UAE Startup Ecosystem: Growth Factors and Future Outlook Discussed

The United Arab Emirates (UAE) has seen a significant growth in its startup ecosystem in recent years. According to a report by Magnitt, the UAE saw a 63% increase in startup investment deals in 2022 compared to the previous year, with a total investment of $1.2 billion. According to a Dubai Chamber of Commerce and Industry report, the technology sector accounted for the largest share of startups in the UAE in 2022, with 28% of the total number of startups. E-commerce and retail followed closely, with 21%, while healthcare and biotechnology accounted for 13%.

The government has been actively promoting entrepreneurship and innovation, which has led to an increase in the number of startups in the country. The UAE startup ecosystem is diverse and includes a wide range of industries, such as technology, e-commerce, healthcare, and more. To boost the startup ecosystem, the UAE has established more than 40 free zones in various states.

UAE Startup Ecosystem

One of the main drivers of the UAE startup ecosystem has been the government’s efforts to promote entrepreneurship. The government has established several initiatives and programs to support startups and entrepreneurs, such as the Abu Dhabi Entrepreneurship Center (ADEC), Dubai Startup Hub, and the Dubai Silicon Oasis Authority (DSOA). These initiatives provide startups with access to resources such as funding, mentorship, and networking opportunities.

UAE Startup Scene

Another key driver of the UAE startup ecosystem has been the increasing availability of venture capital (VC) funding. In recent years, the UAE has seen a significant increase in the number of VC firms and angel investors operating in the country. This has led to an increase in the amount of funding available to startups, which has helped to fuel the growth of the startup ecosystem. Some of the most active VC firms in the UAE include Wamda Capital, Dubai Angel Investors, and Abu Dhabi Angel Investors.

The UAE is also home to a number of accelerators and incubators that provide startups with access to resources such as mentorship, networking opportunities, and office space. These programs help to support the growth and development of startups by providing them with the resources they need to succeed. Some of the most notable accelerators and incubators in the UAE include the Abu Dhabi Entrepreneurship Center (ADEC), Dubai Silicon Oasis Authority (DSOA), and the Dubai Internet City (DIC) Incubator.

Source:  (UAE Government Official Portal, 2018)

UAE startup landscape

Source: DUBAI STARTUP OUTLOOK 2021 KEY INSIGHTS (Dtecrevamp, 2021)

However, the UAE startup ecosystem still faces certain challenges. One of the main challenges is the lack of a strong culture of entrepreneurship in the country. While the government has been actively promoting entrepreneurship, the culture among the general population is still not as strong as it is in other countries. Additionally, the startup ecosystem in the UAE is still relatively new, and many startups are still in the early stages of development. This can make it difficult for startups to secure funding and resources.

UAE Entrepreneurial Ecosystem

Despite these challenges, the UAE startup ecosystem is expected to grow in the coming years. The government has committed to investing in the ecosystem and promoting entrepreneurship, which is expected to lead to an increase in the number of startups in the country. Additionally, the increasing availability of venture capital funding and the growing number of accelerators and incubators in the country is expected to provide startups with the resources they need to succeed.

UAE startup community

In addition to the overall growth of the UAE startup ecosystem, specific figures and data have highlighted the progress and development of the ecosystem. According to a report by MAGNiTT, a leading data provider for the Middle East and North Africa (MENA) startup ecosystem, the number of startups in the UAE has grown by over 60% between 2015 and 2019, reaching 5,500 startups including Ed-tech Startups in the UAE . Furthermore, the report shows that the total amount of funding raised by UAE startups reached $1.3 billion in 2019, representing a year-on-year increase of 37%.

UAE Startup trends

Source: MENA FinTech Venture Report (magnitt, 2019)

Additionally, the report also highlighted the diversity of the UAE startup ecosystem, with startups operating in a wide range of industries such as fintech, e-commerce, healthcare, and more. The fintech industry in particular, has seen significant growth, with the number of fintech startups in the UAE increasing by 150% between 2015 and 2019. This is due to the increasing adoption of digital financial services by consumers and businesses, as well as the government’s efforts to promote the development of the fintech industry.

UAE Startup Funding

In terms of funding, the report shows that the average funding round in the UAE is $1.2 million, with the median deal size being $500,000. This indicates that there is a healthy balance of seed and early-stage funding as well as later-stage funding available for startups in the UAE. This is important for the ecosystem as it helps startups to grow and develop, and also attracts more investors to the ecosystem.

