Relaxing due diligence around SMEs needed to support sector
Dubai: Reducing start-up costs and scaling back due diligence would give a strong boost to the UAE’s small and medium enterprises (SMEs), according to Samer Choucair, vice president of CE-Ventures, the in-house incubator under Crescent Enterprises. Easing rules around bankruptcy and debt would also accelerate growth in the sector.
Crescent Enterprises is a multinational company based in the UAE, with operations that include investments and business incubation activities.
“When you compare us to VCs [Venture Capitalists] in the west, and in the US particularly, the due diligence done on a start-up over there is a fraction of the due diligence over here. Even the biggest VCs here in the region do a lot more due diligence on their early-stage start-up than you would see in the west,” he said.
Choucair added, “Today, there are still unfortunately a lot of difficulties that start-ups face to get moving, and they get bogged down by too much red tape, too much bureaucracy, and very high costs to start up a business. But this is being tackled in various ways by different players, be it government players or even education institutions.
He was speaking on the sidelines of the Sharjah FDI Forum on Wednesday where he was also part of a panel discussion on how start-ups can change the shape of the economy.
Though the UAE’s government has been on a drive to increase the contribution of SMEs to the country’s Gross Domestic Product (GDP), start-ups often still cite challenges that include regulations and access to funding. And to many banks and investors, SMEs present a risk when it comes to lending.
“Obviously, it’s much riskier to invest in [start-ups], and that turns off investors who are used to brick-and-mortar type investments that have a very clear return and moderate risk that’s easy to measure. It’s natural; we’re progressing rapidly towards where we need to be when it comes to early-stage, high-risk investment because of the exposure we have to the rest of the world,” Choucair said.
He pointed out, however, that there still needs to be education around early-stage investment, which is still a small fraction of spending compared to that in the US, for example.
Other experts agreed with that view.
Najla Al Midfa, general manager at Sharjah Entrepreneurship Centre (Sheraa), said at the forum that large corporations need to take a role in investing start-ups, and allocating capital to “high-risk investment.”
Asked about tackling other challenges facing SMEs, Choucair cited bankruptcy laws and debt laws.
“I would definitely say failure rates are not higher here [than in other countries], but failure is still a cultural taboo. The main difference between here and the west is that in the west, failure is encouraged; you only learn from failures. Today, it’s very difficult [to fail] because of bankruptcy laws, debt laws, etc, but again that’s being tackled with the modification of the bankruptcy law. It’s not open to expats but at least, it’s a step in the right direction,” he said.
CE-Ventures conceives and builds its own start-ups, and currently focuses on sectors that include the transport sector (such as electric vehicles), food and beverage, entertainment, and e-commerce. But Choucair described the company as “sector-agnostic,” and taking an opportunistic approach towards new ideas.
He said he believes the biggest opportunities in the UAE’s market for start-ups are in the health care and transport industries.
“Those are two of the most important to be looking at and that provide the biggest opportunities. The UAE specifically is trying to position itself as a significant player in health care tourism. Health care in the UAE is not perceived to be at the same standards as the more mature markets, so that immediately presents a pretty big gap,” he said.