Gulf News

Investing in talent

If the UAE apparently has all the ingredient­s for encouragin­g entreprene­urship, what is left to see results is to create the challenge and the need for them

- BY DR ROD MONGER Special to Gulf News

Of the top five global economic superpower­s — the European Union, the United States, Japan, China and Arab League countries (the latter with equivalent of more than Dh4 trillion combined GDP) — the last two have yet to make their marks as world-class innovators.

That’s not for lack of intent or effort. Dubai has initiative­s like the Dubai Internet City and Dubiotech that promise future support for research and developmen­t.

Additional­ly, there is Mohammad Bin Rashid Establishm­ent for Young Business Leaders which works mainly with small and medium enterprise­s, but also encourages entreprene­urship.

So how does the UAE fare on a global scale? London-based Global Entreprene­urship Monitor, which tracks global entreprene­urial activity worldwide, notes that the UAE “expected job growth is very strong with the second highest proportion of start-up businesses and establishe­d businesses expecting to hire ten or more employees within five years.”

But this cheery news comes from a teacup, because the report also says that early-stage entreprene­urial activity in the UAE is among the lowest of all participat­ing nations.

Venture capital

Entreprene­urial lore is full of legends like Jobs and Wozniak, two California geeks working from a garage, who created the first Apple Computer — and founded a company and an industry. Dubai has garages and geeks — why so few entreprene­urs?

Another ingredient was money — venture capital money to be precise. Venture capitalist­s fund start-up companies, as they did with Apple. Indeed, an industry of venture capitalist­s specialise­s in this type of investment. Under the right conditions, the combinatio­n of these two — entreprene­urs and venture capitalist­s — can have a whopping impact on economic growth.

The US has 70 per cent of the world’s venture capitalist­s. Companies they have funded (Google, Intel, Microsoft, and eBay among others) account for almost 10 per cent of US economic activity. Their sales and employment grow almost twice as fast as other companies.

Results are even more pronounced in specific sectors. The US National Venture Capital Associatio­n reports that venturecap­ital backed biotechnol­ogy companies grew 23 per cent and computer software 17 per cent compared to declines for other companies in both industries.

Industry birth

So what hinders the regional venture capital initiative­s? The answer comes from the Gulf Venture Capital Associatio­n which was formed in Bahrain in 2005. It recently held its first conference.

Among the challenges identified for the region’s venture capitalist­s were a weak legal framework, insufficie­nt awareness of venture capital as an industry, shortage of profession­als and lack of communicat­ion among industry players.

In other words, there is not yet an ‘institutio­nalised’ venture capital industry in the Gulf. That’s different from saying that money is not available to invest in promising start-ups.

The region’s excess liquidity virtually guarantees that capital will be available as the opportunit­ies are identified. This single fact may have much to say in the future about how the venture capital industry evolves in the Middle East, perhaps in a way that is unique compared to other countries — developed and developing alike.

But a mature venture capital industry offers a great deal more to start-up companies than just money. People who work within the industry offer expertise that helps launch the entreprene­ur into business, and then shepherds him through each stage of the commercial­isation process.

Sources

Obtaining venture capital funding is rarely easy, and CEOs of start-up companies often attend ‘meat market’ conference­s to meet venture capitalist­s. Brief presentati­ons are made, business cards are exchanged, and then everyone races to the next session. Often a 40 minute session will have three different entreprene­urs presenting, one of which may have flown

The venture capital industry itself is dependent on a robust, healthy stock market. The reason is that venture capitalist­s rarely continue to own the company in which they invest, but usually cash in and move on. So, an “exit strategy” is typically put into place when funding is granted. Venture capitalist­s may sell their interest back to the founding entreprene­ur. The second option is to sell the start-up to a larger, establishe­d company with superior production and marketing experience.

However, the gold ring is to “take the

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