Dubai is home to countless ambitious businesses and entrepreneurs. Each is looking to gain and grow a foothold in this thriving, strategically located market. Some are able to grow organically, funding expansion through profits. Others look for outside capital to help them achieve their ambitions.
Traditionally, those looking for outside capital would have to court investors individually or via venture capital and angel investment programs. However, another popular route is now available: crowdfunding. By raising money in this way, businesses are able to engage with their audience at the same time as seeking investment.
So, if you’re looking to start or grow a business in Dubai, here’s why crowdfunding could be a smart way forward.
What is crowdfunding?
Crowdfunding is a way to raise investment for a product or business from a large group of individuals. Typically, investors pledge amounts ranging from a few dollars to few thousand in return for a discount, early access to a product, VIP perks or, in some cases, equity in the company.
Crowdfunding sites allow businesses and entrepreneurs to connect with a large pool of potential investors while engaging with their potential target audience. Many sites work on an all-or-nothing basis. Therefore, if the original crowdfunding target is not reached, money is returned to investors rather than taken in by the crowdfunder.
As financial institutions have enforced stricter lending policies in recent years, crowdfunding has risen in popularity dramatically. The overall transaction value of the global crowdfunding market is expected to increase by 1.4% between now and 20228. Over the same period, the total market volume is estimated to reach USD 1.27bn.
All crowdfunding activities in the UAE are overseen and regulated by the Emirates Securities and Commodities Authority to ensure maximum transparency and fairness. It is important to familiarise yourself with these regulations before undertaking any such initiatives.
Types of crowdfunding in the UAE
There are numerous popular types of crowdfunding available in the UAE, including:
Reward-based
One of the most common types of crowdfunding, the reward-based model sees investors pledge fixed amounts of money in return for gifts, bonuses or perks. For example, a fashion business might offer exclusive designs solely for crowdfunding investors. This is a very popular approach for creative businesses using sites such as Kickstarter.
Equity-based
In this instance, crowdfunders are rewarded with equity in the relevant business. This is much closer to a traditional investment model. However, instead of attracting large sums from a few investors, the crowdfunded approach allows a business to raise the same amount of capital via many more smaller pledges.
Debt-based
This is very similar to the equity-based model. However, the key difference is that all pledges are taken by the business as loans. Crowdfunder investors are then repaid with interest over an agreed period of time.
Donation-based
Once again, this model is very similar to the above in that investors are not rewarded for their pledges in the traditional sense. In this case, crowdfunded investments are seen as donations with no obligation on the business to repay or offer anything in return. This model is typically used for humanitarian or charitable causes.
Popular crowdfunding programs in the UAE
As well as popular international names, there are many crowdfunding platforms in the UAE and Middle East, designed to help grow and diversify the region’s businesses.
Kickstarter/Indiegogo
Kickstarter and Indiegogo are the two biggest names in the crowdfunding space. Both allow businesses to seek investment in return for rewards. With an international audience, they are a great option for businesses looking to reach customers outside the Middle East.
YallaGive
YallaGive is a donation-based crowdfunding platform based in the UAE. It allows NGOs, charities, social enterprises and community organisations to seek investment on an altruistic basis. It is fully compliant with all UAE crowdfunding regulations.
Crowdcube
Crowdcube is an equity-based model allowing businesses to seek investment through the sale of shares. With low minimum investments, it appeals to a broader range of potential investors. In return for crowdfunded investment, investors are issued share certificates.
Beehive
Beehive is a UAE-based peer-to-peer lending platform. This debt-based crowdfunding platforms allows businesses to seek small loans from a broad pool of investors. As well as conforming with UAE legislation regarding crowdfunding and lending, it is also Sharia-compliant.
DubaiNEXT
DubaiNEXT is a digital crowdfunding platform from the Dubai Government. It operates on an all-or-nothing reward-based model. It is one of many Dubai-based initiatives to accelerate and nurture small and medium-sized businesses.
Benefits of crowdfunding for startups
From increased engagement to easy access to investment, crowdfunding has many potential benefits for startups.
Access to capital
It is not always easy for startups to access funding through traditional means. Many financial institutions require proof of successful trading before they will lend. This is a bar that many startups cannot meet. Instead, they have the option to crowdfund investment outside the banking system.
Market research
A successful crowdfunding campaign also helps with market validation. If a large audience has engaged with your campaign, you can be more confident that there is a market for your product going forward.
Community building
Crowdfunding allows startups to engage with their audience directly. As well as helping to build a loyal customer base, this also creates opportunities for feedback and improvement of products and services.
Retained ownership
Many crowdfunding models, such as reward-based and debt-based, allow startups to receive funding while retaining 100% ownership of the business.
Fast access to funds
Crowdfunding campaigns can run from as little as a few days, with most lasting less than a month. This allows startups to access and plan for funding in the short term.
About Creative Zone
While the business landscape in Dubai has been designed with simplicity in mind, it can be daunting if you are new to working in the country.
That’s why selecting the right partner is critical when looking to launch or grow a business out here. As the Middle East’s most trusted business setup advisor, Creative Zone has been empowering entrepreneurs and SMEs with comprehensive support since 2010. With a strong reputation for assisting businesses locally and globally, we offer a complete range of solutions for all your business setup needs.
When you work with us, you get fast, reliable and unbiased advice on your unique business setup requirements. We can help you choose the right kind of license for your business activity and take you through the entire process from start to finish.
We’re here to assist every step of the way. No matter your chosen activities, legal entity or visa requirements, we’re on hand with support, guidance and expertise. So, if you’re looking to lay the foundations for life in the UAE, Creative Zone is your ideal starting point.
Contact us today to kickstart your business in Dubai.
