Optimism in the UAE startup ecosystem despite a funding crunch

Like other countries in the Gulf, the United Arab Emirates (UAE) is steering towards economic diversification to reduce its reliance on hydrocarbons. The UAE Centennial 2071 plan underscores its commitment to economic diversification, emphasising non-oil sectors such as technology, tourism, and renewable energy. 

Since 1999, the UAE has attracted global tech giants like Microsoft, Oracle, IBM, Facebook, Cisco, and Dell, and has established itself as a tech hub through initiatives like Dubai Internet City and the Dubai Future Foundation. 

Government policies facilitating ease of doing business, access to talent, and competitive tax incentives have played a pivotal role in shaping its tech landscape, especially for emerging startups in the sector.

This year, however, macroeconomic factors such as global funding slowdown coupled with higher interest rates slowed down the pace of tech startup growth. 

According to startup data platform Magnitt's Q3 UAE Venture Investment report, UAE startups raised $371 million in the first nine months of 2023, compared to $1.83 billion in the same period in 2022.

Overall, UAE's tech sector experienced a 65% drop in funding to $638 million in 2023 as of December 19, the lowest since 2020, according to Tracxn's Geo Annual report, UAE tech 2023.

Dubai saw the most deal activity with $579 million. followed by Abu Dhabi and Umm Al Quwain with $54 million and $5 million, respectively.

Fintech, environmental technologies, and blockchain startups received the most funding, with Hub71 and MBRIF being the most active investors.

Top funding rounds in the UAE this year included electric vehicle maker One Moto's $150 million Series D round; hyper-realistic metaverse platform Everdome's $60 million seed round; attractions developer HyperSpace's $55 million Series A round; deeptech startup XPANCEO's $40 million seed round and D2C ecommerce brand SQUAT WOLF's $30 million Series B round.

AI at the core

The UAE Government's Strategy for Artificial Intelligence (AI), launched in 2017, hopes to make the country a tech hub. With a focus on diverse sectors like transport, health, finance, and technology, the strategy aims to enhance government performance and create a high-value market for companies. 

“The Gulf region is leveraging AI talent to enhance their daily operations and create employment opportunities. These countries are implementing strategies to drive economic and cultural understanding of AI, enabling smarter work and improved business operations,” says Richa Thakur, MD and CMO, VYUG, a Dubai-based metaverse platform promote ethical, secure digital experiences, fostering innovation in employment, education, and entertainment, bridging the virtual and real worlds.

The UAE's commitment to AI development is evident through initiatives like the Mohamed bin Zayed University of Artificial Intelligence (MBZUAI) and the National Program for Artificial Intelligence. Another citywide initiative, Smart Dubai, applies AI in urban planning for enhanced efficiency. 

“The UAE has effectively tackled ignorance, misinformation, and job loss concerns related to AI adoption, leading to significant growth in the banking and financial sectors, with numerous businesses preparing to integrate AI and blockchain in financial services,” says Avi Dahiya, Founder and CEO, Twyn, a Noida-based deeptech startup that has presence in UAE.

The country has also taken steps to attract talent by launching a 10-year Golden Visa programme, which is open for entrepreneurs, data scientists, and coders.  

“This visa extends to the individual's family, promoting stability and long-term tech sector contributions,” says Samuel Joy, CEO - Huntr, a UAE-based marketplace connecting migrant workers.

Publicly available data shows a fourfold increase in coding talent over the past two to three years.

Currently, more than 120,000 global professionals are based in Dubai, according to data shared by Dahiya.  

Crypto and blockchain Startups

The UAE ranks third globally in the number of blockchain startups, with nearly 120 startups according to the 2022 Worldwide Crypto Readiness report. 

The Dubai International Financial Centre has established the Digital Assets Regulatory Authority (DARA) to regulate digital asset activities, while the government's Blockchain Strategy 2021 aims to transition half of government transactions to blockchain platforms. 

Foreign direct investment (FDI) is on the rise in the UAE. According to the World Investment Report 2023 by the United Nations Conference on Trade and Development (UNCTAD), UAE saw 10% increase in FDI flow in 2022, reaching a record $23 billion.

The country attracted around 60% of total FDI into the six-member Gulf Cooperation Council (GCC) bloc, the report added. 

Further, UAE’s sovereign wealth funds (SWFS) such as Abu Dhabi Investment Authority, Investment Corporation of Dubai (ICD), Mubadala Investment Company, Abu Dhabi Developmental Holding Company and Emirates Investment Authority (EIA) together have $1.4 trillion in aggregate assets under their management, as reported by Gulf News.

“UAE presents abundant opportunities for investors, entrepreneurs, and developers, with a supportive regulatory environment and a commitment to technological advancement creating a conducive ecosystem for growth and collaboration,” explains Shrikant Bhalerao, Founder, Seracle, a Riyadh-based Web-3 development platform.

Accelerating digital innovation 

Dubai Chamber of Commerce—an organisation that supports local businesses—registered 48,616 new members between January and September 2023, a 42.9% YoY increase from the 34,029 members registered during Q3 in 2022. 

In a bid to boost Dubai's digital economy and align with the Dubai Economic Agenda (D33), the Dubai Chamber of Digital Economy brought 101 digital startups to the country in the first nine months of 2023.

“As a global talent hub, the UAE's tech-centric vision has gained considerable attention. Its dedication to fostering a thriving startup ecosystem has not only attracted over half of the region's venture capital investments but also signifies the presence of a rich and high-caliber talent pool,” says Deepak Ahuja, CEO and Co-founder of iAccel Gulf Business Incubator, a subsidiary of India Accelerator.