next five years. Furthermore, total wealth in MENA, which grew 156% between 2000 and mid-2017, expanded faster than the global average of 140% during the same period.
The bottom line, which will come as little surprise, is that there is money to be spent in this part of the world. For startups specifically, this offers a chance to find investors and customers by offering innovative and unique services or products.
Hotbeds in MENA 🔥
In an interview with Techstars interview with Hasan Haider, the managing director of the “500 Startups MENA Fund,” Mr. Haider indicates that cities likes Cairo (Egypt), Riyadh (Saudi Arabia), Dubai (UAE), and Doha (Qatar) are hotbeds for business activity. The following map gives a breakdown of startup locations based on geography. The UAE, and in particular, Dubai, is the top location in the region followed by Egypt, Turkey, and Kuwait.
Investment and The Fundraising Ecosystem 🏆
According to MAGNiTT’s #MENAFounders Report, the UAE hosts 50% of the top funded startups in the region. In addition, menabytes.com published a “MENA Annual Venture Report” that illustrates the success in the MENA. By tracking 134 deals of 123 startups, they found that approximately $475M worth of investments were made in the region in 2017 alone. What’s more, 84% of that total, or ~$400M, went explicitly to the UAE. It’s clear, as they say, that “2017 was a great year for the startups in MENA,” offering promise for further success in the years to come.
Hottest Industries 🔑
The following graph indicates, based on the percentage of exit by startups, which industries are hottest. The most prominent examples within the hottest industry, e-commerce, are the acquisitions of Souq by Amazon and Namshi by Emaar Malls.
Breakdown of Investments 💸
In terms of investment by stage, only 12 out of a total of 117 deals detailed below (less than 11%), fall into the pre-seed category. The UAE alone has less than 8.8% pre-seed deals, indicating that there is a high likelihood of investment above $100K in that area.
The interesting thing I found while I was in Dubai is that, while there is evidently money to be spent, Emiratis are still very risk averse and business transactions are primarily dependent on trust.
As such, the question becomes: How do founders who aren’t locals bridge the “friends and family gap?” Due to unfamiliarity between an expat entrepreneur and investor (and the local investor’s commitment to trust), there is a major hurdle for some when raising money in Dubai. The current issue is finding a way to enable expats to overcome this hurdle so they can also take advantage of the startup ecosystem that is flourishing in Dubai.
Who are the Founders? 💡
According to the MAGNiTT’s #MENAFounders Report, the demographic breakdown of the top 100 MENA region startups looks like:
Nationality
- 68% of founders are from the MENA region. The greatest number of founders hail from Lebanon (20%), with Jordan a close second at 18%. Other represented nations in the top 8 for founder numbers are Egypt, Turkey, Palestine, KSA, Syria, and the UAE.
Number of Founders
- 79% of MENA’s Top 100 startups have either one or two founders.
Sex
- 12% of MENA founders are female.
Experience
- The founders in the MENA region have an average of 9 years of professional experience before founding their own startup.
- 35% of MENA founders have worked in consulting or finance for companies such as McKinsey & Company, strategy& and Deloitte.
- 35% of MENA founders previously worked at a startup, namely Bayt, Yahoo!, Zawya, and Dubizzle.
Education
- 41% of MENA founders graduated with an MBA degree: the top 5 schools attended are Harvard, Insead, London Business School, MIT, and Stanford.
- 48% of MENA founders have an engineering degree.
Success in Numbers 🔝
Some more fantastic details about the MENA startup ecosystem from MAGNiTT’s #MENAFounders Report:
Exits
- There have been 60 exits by MENA startups over the past 5 years. Only 38% of deals are disclosed, boasting a valuation of over $3 Billion. The graph below, from the report, offers a great illustration of 2012–2017:
- On average, an exit takes 7 years.
- The 10 biggest MENA exits, by disclosed acquisition, are as described below. The top MENA exit, to this date, is media.net, acquired by Miteno for $900M.
Origin of Acquirers
- 47% of acquirers are from the MENA region itself, followed by Europe (30%) and the USA (12%).
Successful VCs
- Notable exits for MENA VCs include the following. Every successful startup ecosystem needs exits for eventual reinvestment.
On my 14 hour flight back to Boston, I couldn’t stop thinking about my short but very intense startup journey. After having worked on this blog, I’m thrilled to see that many of my assumptions regarding the strength of Dubai’s (and MENA’s) startup ecosystem turned out to be true; they are emerging and thriving as real powerhouses.
In short, the region boasts plenty of customers with significant purchasing power, a sturdy startup ecosystem, and an increasing number of successful exits. It definitely offers a great place to consider beginning an entrepreneurship journey. What I will mention, however, is that regardless of the buzz, any founder seriously considering starting up in Dubai (or elsewhere in the region) should be acutely aware of cultural differences and language barriers.
Dubai, overall, was a truly fantastic experience. Personally, I left with an idea that I have already started working on; a gap in the market that I’d love to see being fixed.
What about you? What problem are you going to fix?
Marcel
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