Overall, the figures and data show that the UAE startup ecosystem has been growing rapidly in recent years and is diverse, with a significant number of startups operating in a wide range of industries. The ecosystem has also seen an increase in the amount of funding available to startups, which has helped to fuel the growth of the ecosystem. The government’s efforts to promote entrepreneurship and innovation and the availability of venture capital funding have played a major role in the success of the UAE startup ecosystem.

Source: MENA FinTech Venture Report (magnitt, 2019)

Most funded startups in the UAE

Here is a list of some of the most funded startups in the UAE, along with details of their funding and industry:

Source: MENA Healthcare Venture Investment Report (MAGNITT, 2020)

UAE Startup Support

• The acquisition was a win-win situation for both Uber and Careem. For Uber, the acquisition helped to solidify its position in the Middle East, where it was facing stiff competition from Careem. For Careem, the acquisition provided an exit for its investors and the opportunity to continue to grow and expand under the Uber umbrella.
• According to a report by MAGNiTT, Careem was the most-funded transportation startup in the UAE and the most funded startup in the UAE overall. The report also shows that Careem raised $776 million in funding prior to the acquisition by Uber.
• The acquisition of Careem by Uber was considered a major exit for the UAE’s startup ecosystem, as it was one of the largest acquisitions of a UAE-based startup to date. The acquisition also helped to attract more international attention to the UAE’s startup ecosystem, and it was seen as a sign of the maturity and growth of the ecosystem.

Overall, the acquisition of Careem by Uber was a significant event for the UAE’s startup ecosystem, demonstrating the potential of UAE-based startups to grow and scale globally and the willingness of global companies to invest in the UAE’s startup ecosystem.

Source: MENA Delivery & Transport Venture Investment Report (Magnitt, 2019)

UAE startup analysis

• In March 2017, it was announced that the popular food delivery app Talabat had been acquired by German e-commerce company Rocket Internet for $170 million. The acquisition was seen as a major milestone for the UAE’s startup ecosystem and helped to further solidify Talabat’s position as a leading player in the food delivery industry.

Source: Online food delivery fee in the United Arab Emirates as of May of 2022, by company (Statista, 2022)

• In 2017, Amazon announced its acquisition of Souq.com, one of the largest e-commerce platforms in the Middle East for $580 million. The acquisition was considered a major milestone for the UAE’s startup ecosystem and helped to further solidify Souq.com’s position as a leading player in the e-commerce industry. The acquisition also helped Amazon to expand its presence in the Middle East, and Souq.com was rebranded as Amazon.ae.
• The acquisition of Souq.com was considered a major exit for the UAE’s startup ecosystem, as it was one of the largest acquisitions of a UAE-based startup to date. The acquisition also helped to attract more international attention to the UAE’s startup ecosystem, and it was seen as a sign of the maturity and growth of the ecosystem.
• According to a report by MAGNiTT, Souq.com was the most funded e-commerce startup in the UAE and the second most funded startup in the UAE overall. The report also shows that Souq.com raised $275 million in funding prior to the acquisition by Amazon.
• Overall, these acquisitions demonstrate the potential of UAE-based startups to grow and scale globally, and the willingness of global companies to invest in the UAE’s startup ecosystem.

UAE Startup Success Stories

In March 2019, it was announced that ride-hailing giant Uber had acquired its biggest rival in the Middle East, Careem, for $3.1 billion. The acquisition was considered a major milestone for the UAE’s startup ecosystem, as Careem was one of the most successful and well-funded startups in the country.

• The acquisition was a win-win situation for both Uber and Careem. For Uber, the acquisition helped to solidify its position in the Middle East, where it was facing stiff competition from Careem. For Careem, the acquisition provided an exit for its investors and the opportunity to continue to grow and expand under the Uber umbrella.
• According to a report by MAGNiTT, Careem was the most funded transportation startup in the UAE and the most funded startup in the UAE overall. The report also shows that Careem raised $776 million in funding prior to the acquisition by Uber.
• The acquisition of Careem by Uber was considered a major exit for the UAE’s startup ecosystem, as it was one of the largest acquisitions of a UAE-based startup to date. The acquisition also helped to attract more international attention to the UAE’s startup ecosystem, and it was seen as a sign of the maturity and growth of the ecosystem.
• Overall, the acquisition of Careem by Uber was a significant event for the UAE’s startup ecosystem, demonstrating the potential of UAE-based startups to grow and scale globally, and the willingness of global companies to invest in the UAE’s startup ecosystem.

