Cover story: Why Virtuzone’s executives believe startups must emulate UAE for long-term success

Bright idea. Create innovative concept. Major hurdle. Sudden inspiration. First client. Investors confirm. Brand awareness. Regional crisis. Change in team. Future growth.

Any successful entrepreneur can easily relate to the above.

But it is also the path that the UAE – and Dubai in particular – took, when it embarked on its ambition to become a startup hub – not just for this region, but for the world – a feat rather herculean considering its size.

And yet here we are, with the country ranked first in the Middle East and fourth worldwide on the Global Entrepreneurship Index (GEI) 2020, ahead of the US, the UK and China. The country has attracted several successful founders and startups, including Souq.com (sold to Amazon), Careem (acquired by Uber), Swvl (first $1.5bn unicorn from the Middle East which is set to list on Nasdaq New York) and Anghami (first Arab tech startup to list on Nasdaq New York), among others.

The country has also birthed innovative and disruptive startups such as on-demand refueller Cafu, cloud kitchen Kitopi – which raised $415m funding in the past year – and agritech business Pure Harvest, which also garnered $110m in the last year.

As a pioneer in the UAE’s business setup landscape, Virtuzone has seen the evolution of Dubai as a startup hub – how it has successfully navigated the various stages of growth – and how it is powering ahead towards the future. Set up in 2009, Virtuzone has helped more than 60,000 entrepreneurs from 180 countries set up their businesses in the UAE, and almost 90 per cent of them renew their trade licence with the company every year. Virtuzone is also seeing strong growth this year, especially in sectors such as e-commerce and fintech.

Speaking to Gulf Business, company chairman and co-founder Neil Petch, director and co-founder Geoff Rapp and CEO George Hojeige outline how the UAE has traversed through the ups and downs of a startup journey, taken risks, and dealt with challenges, and also reveal how the country is seeking to achieve the next level of growth.

The Pitch
Recognising the need for a startup hub in the Middle East and North Africa (MENA) region, the UAE started building the required institutions early on to attract entrepreneurs – not just from the region, but from across the world – to set up their businesses in the country. That has involved establishing freezones, setting up a robust ICT infrastructure, creating a strong legislative framework and pushing the boundaries of innovation to nurture the startup ecosystem.

Over the years, the UAE has adopted several measures to support the sector. Most recently, the country amended its legislation to permit foreign investors and entrepreneurs to establish and fully own onshore companies, eliminating the need for a UAE national to hold the majority share. The UAE has also started issuing long-term ‘golden visas’ to entrepreneurs, which are issued for five or 10 years and renewed automatically.

One aspect that many people may be unaware about is the number of double tax treaties (DTTs) that the UAE has signed, says Petch. The country currently has DTTs with roughly 95 countries (including two set to take effect in January 2022), according to PwC.

“UAE nationals or resident individuals and UAE resident companies have access to an extensive and growing DTT network. These DTTs may not be immediately relevant for obtaining relief from UAE taxation (as the UAE does not levy withholding tax or other forms of non-resident taxation); however, they may allow for relief from taxation in DTT partner countries,” the company states. A number of other DTTs are also at various stages of negotiation and ratification.

“So much of our infrastructure and the building blocks are here already, and the government has also announced that you can have 100 per cent ownership. That’s going to create a huge amount of positivity globally,” says Petch.

Hojeige agrees: “Dubai has built an infrastructure and a lifestyle like no other place on earth, with a great mix of skilled human resources, plenty of available funding, and a quality of life unequalled in the world.”

Adds Petch: “There are still certain limitations and that’s where companies such as ours can guide you through that complex route that sometimes exists and advise you on the best way to go about it.”

The Team
Any mentor or investor will attest to the fact that one of the most essential elements for the success of a new venture is its leadership and its people. “Most investors will tell you that they invest in founders rather than companies/ideas. They then look at the leadership team of the startup and give their vote of confidence based on that. Nobody wants to invest in a lemon and having skilled people running the startup minimises the chances of this happening,” explains Hojeige.

