What Is The Process Of Start-Up Funding In UAE?
Every idea needs seed funding for its growth, development, and execution into reality. You need to figure out the process either through self-funds or find investors for the same. Many people also consider the option of seeking help from friends and family. For getting well-versed with the concept, you need to start from the basics.
The moment you avail a specific amount of funding, a part of your start-up gets the existence. Faster the funding, earlier would you be able to create the company. Every bit of your company is known as ‘equity. Anyone investing in your firm gets entitled as the co-owner of the company. The basic concept of equity is the pie that gathers to forms a company that works on your start-up concept and module. Now let’s research several funding stages of a start-up in the UAE.
Theoretical Stages of a Start-up Funding!
Once you have a clear vision about your start-up business and are pretty sure about its lucrative outcomes, the next step is to gather funding for the same. Here are the common stages prevalent in a funding process.
- Idea Stage- The process starts with your ideology and concepts. If you have a brilliant idea and want to decide on it, start making a feasibility report of its execution. When you begin it, the value gets added to the concept. Later on, it would get translated into equity, but you hold sole equity of the same at the initial level.
- Co-Founder Stage- When your concept takes a transformation to the physical prototype, that’s the moment you realize that it’s the start. You need to search for co-founders who are zealous, intelligent, and excellent in their field. After a couple of days, you avail a partner for your business. As you do not have any money to pay, equity is something you can offer to them. If the participation is 50% or more, you can increase their share in the business.
- Family and friends- If you plan to create a Private Limited company, raising money through newspaper ads is not legally viable. You also need to check with the Federal Authorities of UAE in this context. To prevent ‘Public solicitation,’ you can turn up to your friends and family for raising funds.
- Accredited Investors- People having more than $1 Million in their bank accounts are under the category of ‘Accredited Investors.’ You are lucky enough to get their recognition and avail seed funding from them.
- Company Registration- To ensure investors’ safety, you need to complete the company registration process. This option helps you and your co-investors to head up towards a professional company format.
The Angel Round of Funding!
After getting the primary funds, there are chances that you might run out of cash and start searching for the next source of income. Before your start-up dies, it’s better to avail yourself of secondary support for your finances. Angel investors are again the set of people willing to offer cash support at a very high value.
Searching for angel investors in UAE can be pretty simple if you have a brainstorming business concept to start up with. Create a good case for yourself and allure the investors with a decent percentage share in your business. You at least need to offer them a 20% share in the profits.
However, you must also limit your investors as it could lessen down your share in the business. Take investments only when it’s essential and refrain from the unnecessary burden of funds.
Venture Capital Round
After developing the first version of your business, you might face some traction with the users. For this, you need to seek the assistance of the venture capitalist. They can avail around 33.3% share as per the hypothetical chart in your company. The first VC round is in series A, and then you need to move through series B and C. However, there are probabilities that you won’t get any further investors or funding after a while. After multiple funding rounds, you can come up with a decision to go public.
What are the reasons for going public? In UAE, many start-ups acquire an IPO status to raise money through regular people. With this, they are also able to sell stocks and quickly get funds for themselves. Everyone seeking investments in your company is known as the stakeholders, and you owe them part of your profits. However, for an IPO, you need to understand the UAE Government norms and complete all paperwork about that.
There are also liquidity events when your earnings get converted into cash amounts. Investment bankers are the next set of individuals who come into the frame when you go for an IPO. They complete all paperwork on your behalf, sell a significant chunk of your stock, and hold their share in the entire IPO. As per the pie, they will get 7% of the company stakes to manage your documentation and stocks effectively.
Early Employees and Other Investors
Finally, the last set of investors who are direct and indirect contributors in raising your company value. It includes the sweet employees who favor you by working at lower salaries and hold some share in your stocks. It’s a big gamble for them. Once your company undergoes the IPO process and becomes a public company, anyone can be your investor in the world.
It’s imperative to treasure your early employees as they can travel far away with the growth of your business. The employees who are well-acquainted with the crux of your venture could explore the best possibilities in that arena. Timely updates, proper guidance, and enough exposure to market needs could upgrade them from time to time.
Besides, you can also arrange training sessions for them to get a deeper insight into your business requirements. Once you keep track of these aspects, the early employees could be the company’s most significant assets and potential managers.
After thorough introspection of various stages of start-up funding and the market share of different investors in your business pie, it is possible to get well-versed with the possibilities and challenges. In UAE, there are many free zones where you can save a lot of your additional expenses levied for a start-up business.
Unless you make a ground report of the ultimate profit share left with you after distribution to the investors, a successful start-up is a dream. Many have made it possible to conquer their ideas by developing and framing a perfect business concept.
Sooner or later, you realize that no business could flourish and grow with the association of investors, employees, and other valuable assets to your business. Start-up funding is a much complex subject than you can imagine due to the adversities associated with it. Once you get the notch on it, nothing could stop you from being successful!