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The UAE’s startup economy is thriving. In fact, in 2017, three quarters of the $650 million invested in MENA businesses went to organizations in the UAE, with the Essa Al Zaabi of the Dubai Chamber noting that “The UAE’s strong focus on innovation and entrepreneurship has helped boost its appeal as an attractive startup hub”. The growth of the startup ecosystem has been driven by the rapid rise in small business support, with the Emirates home to more than 17 accelerator programs and over 12 incubators.
Investing in promising businesses from the start not only provides them with necessary funding to transform their innovative ideas from concept to reality, but could also prove to be a highly profitable endeavor, when done right. Don’t forget that startup car service app Careem was bought by Uber for $3.1 billion in early 2020, while startup ecommerce website Souq.com was acquired by Amazon back in 2017 for $580 million.
UAE entrepreneurs are certainly making waves all around the world. However, business investment is typically considered to be an activity reserved only for wealthy venture capitalists. Is it possible for the average person to invest their money in a startup firm?
Absolutely. Here are 3 of the easiest ways to invest:
1. Crowdfunding Platforms
Crowdfunding platforms are the most straightforward way to invest in a growing business. These platforms directly connect startups in need of funding with investors looking to grow their portfolio. According to the UAE government, between 50% and 70% of SME funding applications are rejected by banks, despite contributing 60% to GDP, so crowdfunding platforms are fast becoming a preferred way to secure funding.
It’s important to use platforms in line with the National Innovation Strategy; the government recommends Beehive, Humming Crowd Realty, and Eureeca. These are exceptional choices as they are specifically designed for casual investors, pre-vetting startups to help minimise risk and offering low investment minimums. Humming Crowd Realty offers investment opportunities from AED 1000, and Beehive from just AED 100.
2. Auto Investments
Another option is automating investing, which is often offered by digital investment networks, and sometimes through select crowdfunding platforms. This can be beneficial for those who know that they want to invest, but are unsure which growing startups to invest in. The advantage of this technique is that funds are typically spread across multiple different opportunities, allowing for diversification and better risk management.
It works through the use of pre-established algorithms which make automated, data-driven trading decisions on behalf of the investor without the need for manual input. By splitting investments across numerous different industries and sectors, casual investors can minimize risk, and increase the chance of seeing a return. Many networks that offer this type of investing offer different risk and reward profiles to choose from.
3. Direct Investments
A third option for investors who prefer to go down a more traditional route is to consider direct, offline opportunities. This could be investments in startups with which the investor already has a pre-formed relationship – either personal or professional – with the entrepreneur or founder. This could also be through dedicated pitch events which are designed to create an environment that facilitates connections between investors and startups.
Some crowdfunding platforms are beginning to see the value in this, and are launching their own exclusive offline events to help forge these new relationships, so digital networks can be a very useful resource. Of course, investors can also choose to get in touch with startups directly to enquire about funding opportunities. Forbes’ Middle East list of top UAE startups is a good place to keep an eye on promising organizations.
High Risk, High Reward
It’s important to remember that, while these nuggets of advice can help would-be investors to get a foot in the door, they don’t guarantee a payout. Although the UAE startup economy is growing rapidly, it remains highly vulnerable, just like startup landscapes all across the world, and there is no promise of return on investment.
Reports show that 30% of startups fail within the first two years of operation, while half fail within the first five years. Before investing, it is vital to conduct research into different startups, different industries, and the landscape as a whole, before investing your funds.
However, for those investors that select wisely, returns can be significant. As can be seen from the Careem and Souq.com examples, big things can happen. If you’re prepared to research, using crowdfunding platforms, utilizing auto investment services, and connecting with budding entrepreneurs are great ways to begin your portfolio.