Dubai Future District Fund (DFDF), a backer of 24 startups and venture capital funds, outlined its “cautious venture capital approach” for 2024 in its annual report released on Monday. It includes underlining startups’ path to profitability and positive cash flows amid potential inflation and sustained interest rate hikes.
As for its fund-of-fund strategy, it pointed out that the current limited partners’ funding gap for venture capital funds owing to global economic and political uncertainty may create an opportunity for DFDF to capitalize on.
DFDF, the region’s first evergreen venture capital fund of fund, highlighted generative AI, climate tech, and fintech as the investment themes for the current year, and expressed optimism about regional IPOs in fintech and e-commerce.
“We expect venture capitalists, like ourselves, to double down on the due diligence of startups’ bottom-line economics with a higher weightage in decision-making processes,” said DFDF in its report “Fostering an Enduring Ecosystem”.
DFDF has so far made 14 direct investments and 10 fund-of-fund investments with ticket sizes of up to $5 million in the case of VC investments and between $250,000 and $1 million in the case of the former.
The report pointed out that while high-interest rates will continue to drive down valuations for mid-stage startups in 2024, it may serve as investment opportunities for “bolder investors”.
The report said that the majority of Series B founders looking to enter the Series C territory are facing a lack of capital, and while sovereign wealth funds, sophisticated debt-financing, and late-stage specific regional VCs may fill these funding gaps, the international pools historically relied upon may not be as available.
“For bolder investors, this year may have solid businesses up for grabs with down rounds and valuations that return to 2018-2020 averages for series B and C,” the report says. “Contrary to prevailing sentiment, today’s bear markets may be the optimal time to invest in GCC-based startups.”
Global LP funding is forecast to face a challenging and frosting year, as global LPs continue to wait for distributed capital before making further commitments, it said.
Established about two-and-a-half-years ago with an initial committed capital of AED 1 billion ($272 million), DFDF’s key fund-of-fund commitments made last year include Global Ventures, Asian fintech-focused venture capital firm Arbor Ventures, and Gulf focussed early stage focussed Nuwa Capital.
Amid global political uncertainty and rising interest rates venture capitalists will face pressures in closing their funds, leaving a gap for DFDF to capitalize on, the fund of fund pointed out. “… ‘Limited Partners’ may request to observe distributed to paid-in capital on vintage fund performance prior to doubling down. This gap may create an opportunity for Government-backed funds, such as the Dubai Future District Fund, and sovereign wealth funds to fill the gap and capitalize on market opportunities,” the report says.
The IPOs and exits through Dubai Financial Market, and Tadawul are creating a path for more trust in the region’s startup ecosystem at earlier and earlier stages, it said. “Some of the greatest unicorns (e.g. Airbnb, Uber, etc.) emerged right after economic downturns, and we expect the same to take place in MENA,” DFDF says.
“Generative AI is no longer being applied to everything without discretion. Clear, disruptive enterprise use cases for AI are rapidly coming into the fold, both in the realm of operational cost reduction and revenue generation, leading to leaner and leaner organizations,” it said.
Some of the AI startups backed by DFDF include DXWAND, which provides multilingual digital assistants and chatbots, and Camb AI, an AI-driven video content localization platform
In the case of the fintech sector, DFDF expects areas like payment orchestration, stablecoin on-ramp and off-ramp, and B2B payment rails, to continue to surge in emerging markets. It also expects the “unhealthy” growth in insur-techs, experienced globally since 2021, to subside, with less focus on vertically integrated disruptive plays and more on a model that partners with incumbents instead of competing with them.
It also expects climate tech to become a more prevalent theme in the UAE and the Global South, with mobility and smart buildings forming the first wave of opportunities in the MENA region and ‘alternative food’ shortly following.
In December 2023, DFDF committed AED 200 million (US$ 55 million), about a fifth of the total fund, to support climate technology and innovation during the global climate conference COP 28.
Anchored by the Dubai International Financial Centre (DIFC) and the Dubai Future Foundation, the DFDF was established in 2020. It aims to deploy half of its investments into VC funds with a local focus and the other half into startups directly or through Future District-affiliated programmes.
Get daily update with our newsletter Subscribe Now !
