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Title: Entrepreneurship

Entrepreneurship Financial Fulfilment

Suresh Kumar
TiE Dubai, 18th April 2004
Entrepreneurship Global Perspectives
Chile , Korea, New Zealand, Uganda and Venezuela
Brazil, China, India and Mexico
France, Croatia, Chinese Taipei, Netherlands,
Japan, Russia and Poland
On all measures of entrepreneurial activity the
highest group is about six times higher than
the lowest entrepreneurial group
Entrepreneurship - Global Perspectives
  • Global Entrepreneurship Monitor research
  • 60 of the entrepreneurs are in the age group
  • 66 had an overriding entrepreneural objective
    and 27 were forced into entrepreneurship.
  • A positive cultural context comprises
  • social acceptance of entrepreneurial careers
  • respect for new business success
  • and positive media coverage
  • In the opinion of 800 experts in the Global
    Entrepreneurship Monitor (GEM) countries,
    consider most governments are least effective in
    sponsoring programs or policies to enhance

Entrepreneurship - Global Perspectives
  • In a society that is ill-governed, wealth and
    entrepreneurship are frowned upon. However in a
    society that is well governed poverty is
    something to be ashamed of
  • Descartes, a Greek philosopher, and a B.C.
    contemporary of Aristotle

Entrepreneurship A collection of skill sets
  • Experience is invaluable not merely to avoid
    older errors and to make only new mistakes, but
    also to gain sufficient people and resource
    management skills, as to bring important
    qualities of intellectual challenge and healthy
    skepticism, before commencing new ventures.
  • If overdone these qualities can abort innovation
    and enterprise, but if undone, then, they are
    equally a recipe for some costly mistakes,
    especially involving other peoples monies

Entrepreneurs Born Made
  • Entrepreneurship is not an art but an imperfect
    science. It is a blend of risk taking and
    management skills that can be acquired,
    cultivated and honed.
  • Entrepreneurship is historic and age old but has
    come into vogue in the advent of the New Economy.
  • The skill sets are somewhat different between
    what the old economys and the new economys
    activities require.
  • The commonalities are risk-taking, innovation,
    focus, creating value and putting together a
    winning combination and a blend of professional
    management, and enterprise creating and
    nurturing skills.


Risk taking
Venture capital
Lack of organisational skills
Professional mgt
Lack of balance
Lack of cluster support
Value creation
Financial Fulfilment life cycle and growth phase
Seed stage Funding comes from the founder's
personal funds or family and friends who believe
in the idea. VCs and Angels are approached once
the initial corpus is exhausted. Start-up
stage Funding at this stage provided by "Angel
Investors" Early stage Funding business angels
or venture capitalists who specialize in early
stages of development Growth stage Funding
provided by venture capitalists or institutional
investors Maturity stage Financing is provided
by VCs for mergers and acquisitions, MBOs
(Management Buy-Outs) and MBIs (Management
The negotiation process is characterized by
numerous concerns being raised, both for the
entrepreneurs and the investors. Basically the
entrepreneur and the investor are baking a pie,
each of them bringing some of the ingredients
idea, intellectual property, funding and they
have to agree upon who will get what share of the
pie valuation, control repartition when and at
which conditions the pie should be taken out of
the oven exit and who should lose what in case
the pie was burnt outliquidation
Eating the financing pie and having it too
GCC- Macroeconomic environment
  • Cooperation Council of the Arab States of the
    Gulf (GCC)- Bahrain, Kuwait, Oman, Qatar, Saudi
    Arabia, and the United Arab Emirates
  • Experienced unprecedented economic and social
    transformation over the last three decades
  • Strategic geographic location Beneath the GCC
    region lie half of the planet's known and
    extractable oil reserves

GCC Economic Structure
  • Oil contributes about one-third to total GDP
  • GCC accounts for 45 percent of the world's proven
    oil reserves and 25 percent of crude oil exports
  • Heavy dependence of government revenues on
    volatile oil export receipts

