Entrepreneurship

1
Entrepreneurship Financial Fulfilment

Suresh Kumar
TiE Dubai, 18th April 2004
2
Entrepreneurship Global Perspectives
Chile , Korea, New Zealand, Uganda and Venezuela
Highest
High
Brazil, China, India and Mexico
Lowest
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
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Entrepreneurship - Global Perspectives

• Global Entrepreneurship Monitor research
  findings
• 60 of the entrepreneurs are in the age group
  25-44
• 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.

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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

5
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

6
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.

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Dos
Donts

Risk taking
Fear
Venture capital
Lack of organisational skills
Professional mgt
Greed
Energy
Lack of balance
Enthusiasm
Innovation
Lack of cluster support
Value creation
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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
Buy-Ins)
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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
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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

11
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
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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
take-off
Knowledge and Health
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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
  Companies
• 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
  Village
• Dubai Healthcare City Dubai Maritime City
• Dubai Cars Automotive Zone
• Gold Diamond Park

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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
  sub-continent
• 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),

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The DIFC Contd..

• The legal framework of the DIFC consists of three
  tracks
• 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
  privacy.

16
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
  Municipality.
• Proposed to be built and operated jointly by
  private and public sector participation.
• The park comprises of 3 zones linked by
  footbridges.
• 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.

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UAE Capital Market Structure
Emirates Securities and Commodities Authority
(ESCA)
Abu Dhabi Securities Market 32 securities
Dubai Financial Market (14 equity/ 2 bonds)
Market Development
IT Compliance
Finance Administration
Clearing Depository Services
Information Technology
Compliance
Central Depository Registration
Clearing Settlement
Company Listing Compliance
Market Surveillance
Member Licensing Inspection
Market Control
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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
  capital).
• 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
  directors.
• Vulnerability to market conditions

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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
  capital.
• After DFM approval, the share registry is
  transferred to the Central Depository. Trading
  can commence post completion of the listing
  process
• 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.

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Going Public Time table- LLCs
PRIVATE COMPANY STATUS
Time Frame
Parties involved
Steps
Founders / directors   The competent
authorities
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
PUBLIC COMPANY STATUS
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Listing Timetable
PUBLIC COMPANY STATUS
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
DFM. LISTED COMPANY STATUS
This phase can vary from one from one company
to another. Time frame shown above is only
indicative in this case.
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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
  financing
• Dubai Development Investment Authority (DDIA)
  ADIC/ADIA
• Mohammed Bin Rashid Establishment for young
  Business leaders
• Dubai Investments/ MSharie
• Injazat fund (Technical)
• Estithmaar (Media)
• Emirates Industrial Bank

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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.

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Financial Fulfilment International
Entrepreneurship

• 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
  flows.
• 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

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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

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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.

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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
  funds.
• 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.

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• Q A