In the UAE, the intent of the leadership has been clear through its policies. The country also appointed its first Minister of Entrepreneurship and SMEs, Dr Ahmed Belhoul, in July 2020, highlighting the importance it is according to the sector. The public sector has also played a leading role in the establishment of incubators and accelerators, including the likes of the Sharjah Entrepreneurship Centre (Sheraa), Dubai Future Foundation and the Abu Dhabi Executive Council, which is carrying out the Dhs50bn Ghadan 21 programme.

Having an enabling leadership can also help the country take swift regulatory and legislative decisions, giving it a competitive edge.

“One of the things about the UAE is that because we’re not run by thousands of committees, decisions can be made quickly. Hence it is easy to bring about change. I was recently talking to a friend who owns a real estate company. And he had people from the cryptocurrency space coming in, saying, ‘I want to buy four houses now’. Now the crypto world is a very much more immediate world and a jurisdiction that makes it as easy as possible for people to transact [using cryptocurrencies] is going to have an advantage, not just commercially, but also in terms of how people feel about it,” explains Petch.

“The UAE is not short sighted; it thinks ahead and so what we need to do is enable people to be able to transfer from fiat currency to crypto and vice versa. If we do it right [using technology to ensure accountability], there’ll be a massive advantage and that will start to show very soon.”

The Risks
Perhaps one of the biggest risks associated with a startup is dealing with unexpected crises, whether they are smaller market fluctuations or major ones such as the Covid-19 outbreak. The pandemic rattled economies, shuttered several businesses across the world and has left countries struggling to figure out the best way forward. And this is where the UAE stood out for its quick response.

The country initially enforced a lockdown, but once the situation was under control, Dubai became one of the first cities in the world to reopen its borders to international visitors in July 2020 (it has not closed them completely even once since then), and the economy has gradually gotten back on track. In 2020, Dubai issued over 42,000 new business licences, and in the first quarter of this year, the emirate registered more than 15,000 new business licences and renewals.

Pivoting quickly and adopting a flexible approach – similar to what Dubai did – is essential for startups to weather tough conditions. “What we have learned from steering through the pandemic is that agility is key. No one had studied or experienced how to cope with such a phenomenon before and businesses who succeeded in overcoming the challenge were the ones with strong leaders who took quick decisions and adjusted their approach through hard times by reading and reacting to market conditions,” Hojeige explains.

“At Virtuzone, we implemented measures to manage cash flow and cash reserves early on, including reduced work hours, working in shifts, and negotiating payments terms with suppliers/partners who were very understanding and helpful. We were lucky to have built a team who accepted our decisions, rose to the challenge, and trusted us to steer the ship through rough weather. Now we’ve come out the other side stronger than ever.”

The Competition
Similar to any well-established startup, the UAE has also started to see other countries in the region contending to attract the same group of entrepreneurs. GCC states such as Saudi Arabia and Qatar have announced massive initiatives and campaigns to lure startups and establish themselves as entrepreneurial hubs.

“The thing with competition is that we don’t like it at the time, but competition raises your standards, and we know that Saudi Arabia, in particular with NEOM, is looking at trying to create an Estonian type smart-city set-up. For me this is a huge opportunity for the UAE because while people [internationally] are not going to jump at the prospect of going on a holiday to Saudi Arabia – they might do in five years – what they will do now is come to Dubai and then look at doing some business in the kingdom,” states Petch.

Also, the UAE has already established itself as the region’s leading startup hub, whereas the other GCC states have yet to build such a reputation, says Rapp.

According to research by Magnitt, the UAE led the regional venture capital investment growth in the first half of the year by number of deals and funding, acquiring 61 per cent of all MENA investments.

