Dubai has established an angel investor service that could open up a new funding avenue for struggling small businesses.
The Dubai Ventures Network, created by the Department of Economic Development’s (DED) Dubai SME unit, will target investments between the range of US$50,000 and $100,000.
Angel investors typically give start-up businesses cash in return for a stake in the business.
The Dubai Ventures Network aims to create an “ecosystem” of investors, incubators, accelerators to help small and medium sized businesses (SMEs).
A new report from the DED found eight out of 10 UAE SMEs had to rely on self-financing for growth and development. “The limited source of funding to start businesses is a major gap in our SME ecosystem,” said Sami Al Qamzi, the DED director general. He said addressing market gaps and channelling investments into SMEs is critical to Dubai’s knowledge economy initiative. “Based on the findings in the report, Dubai SME has formulated strategies and initiatives to improve SME performance in the years ahead, facilitate SME access to financing, and enhance SME competitiveness.”
Dubai SME teamed up with the European Trade Association for Business Angels (Eban) to launch Dubai Ventures Network, which has an active investment membership of 25,000 to share ideas and business practices.
“We already have 200 willing investors to become part of the investment ecosystem,” said Abdul Baset Al Janahi, the chief executive of Dubai SME. “About 30 per cent of the investors are Emirati with others made up from the expatriate community. The tie-up with Eban means their investors can see the ideas that we have in front of us and we can see the investment options in Europe.”
The lack of liquidity available to start-ups and small businesses has hampered the growth of the SME community as the risks to investors often outweighed the rewards.
However, the onshore law that requires 51 per cent of a company to be owned by an Emirati means it is not worth organisations investing in smaller companies. Some of the UAE’s long-standing company regulations have also hampered home-grown angel investors, including the costly and lengthy bureaucracy needed to change share ownership of an entity.
“The cost of share transition here in the UAE makes it very difficult to rationalise an investment,” said Kamal Hassan, the managing partner for Turn8, a local incubator. “Say you want to invest Dh100,000, it will cost Dh50,000 to Dh60,000 for the cost of transition, which makes the investment nonsensical.
“In Singapore it takes five minutes and costs $100. That’s what we need to make the process easy. We need to create a buzz and excitement in the opportunities that are available and then make it inexpensive to invest.”