DUBAI: Funding for UAE technology companies, which reached $1 billion in 2016, will accelerate amid continuing interest from foreign investors and more exits, according to a survey.
Currently, the UAE - the Arabian Gulf region’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 conducted by OC&C Strategy Consultants in collaboration with Wamda, report agencies.Souq’s acquisition by Amazon, in 2017, for nearly $600 million set the record for the region, and it was quickly followed by the acquisitions of 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 UAE] will continue to increase,” Walid Faza, partner at Wamda Capital, told The National on the sidelines of the report's release in Abu Dhabi on Tuesday.
The report also recommended UAE tech companies to 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 following successful funding rounds and most of the UAE’s largest scale-ups operate in up to 13 countries, added 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, adding, “thus fuelling M&A [merger and acquisition] 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.