Strat-ups in the Middle East and North Africa region clinched 141 deals with investors worth $112 million in the first half of 2018. The lion share of this venture capital funding goes to start-ups in Dubai and other UAE cities cornering 32% of all deals and 59% of total funds pledged, according to the start-up directory and investment data platform MAGNiTT.
Within few years, Dubai venture capital scene witnessed a drastic transformation making seed investment easier and plentiful. As the technology start-ups in the free zones, such as DAFZA, picked up, Dubai angel investors encompassing both locals and expatriates began showing interests in funding newbie businesses. It began with the flow of funds from the Middles Easter investors who hitherto looked to American and European markets. As new initiatives by the UAE administration strengthened the start-up ecosystem and entrepreneurs increasingly made the country as their springboard for innovation, Dubai itself enticed most of foreign capital venture firms.
But I was surprised to read about a recent research report saying that a significant number of entrepreneurs were devoid of basic skills of dealing with venture capital companies or even angel investors. It is important to prepare yourself well before approaching angel investors or venture capital firms. Do your homework well and be prepared to answer their questions. Here is a list of things every Dubai entrepreneur seeking investment must be aware of.
- The larger picture about the Dubai investment scenario
- Investor questions about company, market, competition, team, products/services, and financials you should expect to answer satisfactorily.
The Dubai Investment Scenario
Techstars Dubai, which has operated in partnership with top global firms, such as Amazon and Barclays, and invested in over 1,300 start-ups worldwide, is the first US venture capital fund in Dubai to have a physical presence. 500 Startups, another big venture capital firm with four global funds and 14 microfunds and investment in more than 2,000 enterprises, has also set its eyes on Dubai.
With a boom in Dubai tech start-ups, both capital ventures and angel investors have made a beeline offering funds. The Dubai Angel Investors, a two-year-old group of Dubai private investors, receives 500 proposals a year and caters to small start-ups with funding between $50,000 and $250,000. Dubai venture capital bigwig, such as Beco Capital, Sawari Ventures, Wamda Capital, and Middle East Venture Partners, offer successive funding to early stage technology companies.
Arzan Venture Capital looks for small and medium technology start-ups in Dubai with both finance and mentorship while Leap Ventures invests in series B stage technology start-ups. Iliad Partners raises late seed and Series A capital for Dubai firms focused on digital media, e-commerce, SaaS and analytics, and other internet-based B2C and B2B services.
In 2014, we all celebrated $100 million investment milestone crossed by Dubai tech start-ups. It broke $250 million next year. The year 2016 saw $1 billion worth funds secured by privately owned tech firms. With a sharp rise in small-scale ventures, the total Dubai venture capital funding hovered round $597 million in 2017.
Uber’s Dubai-based ride-hailing app competitor Careem, was began by two former McKinsey employees in 2012 with $100,000. Within a year, it received $1.7 million as seed money from STC Ventures. In 2014, another $10 million came in Series B. The Abraaj Group made Series C round pumping of $60 million in 2015. The big break came in 2016 when Saudi Telecom and Japan’s Rakuten invested $350 million. With investments worth $421.7 million, Careem valued at $1.2 billion tells the confidence of investors in Dubai’s start-ups.
Though 2018 statistics point to a year-to-year drop of 5% for deals inked and 10% for investments, this still a good news considering that 23% of these deals – up 6% from last year – were made public without disclosing actual figures. But with a large number of accelerators are being established and the gradual consolidation of the Dubai start-up ecosystem, seed investment is on the upswing.
Questions Investors May Ask A Start-Up in Dubai
No doubt venture capital and high net-worth angel investors has become the driving force behind the new economic order. Start-ups looking for funds no longer confront issues that I had to deal with a few years ago. But still global and regional investors looking to Dubai as the gateway to spread operations do not allow a carte blanche while pumping funds into new ventures. You need to satisfy them with your thoughtful and reasonable presentation.
Investor Questions About Company
No private investor in Dubai is ready to fund your venture without having a clear and concise outline about your purpose, objective, and ability to capture the market. You may need to answer the following questions.
