At Dubai Internet City’s tech incubator “in5”, dozens of start-ups from all over the world have pitched to us with the hope of being selected to join our community. I’ve followed several of the most promising ideas to the stage where the priority was to scale up, which required funding.
Many start-ups in the UAE look to Silicon Valley for inspiration and advice that includes how to raise money from investors. Start-up ecosystem legend Paul Graham and his now famous Y Combinator have published guides on how to fundraise and a series of well-designed legal templates for start-ups to use. This has saved many expensive legal fees when drafting company formation and fundraising documents.
Much of the knowledge produced by the Valley ecosystem is somewhat universal in application. When it comes to fundraising however, these legal templates face serious limitations posed by differences between countries with respect to commercial law.
Loans versus shares
Many UAE start-ups I meet plan to raise funds through a Convertible Note. Convertible Notes initially provide money to a start-up via a loan (not your typical shares). They usually feature a mechanism whereby at a future point in time (often at the next round of investment) the Note “converts” into shares of the start-up company using a predetermined formula. Conversion happens at this future stage as it’s easier to determine a fair valuation because the start-up has customers or revenue. This avoids founders and investors having to agree on a valuation early on.
In the US, Convertible Notes have become the standard for many early-stage start-ups to raise money. The US legal system explicitly supports their use and recognises them as an investment instrument under Federal Law and the Securities Act of 1933.
Current laws in the UAE, however, (and pretty much the entire GCC) make it riskier to use Convertible Notes than in the US, particularly when it comes to enforcement. In the UAE the principles of a Convertible Note are not explicitly articulated by law. In a Convertible Note dispute between an investor and a UAE start-up, a resolution would be likely to require legal proceedings. These may be both lengthy and costly.
In the event an investor wins a case, an award would probably be in the form of damages (money) rather than shares in the company. A monetary payout may fairly compensate the investor up to that point in time, but is unlikely to allow any participation in the start-up’s equity and future growth, including any IPO. It’s easy to see how different the outcome could be, depending whether an investor ends up with the shares they initially wanted or only gets paid damages.
Onshore, offshore or the Caribbean
What is also misunderstood is that limitations to using Convertible Notes apply to companies in most free zones. As most entrepreneurial activity is carried out by expats, these free zones are supposedly the bastions of innovation and entrepreneurship, allowing 100 per cent foreign ownership. It strikes me as counter-productive that foreign ownership and tax-free incentives can be undermined by subtle shortcomings in commercial laws. Unless the UAE wants to continue to see successful start-ups quickly redomicile to the British Virgin or Cayman Islands – where the legal system is more developed – local jurisdictions need to evolve quicker.
The other issue is the regulation around raising capital. Onshore and offshore UAE jurisdictions each have their own regulators. These rules determine how and who can solicit investors to invest in a private company. Certain exemptions found in the US or UK for “accredited investors” don’t have a direct comparable in the UAE. When start-ups grow and raise more money from even more investors, they could find themselves breaking the law, particularly when dealing with private individuals. It’s not so much the regulators going after the start-ups I’m worried about, but disgruntled investors seeking the return of their money when investments go sour.
The UAE ecosystem has co-working spaces, incubators, accelerators, conferences, VCs and several local companies with valuations in the hundreds of millions of dollars. The UAE has a massive first mover advantage when it comes to Middle East tech entrepreneurship. Now it’s time to refine that advantage with the support of the UAE legal system.
Ali Al Salim is a Kuwaiti investor and financial consultant based in Dubai. His Twitter is @alialsalim
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COMPANY%20PROFILE%20
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Company profile
Date started: 2015
Founder: John Tsioris and Ioanna Angelidaki
Based: Dubai
Sector: Online grocery delivery
Staff: 200
Funding: Undisclosed, but investors include the Jabbar Internet Group and Venture Friends
Read more from Aya Iskandarani
SPECS
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Jordan cabinet changes
In
- Raed Mozafar Abu Al Saoud, Minister of Water and Irrigation
- Dr Bassam Samir Al Talhouni, Minister of Justice
- Majd Mohamed Shoueikeh, State Minister of Development of Foundation Performance
- Azmi Mahmud Mohafaza, Minister of Education and Minister of Higher Education and Scientific Research
- Falah Abdalla Al Ammoush, Minister of Public Works and Housing
- Basma Moussa Ishakat, Minister of Social Development
- Dr Ghazi Monawar Al Zein, Minister of Health
- Ibrahim Sobhi Alshahahede, Minister of Agriculture and Minister of Environment
- Dr Mohamed Suleiman Aburamman, Minister of Culture and Minister of Youth
Out
- Dr Adel Issa Al Tawissi, Minister of High Education and Scientific Research
