There has never been a better time to invest in the Middle East and North Africa (MENA) region.
Recent analysis by MAGNiTT shows that 2021 was a record year for investment across MENA, and the United Arab Emirates (UAE) ranked top in the region for both deal count and funding. UAE-based start-ups raised $1.2bn across 155 transactions in 2021, and 2022 is set to see even more funding activity.
Venture capital (VC) firms looking to make the most of this opportunity need a location with a thriving innovation ecosystem, excellent deal flow and a regulatory environment that enables and encourages growth. This is why so many VC firms are choosing to operate in Dubai.
“Dubai is the capital of the VC space in the Arab world,” says Walid Hanna, founder and CEO of Middle East Venture Partners (MEVP). “Dubai is where the best talent and the best infrastructure is.”
Dubai: at the crossroads of emerging markets
Dubai is ideally located within the Gulf Cooperation Council region, with direct access to MENA’s emerging markets, as well as global capital and businesses. The emirate acts as a bridge between the leading financial centres of London and New York in the West, and Hong Kong and Tokyo in the East. Businesses in Dubai are also positioned close to the key geographies of Saudi Arabia, Pakistan, India and countries in Africa.
“Dubai is a natural crossroads for emerging markets,” says Khaled Talhouni, managing partner of Nuwa Capital. “It is located between East and West and is a great springboard for the MENA region.”
Being based in Dubai is a badge of honour for businesses and investors – one that is recognised both regionally and internationally. “Limited partners prefer to invest in funds located in Dubai because they know they will benefit from its reputation,” says Hanna.
As well as bringing world-class businesses to Dubai, this reputation also attracts regional and global talent. Dubai is renowned for its modern lifestyle and high quality of life, and offers a friendlier visa system than other nearby jurisdictions. For start-ups, this is an enormous advantage, fostering one of the highest-quality workforces in the Middle East. For VC firms, it means the most ambitious innovation is happening here.
The government of Dubai provides support to VC firms, with the aim of nurturing Dubai-based innovation. VC firms can access the vehicles they need to raise capital and deploy investments locally. VC firms also have access to investment from the Dh1bn Dubai Future District Fund. Half of this fund, with the aim to support new economy companies to power Dubai’s future growth, is earmarked for venture capital funds with a local focus.
A world-class hub for business and innovation companies
Within Dubai, the Dubai International Financial Centre (DIFC) is MENA’s leading financial centre.
It is the region’s top hub for innovative startups, providing unparalleled access to a diverse ecosystem of industry stakeholders, including international companies, investment funds, wealth management institutions, banks and entrepreneurs.
Having operated since 2014, DIFC enjoys a world-class reputation, Hanna explains. “Being based in the DIFC is prestigious,” he says. “We have credibility, and investors appreciate that.” The Centre began as a financial services hub, but it has evolved into a sector-agnostic ecosystem, supporting innovation across fintech, regtech, insurtech and more.
Home to around 500 start-ups from across sectors, DIFC’s Innovation Hub is the heart of this community. The Hub offers subsidised licensing and office space options and brings stakeholders together at inspiring events on the most exciting innovations, including the recent Blockchain Week. The Hub is the ideal place for VC firms to meet and interact with entrepreneurs, regulators and other investors.
This ecosystem provides ideal access to investment opportunities. Having all the stakeholders within arm’s reach cuts discovery time significantly and facilitates the establishment of relationships. Deal flow is cultivated and cross-pollination of innovative ideas is made possible.
For VC firms, this proximity to industry stakeholders eases the process of due diligence. The ecosystem also includes all the professional services needed to do business, including world-class regional and international law and auditing firms.
“International companies are here and growing in DIFC,” says Hanna. “The biggest benefit for us has been having immediate access to them.”
Empowering regulation
DIFC is designed to empower businesses and support investors. Its independent regulator, the Dubai Financial Services Authority (DFSA), has established world-class business infrastructure with a focus on future economies. This is the most established and robust financial market of the region, giving investors the confidence to make moves in the most exciting new sectors.
DIFC operates under an English common law framework. This regime supports cross-border activities, enabling 100% foreign ownership and enforcing no restrictions on capital repatriation.
The value of having such a forward-thinking regulator should not be overlooked. DFSA is leading the way in terms of innovative technologies, having recently created a framework to govern money services, security tokens and venture capital, with regulations on crypto exchanges to come this year.
For VC firms, proximity to this regulator is invaluable. Stakeholders are updated and consulted on changes to laws and regulations and are involved in the development of the tech-oriented regulation of the future. “Regulation in tech, especially fintech, is paramount to innovation and unlocking opportunity,” says Hanna. “Having the regulator adds power to the group of stakeholders.”
Getting established in DIFC is straightforward, with a clear process supported by a dedicated team. The recently designed VC fund manager regime aims to make the process even more seamless.
“Setting up was a very positive experience,” says Talhouni. “It was quick, cost-effective and easy, and the DIFC team was super supportive and helpful.”
Looking forward
For innovators and investors operating out of DIFC, the future is full of opportunity.
MEVP plans to launch a new fund and expand its product offering from DIFC. In turn, it will work with DIFC to continue to improve its offering for VC firms and start-ups and support the growth of the ecosystem.
Nuwa Capital will continue to raise funds and deploy more capital from DIFC, says Talhouni: “DIFC is the natural home for us, and our plan is to grow here.”
DIFC is providing the springboard for these VC firms to realise their goals. It is no surprise that more and more such companies and investors are choosing to set up, grow and stay in Dubai and DIFC.
