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Dubai SMEs: Indians top the chart of nationalities receiving equity funding

May 2016

By WM Staff

May 22, 2016 | 10:25 | Dubai

Dubai SME, the agency of the Department of Economic Development (DED) in Dubai launched a report on the ‘State of SME Equity Investment in Dubai,’ to encourage investment in the sector and attract direct capital into areas with vast potential for entrepreneurial and start-up growth, from private equity (PE) investors, venture capitalists (VCs) and angel investors. Launched as part of the Dubai SME 2021 Strategic Plan, the report presents an estimate on the market size, scope and potential impact of equity investment in SMES, in addition to overall state of equity investment in SMEs across the UAE.

Here are some highlights:

  • In 2014, total value of early-stage equity investments in Dubai amounted to ~ USD 30 mn. This is expected to grow in the near term by ~15%
  • UAE (particularly Dubai) is witnessing a lot of foreign interest from business angels in the US and Europe
  • Equity financing is expected to be more pronounced in knowledge oriented sectors like ICT, Life Sciences, Media & Healthcare
  • India (at 23%) tops nationalities that have received equity funding followed by British and Jordanians. Evidence of Community Based Financing. Indians also top the list of investors at 46%; Emiratis constitute 12%.
  • Typical characteristics of SME’s in the region include: Majority have lesser than 10 emloyees, a business vintage of 1-3 years, an annual sales turnover of less than AED 10 mn. Average revenue and profitability growth over the last 3 years has been 9.4% and 8.9% respectively.

Limited sources of Financing: Sami Al Qamzi, Director General of DED, highlights, “Limited source of funding to start businesses is a major gap in our SME ecosystem, which is underlined by the finding in the report that 80% of the start-ups relied on self-financing as a source of capital,” adding that addressing market gaps and channelling investments into SMEs is critical to Dubai’s knowledge economy initiative.

Primary reason for SME’s availing Equity Finance was to manage operational costs rather than funding of strategic growth/ expansion plans. The typical tendency is to bring in own funds, set up operations and subsequently approach angel investors to finance operational expenses and cash-flow requirements. Majority of those surveyed indicate funding from multiple sources (angels, incubators, VC funds) across the start up phase.

Exhibit 1 - Dubai SME Report

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