Dubai SME, the agency of the Department of Economic Development (DED) in Dubai mandated to develop the small and medium enterprise (SME) sector, has launched an Equity Investment Initiative, aimed to unlock investment and funding in SMEs. The initiative aims to provide entrepreneurial projects with access to capital through equity participation of venture capitalists, angel investors, private equity companies etc.
Dubai SME has been providing debt financing and loan facilities over the last 12 years as part of supporting start-up projects but the new initiative aims to establish more viable and sustainable sources of funding through linking entrepreneurs and successful investors.
“The Equity Investment Initiative is a path-breaking effort towards changing mindsets. It targets to channel the abundant capital available in the local market into sectors where entrepreneurs and their start-ups have significant developmental potential. The initiative fits well into the Dubai SME Strategic Plan for 2015-2021.” said Abdul Baset Al Janahi, Chief Executive Officer of Dubai SME.
“Bank financing mainly targets established companies and cannot be expected to flow into start-ups or their early stage development. The market fails to address the initial funding requirements of entrepreneurs but banks take much of the blame for not offering such assistance. Dubai SME as a government agency is trying to address this market failure through the Equity Investment Initiative,” added Al Janahi.
The initiative will be rolled out in two phases, the first of which has already been launched. In the first phase, Dubai SME will study the SME equity financing landscape in Dubai and the wider region. The study will include brainstorming with different stakeholder communities and exploring the market size, scope and appetite for equity participation in SMEs as well as identifying potential venture capitalists, angel investors and private equity players.
“We will specifically look at sectors where there is significant potential for SME participation, for example, sectors such as information technology, biotechnology, education etc. With their agility and capacity to drive innovation, SMEs have had remarkable success in these sectors, which investors can leverage for mutual advantage,” Al Janahi added.
The second phase of the project will be launched in 2015 and will focus on creating the appropriate channels and platforms for entrepreneurs and equity investors to come together to form partnerships. Dubai SME by then will have an extensive database of entrepreneurs, enterprises and investors interested in being part of start-up projects in specific sectors.
“Dubai’s efforts to establish a knowledge economy will be ably supported by the Equity Investment Initiative for SMEs. It presents a significant opportunity in the medium to long term, not only for SMEs in Dubai but across the region. Total investment into small companies in the region is estimated at around three billion dirhams and clear strategies and initiatives will help channel this money into sectors with a high growth potential,” Al Janahi concluded.