“Furthermore, the UAE’s business climate continuously improves over time, with policies and regulations designed to provide more favourable conditions for foreign businesses and entrepreneurs. The UAE’s highly advantageous corporate tax policy (at zero per cent) gives it another edge. Saudi has a corporate income tax of 20 per cent, while Qatar levies a 10 per cent corporate tax, with exemption only granted to corporate entities wholly owned by Qatari and GCC nationals,” he says.

However, Petch also stresses that to stay ahead, the UAE, with support from the private sector, must aggressively market itself as a destination that can attract the rising number of digital nomads or those who work remotely. The digital nomad trend gained significant traction during the Covid-19 pandemic; an oft quoted report by US-based MBO Partners found that 10.9 million American workers currently describe themselves as digital nomads, an increase of 49 per cent from 7.6 million in 2019. The report also found that independent or self-employed workers are much more likely to continue as digital nomads for at least the next two years (62 per cent) compared to traditional workers. Looking ahead, among adult Americans who aren’t currently digital nomads, 19 million said they plan to embark on the opportunity over the next 2-3 years and 64 million said that they “may” explore it.

To cater to this market, Dubai launched a virtual working programme last October – the remote work visa, which enables global citizens to live and work remotely from the city for one year. Earlier this year, the programme, which was designed to attract professionals, entrepreneurs and those working in startups, was also extended to cover the entire UAE.

But more needs to be done to attract these nomads. “Firstly, we have to create the environment that can both be as open to them [digital nomads] as they are used to. Secondly, we need to go and market it to their friends and compatriots so that they come as well. If we do that, then the first thing that will happen is more people will come – as is already happening, but the next stage is that the people will come, set up a little business here and then they’ll [potentially look at] creating a trust or a foundation type structure here [which will include inheritance planning],” says Petch.

Another area which will help the UAE improve its competency is improving its banking structure for startups. “What we have seen is that it can still be a huge challenge for new entrepreneurs to open a bank account in the UAE. One solution we are seeing is the rise of digital and neobanks in the country. These neobanks remove the traditional lengthy processes for new businesses and entrepreneurs to open a bank account, and anyone can do the process from anywhere in the world. They also generally have fewer requirements, which lessens the burden on new entrepreneurs, while easing the way for them to start growing their businesses. This year, we have already seen the launch of YAP, the UAE’s first independent digital banking platform. Emaar has also announced they will be creating their own digital banking app, Zand, and Abu Dhabi’s ADQ is also entering the neobanking arena, with an initial capital of Dhs2bn backing the project,” says Rapp.

The Future Vision
Petch coins an interesting term to describe the current status of the UAE. “Obviously you’re familiar with the term ‘brain drain’, but I think that at the moment we are experiencing a ‘brain gain’ in the UAE, and it’s our duty to help maximise that. What I mean by that term is that every day people are coming into our offices, they’re asking for support for enrolling their children in a school, or for renting a house, or for setting up a bank account in the UAE. Until now, for most part, we were helping entrepreneurs who were starting a new life in the UAE – either they just moved to the country or they were working for another company and decided to go it alone. While there’s still very large numbers like that, in my opinion, the biggest change has been this black swan event of Covid-19, which has led people to run their business from anywhere in the world.”

From a Virtuzone perspective, Petch says the company is keen on raising awareness globally about the key advantages that are present in the UAE. “We’re in a fortunate position where we can approach the government and urge for a public-private partnership, because we need to work together.”

Hojeige adds: “What we have been advocating since last year is the establishment of a borderless business economy, which will allow entrepreneurs to trade internationally without the additional challenges that geographic boundaries and traditional bureaucracies present. As the pandemic has shown us, we need to be able to do business regardless of the global scenario. Livelihoods and economies are at stake, so while the UAE economy has proven to be resilient and agile, we need to hedge that growth and ensure our startup community will remain strong and thriving.”

While the UAE has certainly scripted a robust startup story so far, the initiatives it takes now will ensure happy endings – and new beginnings.