Global financial technology – FinTech – and asset management firm Liquidity Group has helped provide more than $300 million to UAE start-ups over the past couple of years as it aims to bridge the funding gap between the early and late stages, its chief executive has said.
The firm has enabled late-stage funding worth between $20 million to $50 million across several industries in both the Emirates and the Middle East through its Mars Growth Capital fund, Ron Daniel told The National in an interview.
Liquidity, which has offices in Abu Dhabi Global Market, Tel Aviv, London, Singapore and New York, formed Mars in 2021 as a joint venture with Japan's largest lender, Mitsubishi UFJ Financial Group.
The fund currently has about $1.5 billion of assets under management focused on North America, the Asia-Pacific, Europe and the Middle East.
Mars aims to boost start-up development and accelerate their potential contributions to consumers and the economy by providing “holistic financial growth solutions”, Mr Daniel said.
“There's a challenge right now, because in the last few years we saw a lot of the open funds establishing early-stage funds, and they did a lot of relatively early-stage and mid-stage investment,” he added.
“But the ecosystem is still growing and there's not enough presence of growth funds in the region.”
Earlier this month, Mars announced the initial closing of its first equity fund, Dragon Fund I, with an initial limited partnership commitment by MUFG of up to $500 million. The fund is aiming for a final close in 2024.
Dragon Fund I marks Mars's entry into equity investing and targets growth equity investments in private, mid-to-late-stage tech and tech-enabled companies. Initially focusing on the Asia-Pacific, the fund's deal sizes will range from $20 million to $100 million, with flexibility to make primary and secondary investments.
“There's a gap in the market between the early stage and the late stage … most of the growth capital is provided by large investment [organisations], and they cannot process a lot of deals in this size because it's too small for them,” Mr Daniel said.
The role of start-ups has grown continuously over the past few years as a driver of digital adoption and growth, enabling consumers to access services with convenience.
They have also been touted by governments as a key driver of economies, especially in preparing for the future of a society that is highly digital-focused.
Start-ups in the Middle East and North Africa have raised $643 million in late-stage funding during the first half of 2023, helping the region significantly outpace global figures, start-up data platform Magnitt said in a recent industry report.
This has resulted in the region's late-stage funding scene posting a 20 per cent annualised growth since 2018, compared to a 49 per cent decline globally during the same stretch, it said.
The development of start-ups’ contribution to the economy will also help achieve the target of doubling the UAE's gross domestic product by 2031, Abdulla bin Touq, Minister of Economy, said last month.
Countries in the Middle East in which start-up ecosystems have the most potential include the UAE, Saudi Arabia and Egypt, the three largest Arab economies, Mr Daniel said. Israel is considered to be in Europe among start-up circles, he said.
“The UAE is very international and cosmopolitan. It attracts a lot of foreign investors, brings a lot of know-how and even liquidity … and is very good in attracting talent from all over the world,” he said.
This is reinforced by Liquidity's research and development centre in ADGM, in which it has 50 developers from around the world helping create market solutions, he said.
Mr Daniel does not believe the start-up ecosystem is oversaturated; rather, it has been going through a “natural evolution” in which markets and sectors require more of these companies to address challenges with their solutions.
“If you don't have many start-ups and there's no competition, you will not get better. You need competition in the market to get better with your own product,” he explained.
“You're trying to over win someone. So there is no such a thing as having too many start-ups.”