- Hala Noaman “Basiso Lattouf”, Minister of Social Development
- Dr Mahmud Yassin Al Sheyab, Minister of Health
- Yahya Moussa Kasbi, Minister of Public Works and Housing
- Nayef Hamidi Al Fayez, Minister of Environment
- Majd Mohamed Shoueika, Minister of Public Sector Development
- Khalid Moussa Al Huneifat, Minister of Agriculture
- Dr Awad Abu Jarad Al Mushakiba, Minister of Justice
- Mounir Moussa Ouwais, Minister of Water and Agriculture
- Dr Azmi Mahmud Mohafaza, Minister of Education
- Mokarram Mustafa Al Kaysi, Minister of Youth
- Basma Mohamed Al Nousour, Minister of Culture
Company%20profile
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F1 line ups in 2018
Mercedes-GP Lewis Hamilton and Valtteri Bottas; Ferrari Sebastian Vettel and Kimi Raikkonen; Red Bull Daniel Ricciardo and Max Verstappen; Force India Esteban Ocon and Sergio Perez; Renault Nico Hülkenberg and Carlos Sainz Jr; Williams Lance Stroll and Felipe Massa / Robert Kubica / Paul di Resta; McLaren Fernando Alonso and Stoffel Vandoorne; Toro Rosso TBA; Haas F1 Romain Grosjean and Kevin Magnussen; Sauber TBA
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The biog
DOB: 25/12/92
Marital status: Single
Education: Post-graduate diploma in UAE Diplomacy and External Affairs at the Emirates Diplomatic Academy in Abu Dhabi
Hobbies: I love fencing, I used to fence at the MK Fencing Academy but I want to start again. I also love reading and writing
Lifelong goal: My dream is to be a state minister
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
Results:
First Test: New Zealand 30 British & Irish Lions 15
Second Test: New Zealand 21 British & Irish Lions 24
Third Test: New Zealand 15 British & Irish Lions 15
Timeline
1947
Ferrari’s road-car company is formed and its first badged car, the 125 S, rolls off the assembly line
1962
250 GTO is unveiled
1969
Fiat becomes a Ferrari shareholder, acquiring 50 per cent of the company
1972
The Fiorano circuit, Ferrari’s racetrack for development and testing, opens
1976
First automatic Ferrari, the 400 Automatic, is made
1987
F40 launched
1988
Enzo Ferrari dies; Fiat expands its stake in the company to 90 per cent
2002
The Enzo model is announced
2010
Ferrari World opens in Abu Dhabi
2011
First four-wheel drive Ferrari, the FF, is unveiled
2013
LaFerrari, the first Ferrari hybrid, arrives
2014
Fiat Chrysler announces the split of Ferrari from the parent company
2015
Ferrari launches on Wall Street
2017
812 Superfast unveiled; Ferrari celebrates its 70th anniversary
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Basquiat in Abu Dhabi
One of Basquiat’s paintings, the vibrant Cabra (1981–82), now hangs in Louvre Abu Dhabi temporarily, on loan from the Guggenheim Abu Dhabi.
The latter museum is not open physically, but has assembled a collection and puts together a series of events called Talking Art, such as this discussion, moderated by writer Chaedria LaBouvier.
It's something of a Basquiat season in Abu Dhabi at the moment. Last week, The Radiant Child, a documentary on Basquiat was shown at Manarat Al Saadiyat, and tonight (April 18) the Guggenheim Abu Dhabi is throwing the re-creation of a party tonight, of the legendary Canal Zone party thrown in 1979, which epitomised the collaborative scene of the time. It was at Canal Zone that Basquiat met prominent members of the art world and moved from unknown graffiti artist into someone in the spotlight.
“We’ve invited local resident arists, we’ll have spray cans at the ready,” says curator Maisa Al Qassemi of the Guggenheim Abu Dhabi.
Guggenheim Abu Dhabi's Canal Zone Remix is at Manarat Al Saadiyat, Thursday April 18, from 8pm. Free entry to all. Basquiat's Cabra is on view at Louvre Abu Dhabi until October
COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
A little about CVRL
Founded in 1985 by Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, the Central Veterinary Research Laboratory (CVRL) is a government diagnostic centre that provides testing and research facilities to the UAE and neighbouring countries.
One of its main goals is to provide permanent treatment solutions for veterinary related diseases.
The taxidermy centre was established 12 years ago and is headed by Dr Ulrich Wernery.
Persuasion
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Our legal columnist
Name: Yousef Al Bahar
Advocate at Al Bahar & Associate Advocates and Legal Consultants, established in 1994
Education: Mr Al Bahar was born in 1979 and graduated in 2008 from the Judicial Institute. He took after his father, who was one of the first Emirati lawyers
COMPANY PROFILE
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Total funding: Self funded
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Dolittle
Director: Stephen Gaghan
Stars: Robert Downey Jr, Michael Sheen
One-and-a-half out of five stars
360Vuz PROFILE
Date started: January 2017
Founder: Khaled Zaatarah
Based: Dubai and Los Angeles
Sector: Technology
Size: 21 employees
Funding: $7 million
Investors: Shorooq Partners, KBW Ventures, Vision Ventures, Hala Ventures, 500Startups, Plug and Play, Magnus Olsson, Samih Toukan, Jonathan Labin
How to help
Send “thenational” to the following numbers or call the hotline on: 0502955999
2289 – Dh10
2252 – Dh 50
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Arctic Monkeys
Tranquillity Base Hotel Casino (Domino)
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Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
If you go
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.
When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.
How to get there: Emirates currently flies from Dubai to Orlando five times a week.