Professor Malcolm Smith is a Teaching Fellow at Alliance Manchester Business School, The University of Manchester; he specializes in Venture Capital, Private Equity, selling strategy and negotiation skills. He is involved in the Venture Capital sector, and has held CEO, Chairman and most recently Non Executive Directorship roles in the internet venture space.
The Middle East regional economy is undergoing a digital transformation and along with a flourishing start up culture is creating rapid innovation and generating industry disruption and new opportunities, while presenting investors with the potential for fast growth (and even fast failure). All these features mean the region is ripe for Venture Capital (VC) companies to play a deeper role in the development of the regional economy and critical access to financing.
The growing Innovation and start-up culture in Dubai and the UAE is leading to an increasing number and range of new investment opportunities – around 42% (Morgan Lewis https://www.forbes.com/sites/suparnadutt/2017/11/20/the-mena-startup-scene-lags-behind-europe-and-the-us-but-its-growing-fast/#fe13a149c0e5
of startups in the MENA region are in the UAE, so this really is a hot-bed of innovation. In addition, the Saudi Vision 2030 and the National Transformation Program underpin the Saudi commitment to economic diversification and transformation, the development of large scale and ambitious smart cities such as Neom, so the opportunities for startups and SMEs are multiplying rapidly.
The potential for innovation and the contribution to regional economies made by startups and SMEs is being recognised and supported with a range of incubator and accelerator programmes in Dubai, and the UAE’s free zones that help nurture businesses with a supportive business ecosystem.
There are around 45 free zones in the country (30 in Dubai) and another 10 under construction; Dubai Multi Commodities Centre is the world’s biggest free zone has been the named Global Free Zone of the Year three times by the Financial Times, with 13,700 companies contributing up to 10 per cent of Dubai’s annual GDP.
Currently, the level of VC investment in the MENA region is relatively low compared to other regions but activity is picking up and there is a growing interest in the region among VCs.
One of the principle and very common challenges faced by startups is securing financing to nurture their innovations and this is where the VC can help.
VC is about startups and early stage investments and VCs may invest money even when others won’t but only if they like your idea - and you. Many of our own MBAs want to be entrepreneurs and we teach them how to address an audience of VC or angel investors in way that is understandable and attractive to investors.
Why is this important? – because it’s a competitive process. VCs will invest in less than 1% of all the opportunities that are presented to them, so this is no easy option. For every 20 investments made by a VC, 14 will fail – most VCs around the world lose money.
VCs promote people who are trying to change the world – and so are looking for really remarkable ideas. There is a massive interest in entrepreneurialism here with large numbers of startups in the region, and with the support of incubators and good potential for market growth. The serious interest in promoting entrepreneurialism in Saudi Arabia is a very exciting prospect.
With the abundance of talent here in the region, the question may be how to be discovered by VCs; they will find you if you cluster together – think of Silicon Valley – and so free zones, startup accelerators and business incubators are good places to operate from and to be found.
What are VCs looking for? Very simply, an idea that addresses an unmet need or a better way of meeting an existing need – so digital technology is attractive for its potential to quickly disrupt, scale and change business and industry models. Today’s generation of digital natives is looking for digital solutions, and so the market potential exists here for the products of digital innovation, with the region’s young and tech savvy population.
There is no question that the region is already a hotbed of entrepreneurialism and innovation, and it could be a real hotbed of VC activity but it may not happen overnight.