UAE startups in the artificial intelligence (AI) sector are the latest top picks for venture capitalists (VCs) and private equities (PEs), who are pumping in top dollars into such ventures, betting big on the active governmental support to the sector and the current buzz on the sector globally, investment experts said.
Growth-stage ventures in the health and fintech sectors are among the other preferred options for both regional and global investors.
The region is also attracting higher levels of funding on the back of the rising influx of entrepreneurs and global talents amidst increased availability of “capital looking for a home” and the government’s open-hand policy to welcome innovators and digital nomads, they said.
The rising scalability prospects for UAE startups on the back of a fast-growing market size, along with suitable spending power, is also aiding large-scale funding opportunities for investors.
“[Of late], there is an increase in funding for startups proposing AI-related solutions to existing and new issues,” Pankaj Gupta, Co-Founder and Co-CEO of Gulf Islamic Investments (GII), told Arabian Business.
“Investors are perhaps encouraged by the UAE’s evident support for AI processes and education,” he said.
Sector experts said the increased availability of capital looking for a home – besides real estate and equity stakes, for example – is likely to bring additional opportunities for canny innovators and startup support systems.
The UAE is well-placed to benefit from this trend, given its established and supportive economic infrastructure, they said.
Global trends impact early-stage funding
Gupta said the current trend in global market capital flows affects early-stage investment, as any investor will want to understand what their likely return on investment is.
When returns are low, some parties might seek additional risk, including larger allocations of venture capital, he said.
Gupta, however, said: “We are keen to continue to play our part. Through Eureka! GCC, we are ensuring funding support for startups and the existence of benevolent networks of mentors and advisers for early-stage companies.”
Senior executives at some of the other investment firms said the UAE – as well as the wider GCC region – is fortunate to have a range of options for its investors, including early-stage companies and ideas.
The region’s policy of welcoming digital nomads and nascent business owners is also leading to a surge in the influx of young entrepreneurs and talents from around the world, attracting investors to the region, they said.
Gupta, however, said funding is not the only resource that they require, though it is an important one.
“The process of mentoring and providing advice on how to set up and scale a business can be as valuable as cash,” he said.
Gupta also said that although it’s probably more difficult to secure early-stage funding for startups now across the GCC than, say, a few years ago, there are still well-established paths to win startup capital, notably in Dubai and Abu Dhabi.
UAE’s rising startup ecosystem
Industry players said the rising trend of the startup sector funding in the UAE is highly significant, as with regional economic diversification gaining momentum, the role of private capital in nurturing non-oil sector startups and supporting national growth agendas is becoming highly critical.
Entrepreneurs and innovators in the UAE, however, are fortunate to have a strong, government-created network of business support schemes such as D33, G42, etc that invest in selected ideas alongside private capital, they said.
Gupta said the rising influx of global talent and founders to Dubai is also playing a key role in shaping the startup investment landscape in the UAE.
“It’s inevitable that if you gather the finest collection of minds in the effective centre of the world – in geographic and airline terms – there will be a smarter set of solutions and startups being created,” he said.
The UAE and other neighbouring governments encourage innovation, limited risk-taking and the support to challenge orthodoxy and established business processes.
Industry watchers said the ability to stay and invest in the UAE, to educate one’s family and build personal assets, also helps to remove a major challenge to entrepreneurs away from their home country.
The growing market size, with suitable spending power enabling scalability for startups, is also a major reason for the influx of entrepreneurs and talents to the country and the region, they said.
“That’s why we are seeing more success stories from the UAE and Saudi Arabia – the two largest GCC markets – where there are also other established routes to secure additional funding through IPOs, buyouts and other means of capitalising on developed startup and successful innovation,” Gupta said.
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