The exchange rate has been effectively used as a
nominal anchor, with GCC currencies pegged at
fixed rates to the U.S. dollar
Source IMF
Key growth areas opportunities for investments
Revenues from oil will ensure sustained
government spending on construction efforts in
infrastructure,aviation,and a host of other
sector-level development efforts such as the
Dubai International Financial Center (DIFC)and
Dubai Health Care City (DHCC)
Service sectors dependent on infrastructure for
Knowledge and Health
Setting up business in the UAE
  • Legal forms of businesses in the UAE
    Partnership/ limited partnership/ Limited
    liability companies /Branch/Rep office of foreign
    companies/ Private Public Joint Stock
  • Free Zones
  • Jebel Ali Free Zone Offshore Companies - 3000
    companies from over 100 countries
  • Dubai Airport Free Zone - attract high-value,
    technology-driven industries needing ready access
    to airport facilities
  • In 1999, Dubai announced one of its boldest
    ventures to date, Dubai Internet City (DIC),
    which was followed within months by two satellite
    ventures, Dubai Media City and Dubai Knowledge
  • Dubai Healthcare City Dubai Maritime City
  • Dubai Cars Automotive Zone
  • Gold Diamond Park

The Dubai International Financial Center
  • The objective of the DIFC is to position Dubai as
    a hub for institutional finance and a gateway for
    capital and investments.
  • It aims to channel and manage more than a
    trillion dollars of wealth and funds generated
    from the Middle East, CIS and the Indian
  • The DIFC will focus on five areas of the
    financial services industry
  • Asset Management
  • Islamic Finance
  • Reinsurance
  • Securities
  • Back-office Operations
  • It will also operate the Dubai International
    Exchange (DIX),

The DIFC Contd..
  • The legal framework of the DIFC consists of three
  • Core Financial Services Legislation, laws that
    create Regulatory Authority and the core
    financial services covering banking, insurance,
    securities and other investment activities.
  • Commercial Legislation or laws that constitute a
    commercial codes comprising company law,
    security and collateral law, title to goods and
    securities law, insolvency law and contract law.
  • Supplementary Legislation or laws that deal with
    specific matters, which include intellectual
    property law, auditors and accounting policies,
    employment regulations, data protection and

Zabeel Park Technology theme park
  • Technology theme entertainment and educational
    leisure park, 51 hectares - proposed completion
    March 2005
  • Strategically located to form an entry gate for
    eastern and western emirates and other GCC
    countries. Alongside the upcoming DIFC.
  • The most hi-tech park in the Gulf, being
    developed under the aegis of the Dubai
  • Proposed to be built and operated jointly by
    private and public sector participation.
  • The park comprises of 3 zones linked by
  • Dubai Municipality currently inviting
    applications for investing in the above projects,
    under a 30 year Build Operate Transfer
    contract. DM is also open to innovative ideas
    other than the projects mentioned above.

UAE Capital Market Structure
Emirates Securities and Commodities Authority
Abu Dhabi Securities Market 32 securities
Dubai Financial Market (14 equity/ 2 bonds)
Market Development
IT Compliance
Finance Administration
Clearing Depository Services
Information Technology
Central Depository Registration
Clearing Settlement
Company Listing Compliance
Market Surveillance
Member Licensing Inspection
Market Control
Financing through IPOs
  • Benefits
  • Access to public capital markets
  • Larger amounts can be raised - Sponsors
    resources not a constraint.
  • Flexibility in financing - Reduced dependence on
    bank borrowing
  • Higher company valuation (cheaper cost of
  • Enables Company founders/sponsors to diversify
    their personal wealth.
  • Attract management talent - Incentives to
    employees (stock options)
  • Higher degree of legal obligations - public
    interest to be considered
  • Concerns
  • Potential loss of control
  • Greater transparency requirements
  • Trading restrictions for senior management and
  • Vulnerability to market conditions

Getting Listed in the UAE
  • Approval to list must be obtained from the
    Emirates Securities Commodities Authority ESCA
    - Company incorporated with audited financials
    for at least two years, shareholders equity
    should be min AED 20m, of which 50 paid-up
  • After DFM approval, the share registry is
    transferred to the Central Depository. Trading
    can commence post completion of the listing
  • Foreign Company listing
  • Issuer must be a Public Joint Stock Company
    properly constituted under the relevant laws of
    its country of incorporation.
  • Issuer must appoint a local representative in the
    UAE to handle shares registrations, dividends,
    regulatory reporting etc
  • Issuer must be already listed on a recognized
    stock market, in home country.

