Over the past year, the venture capital (VC) landscape in the UAE and broader Gulf Cooperation Council (GCC) region has witnessed several significant transactions. These deals highlight the region’s growing appeal to investors and its commitment to fostering innovation across various sectors.

Notable Venture Capital Financings

G42 – USD1.5 billion from Microsoft

In April 2024, Abu Dhabi-based AI firm G42 secured a USD1.5 billion investment from Microsoft. This collaboration aims to advance AI solutions across various sectors, including finance, healthcare and government, leveraging Microsoft’s Azure platform and G42’s AI capabilities.

Astra Tech’s Quantix secures USD500 million investment

In December 2024, Quantix, a fintech subsidiary of UAE-based Astra Tech, received a USD500 million investment from Citi. This marked the largest funding round for a UAE fintech to date and underscored the increasing global interest in the region’s financial technology sector. 

Plenty and Mawarid’s USD680 million joint venture

US vertical farming start-up Plenty partnered with Mawarid, a subsidiary of Alpha Dhabi Holding, to establish a USD680 million joint venture aimed at developing indoor farms across the Middle East. The initiative reflects a growing focus on sustainable agriculture and food security in the region. 

Moove – USD100 million Series B

Moove, a global mobility fintech, raised USD100 million in a Series B funding round led by Mubadala Investment Company and Uber. The funds will support Moove’s expansion plans across 16 markets by the end of 2025, focusing on increasing vehicle supply and promoting sustainability.

VC-Backed IPO

Talabat, originally a VC-backed growth company and owned since 2015 by Germany’s Delivery Hero, raised USD2 billion in the UAE’s largest IPO of 2024. The offering was oversubscribed, reflecting strong investor confidence in the Middle East’s food delivery sector.

Regional Investment Initiatives

Qatar Investment Authority’s USD1 billion VC fund commitment

In early 2024, the Qatar Investment Authority (QIA) announced plans to invest over USD1 billion in international and regional VC funds. This initiative aims to bolster the start-up ecosystem in Qatar and neighbouring Gulf states by attracting global VC firms and entrepreneurs to the region.

Over the past year, the VC landscape in the UAE and wider GCC region has matured significantly, even in spite of global economic headwinds. The regional market has shown resilience, with a few notable shifts in deal structuring, investor behaviours, and legal due diligence practices commonly associated with the market; largely reflecting a pivot towards more sustainable and risk-managed investment practices.

Tighter Financing Terms and Valuation Adjustments

In line with global trends, GCC investors have become more cautious, focusing on start-ups with proven traction, more defined paths to profitability, and strong governance frameworks.

Start-ups are facing increased pressure on valuation terms. Compared to previous years, there is a strong shift away from growth-at-all-costs towards sustainable unit economics and profitability.

While capital is still relatively abundant, regional investors are exercising a greater degree of caution when investing at the seed-stage/early-stage and spreading risk across multiple start-ups or sectors.

Secondaries

Secondary share sales are becoming more prevalent as a way of unlocking some founder liquidity without relinquishing control.

Specialised secondary funds are matching the demand and gaining more prominence in the region.

Altered Transaction Structures

The use of bridge rounds and convertible instruments to grant runway and enable price discovery to subsequent rounds of funding has increased.

Investors are now making deals with milestone or performance tranches such that the capital is released against mutual KPIs or revenue milestones.

Some early-stage companies have raised a combination of venture debt and equity, mainly through government-backed programmes (see 2.4 Particularities and 4.1 Subsidy Programmes).

Key Deal Term Shifts

• The development of a MENA region-compliant set of model equity funding documents (ie, different in some capacities from national venture capital association (NVCA) and British Private Equity & Venture Capital Association (BVCA) model documents) continues.
• Shareholder blocking rights are being given to an individual or group of core investors, emphasising the importance and weight of key investors when negotiating terms and discounts. 
• Preferential conditions such as liquidation preferences (typically one-time non-participating), anti-dilution protections, and reserved matters are gaining traction and are more common than before.
• In a slower raise cycle, there is more time to conduct thorough legal, financial and regulatory due diligence.
• There has been a maturation of the market, with greater focus on founder dedication, with tighter vesting schedules and more detailed non-compete and non-solicitation agreements.

Strategic Sectoral Focus

Fintech, sustainable agritech, healthtech, edtech and AI platforms are attracting the most attention. The UAE and Saudi Arabia, in particular, are tying investment incentives to national transformation plans.

Government institutions and sovereign wealth funds have launched or expanded co-investment funds, providing both capital and legitimacy to start-ups.

VC activity in the UAE and wider GCC region in the last 12 months has largely been spurred by strategic national agendas, population changes, and digital transformation initiatives. Governments in the region remain committed to backing innovation with policy, infrastructure and funding incentives, and this has influenced where VC flows are concentrated.

