The growth of Dubai startup hub owes much to the robust, investor-friendly, and international business environment that the Emiratis enthusiastically promote. Business people who have been active in the Gulf business scene for decades, witnessed the large-scale efforts to turn Dubai as the bedrock of a sustainable tech ecosystem and the city’s consequent rise. The most visible economic center of the MENA region, the city has always been a star attraction for entrepreneurs worldwide. Its famed free zones entice expatriate investors with wider tax exemptions and easier business processes.
These have come together to create a fertile ecosystem conducive to the emergence of innovative businesses empowered by new technologies and disruptive thinking. With the city is uniquely poised to attract both global talents and venture capitalists looking to give wings to their dreams, the Dubai startup hub rises rapidly to become a global force. Many high investible ventures, such as Souq.com, Namshi, Careem, and MarkaVIP, emerge on the world scene showcasing the success story of Dubai smartpreneurs.
Any discussion on Dubai startup hub, as I feel, must touch the following points.
- An overview of Dubai startup ecosystem
- Advantages Dubai for startups
- Initiatives, accelerators, incubators for startups
- Funding success stories
The Dubai Startup Ecosystem
Dubai ranks 29th in the Startup Cities Index. It lags behind Singapore and San Francisco that occupies first and third position respectively as world’s most favorable destination for startups. But what is worthy of attention is it has a rank higher than established startup ecosystems, such as New York, London, and Tokyo. Amazon’s buying of online retailer Souq and ride-hailing app Careem getting a $1.2 billion tag expressly show how the Dubai startup scene has transformed in a few years.
As Dubai fast becoming the MENA region’s de facto entrepreneurial capital, local, regional, and global startups seeking to start and scale their businesses. The Dubai startup scene hosts close to 3,000 ventures mostly in e-commerce, fintech, food, and transport. Areas, such as news and content, employment, real estate, entertainment, education, and logistics are also arriving fast.
According to Wamda Research Lab, the research arm of Wamda Capital, the biggest venture capital firm in the Middle East, entrepreneurs, and innovators from across the world look to Dubai as the favorite regional hub “to expand into a new country or deepen their presence in an existing country.”
A number of Dubai startups now carry the $100 million-plus tag. Thomson Reuters acquired local online business and finance portal Zawya in 2017 while the News Group International is on the radar of many international investors. Online retail Namshi and MarkaVIP look immensely potential. Crowdfunding platform Eureeca, financial product comparison startups Compareit4me, and personal finance app Wally are flourishing.
The healthcare niche has enterprises, such as telemedicine app Altibbi, while Bayt.com turns out to be the biggest job site in the MENA region. Leading music platform Anghami, grocery supplier El Grocer, and hospitality ventures HolidayMe and Reserveout making a name for themselves. Propertyfinder and Justproperty fast gaining ground in the real estate sector while edutainment app Lamsa World and laundry services provider MyBox are going big.
All these startups in Dubai are inspiring more tech-savvy young minds to give shape to their disruptive thinking in the smart city. The HSBC Expat Explorer survey puts Dubai second only to Singapore as the world’s “preferred destination for global talent, entrepreneurs, and innovators.” Even the city comes second in the Global Entrepreneurship Index for MENA region after Israel and above all other countries. The UAE’s rank as the most protective country for intellectual property rights in the Arab world also makes it the best city for expat entrepreneurs.
Most startups foraying into the e-commerce, as the Gulf market potential is estimated to cross $41 billion by 2020 with 53% coming from only UAE. It may rise fivefold if we take into consideration the entire MENA region. The forecast plays a role in many foreign talents looking ways to exploit the market based out from Dubai. The Luxury Closet selling pre-owned luxury goods is an emerging leader in this segment. The growth of e-commerce is also promoting online payment gateways, such as Payfort and Shopgo.
Advantage Dubai for Startups
Why is Dubai emerging on the global scene as a big startup hub?
While the smart city’s leadership in advanced technology empowers the startups, the regional demography, financial clout, and eclectic range of customers drive their market. With a large number of global corporate bigwigs have a direct or indirect presence in the Emirate, the market forces are easy to connect and exploit. Above all of these stands the UAE’s business-friendly environment marked by low taxes, regulations that befriend investors, and solid political support.
The power of innovation is best realized when conditions for doing business and associated regulations are favorable. According to the 2018 global Ease of Doing Business Index, the UAE holds 21st rank, the best in the MENA region and 45 steps ahead second placed Bahrain. It is ranked first globally for facilitating cross-border trading.
The regulatory environment is the friendliest for small and medium enterprise segment to which startups belong to. The 2014 SME law mandates that at least 10% of contracts involving procurement, servicing, and consulting by the government and 5% by semi-government institutions must go to these businesses. It also exempts them from paying taxes on goods and materials brought for production and bank guarantees for employees.
Starting a business in Dubai takes the least time – eight days – and the least compliance – six procedures – in the region. The 2016 amendments to the insolvency laws allowing protection for owners of bankrupt firms and the creation of a financial restructuring authority have made risk-taking startup activities easier.
Neither companies nor individuals in the UAE pay any tax on their incomes or profits when engaged in the non-oil sector. The value-added tax is just 5%, one of the lowest in the world. There is no tax on 100% repartition of profits by entrepreneurs or investors. The new visa regime allowing 10-year stay and grant of 100% ownership to foreigners only increase the influx of startups.