UAE Startup Ecosystem Future Prospects

Source:Funding system (MAGNitt, 2023)

It’s worth noting that this is not an exhaustive list and there are many other startups that have raised significant funding in the UAE. Additionally, the funding figures may not be the most recent and may have changed.

This list highlights the diversity of the UAE startup ecosystem, with startups operating in a wide range of industries such as transportation, e-commerce, fintech, healthcare and more. Furthermore, it also shows that the ecosystem has startups that have raised significant funding, which helps fuel the ecosystem’s growth and attract more investors.

UAE Startup Ecosystem Insights

Startups in the UAE have played a significant role in creating jobs in the country. According to a report by MAGNiTT, startups in the UAE are responsible for creating over 20,000 jobs in the country. This is expected to increase in the future as more and more startups are established and existing startups continue to grow and expand. Startups in the UAE are also contributing to the development of the country’s economy. According to a report by the Dubai Startup Hub, startups in the UAE have the potential to contribute up to $96 billion to the country’s GDP by 2031. This is due to the increasing number of startups in the country, as well as the growing number of startups that are scaling up and expanding globally. In addition to startups, universities in the UAE are also playing a key role in supporting the startup ecosystem. Many universities in the UAE have established entrepreneurship centers and programs that provide students with access to resources such as funding, mentorship, and networking opportunities. These programs help to foster a culture of entrepreneurship among students and provide them with the skills and resources they need to start their own businesses.

Source:Venture Capital – United Arab Emirates (Statista, 2023)

 Khalifa University of Science and Technology Startup Initiative 

For example, the Khalifa University of Science and Technology has an entrepreneurship center to foster innovation and entrepreneurship among students and faculty. The center provides a range of services such as mentorship, training, and funding opportunities to help students turn their ideas into successful startups. The American University of Sharjah also has an entrepreneurship center that provides students access to resources such as mentorship, networking opportunities, and training programs.

 UAE Startup & Role of Expats: 

Additionally, there are also several initiatives that support the startup ecosystem in the UAE through university-industry collaboration. For instance, the Dubai Technology Entrepreneur Campus (Dtec) is collaboration between Dubai Silicon Oasis Authority (DSOA) and the Higher Colleges of Technology (HCT) which aims to support entrepreneurship and innovation. The program provides students with access to resources such as funding, mentorship, and networking opportunities to help them start their own businesses. Expats, or foreign nationals, have played an important role in the current startup ecosystem in the UAE. They bring in a wealth of diverse experience, skills, and perspectives, which can help to fuel innovation and growth in the ecosystem.

Expats are attracted to the UAE for its business-friendly environment, and the country has a large expat population. According to a report by the Dubai Startup Hub, expats make up around 85% of the population in the UAE. This large expat population has brought a diverse range of skills and experience to the country, which has helped to fuel the growth of the startup ecosystem. Expats also bring in international connections and networks, which can help to connect startups in the UAE with potential customers, investors, and partners in other countries. This is particularly important for startups that are looking to expand globally.

Many expats also bring in knowledge and experience of different markets, which can help startups to understand and navigate these markets. Additionally, many expats also bring in a global perspective and diverse cultural experiences, which can help to foster innovation and creativity in the startup ecosystem. Expats can also bring in new ideas and ways of thinking, which can help to drive the development of new products and services. The UAE government has also actively encouraged the participation of expats in the startup ecosystem by providing them with the same support and resources as locals. This includes access to funding, mentorship, and networking opportunities.

UAE Startup Ecosystem vs. Gulf Region

Compared to the rest of the Gulf region, the UAE’s startup ecosystem is considered one of the most developed and advanced. The country’s relatively stable political and economic environment and its business-friendly policies have helped create a conducive environment for the growth of the startup ecosystem. Other countries in the Gulf region, such as Saudi Arabia and Qatar, also have growing startup ecosystems, but they are not as developed as the UAE’s.