- What type of problem your start-up is solving?
- What does your start-up do to solve the problem?
- What is unique about your problem solving?
- What is the target audience?
- How big is your customer base?
- What are your present strengths?
- What are your plans to grow and how big you can be?
- Is your business scalable?
Investor Questions About The Team
Those who lead from the front must have a clear vision, domain experience and commitment. They must be aware of market essentials and have a passion for success. Be ready to face these questions when scouting Dubai angel investors.
- Who are the brain behind the start-up?
- What are their qualifications and previous experiences?
- Do they have previous start-up expertise?
- What motivates them?
- What about their domain expertise?
- How capable is the team to plan and implement the business?
- What are short-term team expansion plans?
- How you plan to acquire and build your human resource?
Investor Questions About Products/ Services
You must be able to convince venture capital investors that your Dubai start-up offers unique products and services, which have a good market potential. Explain the features to convince them and answer questions, including the following.
- What are key features?
- What is unique about your products and services?
- How is it different from similar ones?
- Why your product has an advantage in the market?
- Why will customers buy your products/ services?
- How will you win over customers?
- What is your plan for promotional campaign?
- How to do plan to achieve major product milestones?
- What are your learnings from the early versions?
- What will be the later additions to your products/ services?
Investor Questions About Market
Only when you have a meaningful market and the ability to capture it, you stand to get funding offers. Anticipate Dubai venture capital firms and angel investors to seek answers for the following questions.
- What is the size of the market?
- Is your solution marketable to the larger customer base?
- To what extent you can drive sales despite competition?
- What is your growth or market capture strategy?
- How much market share you can capture and the timeline for it?
- How will you push for sales and get a foothold?
- What is your expected growth forecast and how can you achieve this?
- What is plan for the next one year?
- How will you plan to generate cash flows?
Investor Questions About Marketing
Do you have the knack and plan to disrupt the existing market forces? Is your marketing strategy is potent enough to draw consumers? These two questions are to confirm your credibility as a business venture. You may also be asked:
- How do you plan to market yourself?
- What is the initial and long-term plans for customer acquisition?
- Who are major competitors?
- What gives you a competitive advantage?
- How to fend off yourself against competition?
- What are your focused areas to drive a market advantage?
- Which barriers do you have to face?
- What is your marketing and PR strategy?
- Do you have a social media strategy?
- What type of promos/advertising you have planned?
- How much time you take for closing a sale after the first customer contact?
- What are your key growth metrics?
Investor Questions About Regulatory and Market Risks
Your business plan must address associated risks. Any angel investor or venture capital firm in Dubai may be eager to know how you have planned to minimize risks. Be ready with answers to following questions.
- What could be risks to your business venture?
- What are potential legal risks?
- Do you have regulatory clearance?
- Is there any regulatory bottleneck?
- What does your business plan include to mitigate potential risks?
- Is there any product liability risk?
Investor Questions About Intellectual Property
Your intellectual property – patents, business secrets, copyright – is a key concern for any private investor you are seeking to fund your venture. You must have perfect answer to their questions, such as:
- Have you registered for any patent?
- What type of intellectual property you have?
- Is your intellectual property yours own or acquired?
- How did you develop them?
- Is there any third party claim to it?
- Does any team member hold any patent right?
Investor Questions About Finance and Projections
To get funding, you need to convince your potential venture capital and angel investors about present financial status, planed rate of expenditure, and future benefits. They may ask you:
- What is your capitalization structure?
- How much is pre-money valuation?
- What is the present condition, future burn rate, and need projections?
- What amount of equity and debt you already have?
- How much funding you look for in the next five years?
- How do you arrive at such projections?
- What type of equity and debt plan you have for future?
- Have you planned any stock for employees?
- When you expect to earn profits?
- What are your funding needs and strategy until you turn profitable?
- Is there any hindrance to faster growth?
- How much fund you are able to get in previous financing round?
- Is your existing investors seek to participate again?
- How have you planned your financial milestones?
- What are your early traction statistics and what are doing to improve?
- How do you see the exit? Will you look for san IPO or acquisition?
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