Gulf SMEs in need of more late stage funding

The region needs more later stage funding and mentors to boost its start-up ecosystem, say investors.

Christopher Rogers, left, a partner at Lumia Capital, answers questions with Jacob Mullins, the chief executive and founder of ExitRound, at the Angel Rising Investor Education Symposium at New York University Abu Dhabi. Ravindranath K / The National
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The Arabian Gulf region needs more later stage funding and mentors to build a robust ecosystem for its start-ups, according to investors.

Angel investors, venture capital firms and mentors from the UAE and Silicon Valley converged at New York University’s Saadiyat Island campus on Saturday day to brainstorm ways to encourage angel investing in the region.

While the UAE ranks 22nd among 189 economies in World Bank’s ease of doing business index this year, it ranks much lower at 58th and 89th in ease of starting a business and ease of getting credit indicators respectively.

Most of the efforts at encouraging start-ups in the UAE are focused on the early stage businesses, and typically odds are stacked against those succeeding to later stage businesses, according to Christopher Rogers, a partner at Lumia Capital. The San Francisco-based venture capital firm invests in expanding internet and software companies. In the UAE, it is invested in the Dubai-based e-commerce platform MarkaVIP and Telly, a subscription-based video streaming service in Dubai.

Lumia invests between US$3 million and $7m on average in a company, and takes a 2 per cent management fee.

“You have a lot of resources available here and there is a lot of interest from the government agencies. There is an enormous market and talent,” Mr Rogers said. “Problem is filling the gaps in the financial hierarchy and find funding for expansion and later stage funding.”

As cheque sizes get bigger during the later stages of financing, the tendency for risk aversion gets bigger, he said.

“Moreover, traditionally the venture capital model is not widely available here with few professional venture capital firms,” he said.

Leap Ventures, with offices in Beirut and Dubai, provides $5m to $10m in funding to technology-based companies in the Middle East and North Africa region during their growth stage.

“There is a lack of mentors and re-investors, and there are few people who have succeeded in this vertical,” said Noor Sweid, the managing partner at Leap Ventures.

It is looking to invest in two to four companies this year, its second round so far. Its first round of funding was focused on start-ups in Lebanon.

Technology-based companies here need to look at a global market, beyond just the country or the region to scale up and make profits, according to Ms Sweid.

The nascent start-up ecosystem in the UAE is becoming active with more accelerators and funding channels available now than before. Startup Sabantuy, a Russian group that scouts for start-ups, will hold a competition in Dubai in June to select budding businesses.

In January, the Dubai-based e-commerce travel site HolidayME announced a $4 million investment from Al Sanie Group, based in Saudi Arabia. HolidayME launched in December.

Last year, the Cairo-based accelerator Flat6Labs opened an office in Abu Dhabi, and started its first round of incubation in February.