Going Public Time table- LLCs
Time Frame
Parties involved
Founders / directors   The competent
Assess Legal Requirements to go Public
Appointment of Professional Advisors
Founders / directors Companys advisors Lead
manager PR. Advisors Legal advisors
12-24 weeks
IPO Preparation
Formation of Committees
3 6 weeks
32 52 Weeks
Preparation of Prospectus
Founders / directors Companys advisors Lead
manager / co-lead manager PR. Advisors Legal
advisors Auditors Reporting accountants Receivi
ng bank(s)   The UAE Federal Ministry of
Economy Commerce The competent authorities  
Application to Change Status Payment of Fees
max. 75 days
Review of Application Conditions To Meet
Conditions Met Share Offering Commences
10 90 days
IPO Pricing
Final Minister Approval / Public Joint Stock
Company Status Granted
8 10 weeks
Listing Timetable
Companys advisors PR. Advisors Legal
advisors Auditors Reporting Accountants Emirate
s Securities Commodities Authority Dubai
Financial Market    
45-60 days
Application to List with Authority
10-12 weeks
Application to List with DFM Start of Trading
15-30 days
This phase can vary from one from one company
to another. Time frame shown above is only
indicative in this case.
Financial Assistance in the UAE
  • Self financing
  • Loans/ facilities from Banks
  • Private/ Public raising of funds including IPOs
  • Leveraging ratios (DebtEquity) determine return
    on capital and IRRs
  • Lower interest rate means cheaper capital and
    leads to entrepreneurial opportunities.
  • Local Institutions that provide venture capital
  • Dubai Development Investment Authority (DDIA)
  • Mohammed Bin Rashid Establishment for young
    Business leaders
  • Dubai Investments/ MSharie
  • Injazat fund (Technical)
  • Estithmaar (Media)
  • Emirates Industrial Bank

Role of UAE commercial Banks - Entrepreneurship
  • In the UAE there are around 50 Banks with 400
    branches. However these are geared principally
    for the
  • old economy
  • traditional trade finance
  • conventional banking.
  • It is not prudent for these banks to rely on
    short-term liabilities on (deposits of one and
    three months) to lend to start-up ventures or
    provide even late stage equity capital.
  • Besides, banks are constrained by a limit of 25
    on exposure to commercial companies i.e. cannot
    invest more than 25 of shareholders funds in
    equity-like securities including bonds etc.

Financial Fulfilment International
  • Dubai Investments PJSC/Emirates Industrial Bank
    were the only entities set up to provide start-up
    finance for large scale projects.
  • National financial institutions do rightly,
    focus on UAE nationals and their businesses.
  • Therefore, expatriate entrepreneurship must
    necessarily hinge on finding national partners /
    sponsors or a service agent or overseas equity
  • Expatriate lending is to be viewed in the context
    of some large scale defalcations that had
    afflicted the UAE banks in the past. In the
    circumstances, understandably, there is
    reluctance to provide equity capital or long-term
    funding for expatriate entreprenuership

Deregulation Privatization WTO Basel II
  • Etisalat no longer the sole service provider,
    after enjoying 28 years of monopoly status. Move
    prompted by economic and technological benefits
  • This is likely to see an influx of capital and
    technology into this sector
  • This sector could see an influx of economy and
    technology albeit of substantial scale
  • Technology and Transport were the top recipients
    of investments in 2003
  • The water and electricity sector in Abu Dhabi has
    been privatised
  • The move towards privatisation implies greater
    investment opportunities for entrepreneurs

Specialist Institutions - a necessity
  • Venture capital and private equity are globally
    becoming specialist activities for which they
    need specialist institutions.
  • These have not come into being as yet, except on
    the periphery, which is easy for instance, if it
    is a private equity department.
  • Established businesses that are unlisted, but
    have good viability and cash flow, are preferred
    to start-up ventures.
  • The authorities are now, in terms of listing of
    the free zone companies, likely to be more
    amenable. We can expect some path-breaking
    legislation in this regard.
  • An entrepreneur has to think out of the box
    along every aspect of the way, including in terms
    of meeting his financial objectives.

The mutual entreprenuerial fund
  • Entities such as the Dubai Internet and Media
    Cities to set up dedicated group financing
    schemes or else support mutual funds.
  • As DIC was being conceived, that with Mr.
    Mohammad Al Gergawis support, Emirates Financial
    Services launched e-Securites and e-Venture
  • TiE needs to associate itself and perhaps, some
    of its members provide cross-guarantees and form
    mentoring councils. It then becomes a case of the
    entrepreneurs, investors and those that
    understand the business better, of themselves,
    sharing and caring and taking some risks away and
    thus creating
  • new entrepreneurs
  • Therefore, there is no disproportionate
    distribution of burden merely on the financiers.

  • Q A
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