Dubai’s zero-duty free zones, such as Dubai Media City, Dubai Internet City, Dubai Multi Commodities Centre, etc., are hubs for startups due to their alluring regulatory and financial environment. These free trade zones promote incubators, accelerators, and startup-centric programs. Institutional supports, such as the Dubai Future Accelerators program, provide selected tech startups free airfares, workspace and access to mentors.
Initiatives, Accelerators, Incubators for Startups
Innovation is formally a part of the national economic strategy of the UAE and the government explicitly recognizes that “Innovation, research, science, and technology will form the pillars of a knowledge-based, highly productive and competitive economy, driven by entrepreneurs in a business-friendly environment where public and private sectors form effective partnerships” in its Vision 2021. It has been followed by concrete action on the ground with massive financial allocations, including $550 million fund to support entrepreneurs with unique and innovative ideas.
Apart from this, political efforts are there to promote innovation and futuristic technologies. For example, the Dubai Foundation for the Museum of the Future with a kitty of over $130 million and $270-million Future Endowment Fund are set up as “incubators for ideas, drivers for innovation, and destinations for inventors and entrepreneurs from around the world.”
The Dubai Future Accelerators was launched in 2016 to “identify emergent technologies and businesses with the potential to address the world’s most pressing challenges and opportunities, and to support them in developing solutions and prototypes for rapid deployment across Dubai.” About 30 startups out of 2,200 applicants from over 70 countries have been chosen to be part of it. The first cycle has begun with 19 projects, including city policing improvements using drones and crime prediction, autonomous public transport, cybersecurity, virtual reality, and waste management and reduction, worth $33 million. All selected ones get free office, accommodation, and mentorship for 3 months.
The cluster system adopted by Dubai provides the very foundation for startups with incubators, accelerators, and co-working spaces. It has made a seamless exchange and collaboration possible while allowing startup hubs to prosper and grow. For example, Dubai Technology Entrepreneur Center, which hosts the Silicon Oasis Founders incubator – a funding and resources center, alongside 550 tech startups and SMEs. The cluster approach allows startups to collaborate on and share space for working, meeting, and events, infrastructure, flexi-office hours, and also their access to capital through leads. Venture capitalists and angel investors receive profit from one along with leads to reinvest back.
The Dubai startup hub is also driven by as many as eight other accelerators.
- Astrolabs is home to about 130 innovative technology startups from 38 countries on digital technology, analytics, and big data. Associated with Google for Entrepreneurs network, it provides corporate training, techniques and idea sharing, and the scope to partner Google expert mentors worldwide.
- Wamda is one of the largest accelerators in Dubai with portfolios in media, research, consultancy, community development, and corporate services.
- Turn8 hosts more than 60 startups. It offers investment, mentorship, training, and 1-year support along with follow-on investment to scale business. The innovation hub scouts global talents and provides them $30,000 in seed funding if they agree to come to Dubai and start their ventures.
- Techshop is dedicated to innovation in physical and hardware sectors. It hosts many plastic, laser, textile, engineering, and electronic labs.
- Flat6labs startup accelerator is known for offering strategic mentorship drawn through its partner networks and creative workspace together with perks and seed funding.
- in5 is for the media, design, and tech startups.
- Impact Hub Dubai is a community accelerator of techies and creative freelancers.
- Dubai Internet City Innovation Hub spread across 1.8 million square feet is the place for tech, media, education, and science startups.
Funding Success Stories
The roaring success of startups in Dubai can be guessed from the fact that 52% – much higher than the global average of 39% – believe that their entrepreneurial effort is set to succeed. This positivity is attributed to the success of large-scale funding and stake buying by foreign and regional venture capital funds and angel investors.
In 2017, online marketplace Souq – Dubai’s first unicorn – was acquired by Amazon with a $650 million deal. Taxi app Careem founded in 2012 has become the second unicorn with a $1.2 billion valuation. Investors, including Saudi and Japanese venture capitalists, have pumped $421.7 million into it between 2013 and 2017, as it turns out to be a showcase Dubai startup venture.
The Dubai startup hub attained $100 million funding milestone in 2014. In two years, it catapulted to cross the $1 billion benchmark. In 2017, the total disclosed inflow was pegged at $597 million.
According to MAGNiTT, the premier investment data platform in the MENA region, of 141 deals worth $112 million inked with investors, 32% of deals and 59% of funds approved to go to startups in Dubai and other UAE hubs. Foreign venture capital biggies, such as Techstars, which holds stakes in 1,300 startups and in many of the biggest global companies, has set up its branch in Dubai. 500 Startups with 4 large global funds, 14 microfunds, and stakes in 2,000 enterprises has also been active in the city’s startup scene.
New ways of funding, such as Dubai Angel Investors and crowdfunding solutions, are also there pulling together the money of small yet well-off local and regional individual investors. The Dubai Future Fund is waiting in wings seeking to put $275 million into startups to develop future technologies in energy, healthcare, and education. The Dubai administration also actively seeks entrepreneurs for artificial intelligence, blockchain, internet of things, etc., that forms the basis of the recently announced Dubai Blink project, world’s first digital freezone.