How UAE’s Startups Ecosystem Be Strengthen

• Providing more access to funding: The UAE’s startup ecosystem can be further strengthened by providing startups with more access to funding. This can be done by increasing the number of venture capital firms and angel investors operating in the country, as well as by providing more government funding for startups.
• Encouraging more collaboration between startups, universities, and large companies: The UAE’s startup ecosystem can be further strengthened by encouraging more collaboration between startups, universities, and large companies. This can be done by creating more opportunities for startups to work with universities and large companies, such as through incubator and accelerator programs.
• Fostering a culture of entrepreneurship: The UAE’s startup ecosystem can be further strengthened by fostering a culture of entrepreneurship. This can be done by promoting entrepreneurship in schools and universities, as well as by providing more training and mentorship opportunities for entrepreneurs.

Source: 2023 MENA Industry Venture Investment Brief (MAGNitt, 2023)

• Creating a more streamlined process for starting and operating a business: The UAE’s startup ecosystem can be further strengthened by creating a more streamlined process for starting and operating a business. This can be done by simplifying the process for obtaining licenses and permits, as well as by providing more information and resources for startups.
• Encouraging innovation and experimentation: The UAE’s startup ecosystem can be further strengthened by encouraging innovation and experimentation. This can be done by providing more resources and support for startups that are working on cutting-edge technologies and by encouraging more experimentation and risk-taking in the startup ecosystem.
• Attracting more international talent: The UAE’s startup ecosystem can be further strengthened by attracting more international talent. This can be done by providing more opportunities for international entrepreneurs and investors to work and invest in the UAE, as well as by creating more opportunities for international collaborations and partnerships.
• Developing more specialized clusters for specific industries: The UAE’s startup ecosystem can be further strengthened by developing more specialized clusters for specific industries such as healthcare, renewable energy, logistics etc. This will help to attract more talent and investment to the ecosystem and also will help startups to access more resources and support.

Final Thoughts

The UAE startup ecosystem has come a long way in recent years and has seen significant growth. The government’s efforts to promote entrepreneurship and innovation have played a major role in this growth. The UAE startup ecosystem has seen a remarkable increase in venture capital funding, with a 63% increase in investment deals in 2022 compared to the previous year, totaling $1.2 billion. This funding has enabled startups to scale their operations, attract top talent, and develop innovative products and services.

The increasing availability of venture capital funding, the growing number of accelerators and incubators, and the diverse range of industries represented in the ecosystem have all contributed to the success of the startup ecosystem in the UAE. However, the ecosystem still faces certain challenges such as the lack of a strong culture of entrepreneurship and the relatively new nature of the ecosystem.

Additionally, the relatively new nature of the ecosystem means that there is still a need for more experienced mentors and investors to guide startups and help them scale. Despite these challenges, the UAE startup ecosystem is expected to continue to grow in the coming years as the government continues to invest in the ecosystem and promote entrepreneurship. The UAE has become an attractive destination for entrepreneurs and investors, and the future looks bright for the startup ecosystem.

References:

Dtecrevamp. (2021). DUBAI STARTUP OUTLOOK 2021 KEY INSIGHTS FOR ENTREPRENEURS AND INVESTORS. https://dtecrevamp.wpenginepowered.com/wp-content/uploads/2021/02/Report-2021.pdf

MAGNITT . (2020). 2019 MENA Healthcare Venture Investment Report. Magnitt.com. https://magnitt.com/research/2019-mena-healthcare-venture-investment-report-50709

Magnitt. (2019). 2019 MENA Delivery & Transport Venture Investment Report. Magnitt.com. https://magnitt.com/research/2019-mena-delivery-transport-venture-investment-report-50706

Magnitt. (2019). 2019 MENA FinTech Venture Report. Magnitt.com. https://magnitt.com/research/2019-mena-fintech-venture-report-50675

MAGNitt. (2023). Q1 2023 MENA Industry Venture Investment Brief. Magnitt.com. https://magnitt.com/research/q1-2023-mena-industry-venture-investment-report-50871

Statista. (2022). UAE: food delivery fee by company 2022. Statista. https://www.statista.com/statistics/1356251/uae-food-delivery-fee-value-by-company/

UAE UAE Government Official Portal. (2018). About the UAE – The Official Portal of the UAE Government. U.ae. https://u.ae/en/about-the-uae

Usuaebusiness. (2017). THE U.A.E.’S STARTUP ECOSYSTEM AND OPPORTUNITIES FOR U.S. INVESTORS. https://usuaebusiness.org/wp-content/uploads/2017/03/Invest-UAE_EE_digital.pdf