Top VC Sectors of Investment

Fintech

Fintech remains the most active VC sector, especially in the UAE and Saudi Arabia.

Digital payment solutions, neobanking, and personal finance management solutions start-ups have secured multiple rounds of funding.

Regulatory support – such as the UAE’s Open Banking Framework – has also spurred investor confidence.

Healthtech and medtech

Healthtech and medtech start-ups have been driven by post-pandemic transformation and population growth to secure significant funding.

There has also been investment in telemedicine, digital diagnosis, and AI-enabled health analytics platforms at the early- and growth-stage.

Edtech

Edtech continues to attract robust backing, with specific strength in hybrid or Arabic-language learning platform providers.

The region’s young, tech-aware population has driven high demand for alternative education tools.

Agritech and food security

Agritech, including vertical farming and climate-resilient agriculture, has seen a sharp surge in investment. This has a direct link to regional food security goals and is backed by sovereign entities like the Abu Dhabi Investment Office.

AI and deep tech

AI-based platforms and B2B software as a service (SaaS) solutions are in high demand, especially when coupled with government digitalisation initiatives.

Start-ups in data analytics, machine learning and automation have had well-wishers in private VC as well as government-affiliated funds.

UAE and wider GCC VC funds are typically structured so that they offer regulatory certainty and operating flexibility. The legal structure of the fund, governance framework and documentation will all depend, to a significant degree, upon whether the fund is established onshore, in a financial free zone, or offshore in a foreign jurisdiction with positive fund regulations.

There are a number of different legal jurisdictions in the UAE. There are federal laws, and in addition, each emirate has its own emirate-level laws (these are referred to as “onshore”). There are also a number of free zones, which have different laws. The most prominent of these from a VC perspective are the financial free zones – the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) – both so-called “offshore”. By far the most common VC fund structures seen in the UAE are those of offshore funds (DIFC/ADGM), the Cayman Islands’ funds or funds in Delaware.

Legal Form and Jurisdiction

ADGM and DIFC

These are the preferred jurisdictions for establishing VC funds in the UAE as they have common-law systems, are tax neutral, and have strong regulatory environments which are organised in a way that is familiar to international investors.

The majority of funds are set up as exempt funds or qualified investor funds (both of which are private funds), depending on the number and nature of investors.

The most commonly employed legal vehicles are the investment company, limited partnership, or fund manager-led structures, with tax-transparent limited partnerships being the most common choice of all.

Decision-Making and Governance

General partner (GP) and limited partner (LP) model

Most UAE VC funds follow the GP/LP structure, where the general partner manages the operations and investment decisions of the fund, and the limited partners are passive investors with limited liability. The GP is typically a special-purpose vehicle (SPV) owned 100% by a fund manager registered with the Financial Services Regulatory Authority (FSRA) in the ADGM or the Dubai Financial Services Authority (DFSA) in the DIFC.

Investment committee

The authority for decision-making typically rests with an internal investment committee selected by the GP. This committee oversees due diligence, approves investments, and ensures adherence to the fund’s mandate.

Advisory boards

The majority of funds also form advisory boards comprising LPs or industry experts who provide non-binding guidance, especially on conflict resolution, valuation or strategy.

Standard Fund Documentation

VC funds in the region tend to adopt internationally accepted standards of fund documentation. As the DIFC and ADGM are both common-law jurisdictions, the fund documentation looks very similar to that in the Cayman Islands, Jersey and the BVI, etc. The following are the typical legal documents used.

Limited partnership agreement (LPA) or equivalent constitutional document

This governs the rights and obligations between the GP and LPs. It defines capital commitments, distribution waterfalls, fees, and clawback provisions.

Private placement memorandum (PPM)

This sets forth the fund’s investment thesis, target industries, terms, and risk disclosures. It provides significant operational details such as the fund term, management fees, and carried interest.

Subscription agreement

This is the legal document in which investors commit capital to the fund. It includes representations and warranties and outlines how capital calls are handled.

Side letters

These are normally negotiated with institutional or strategic LPs to supply tailor-made rights, such as lower fees, co-investment rights, or more reporting.

Fund principals – typically GPs, fund managers or founding partners – are responsible for the key duties of running, and the broad financial performance of, VC funds. In the UAE and broader GCC, economic incentives and governance terms strictly follow international standards, particularly those in the US and the UK. However, some practices tend to become more localised towards regional investor expectations and regulatory frameworks, particularly in the ADGM and DIFC.

Fund Principals’ Economic Participation

Fund principals are typically entitled to three main sources of economic participation in line with international standards.

Management fees

A recurring fee, usually around 1.5% to 2.5% of invested or committed capital of the fund. This covers operating costs, salaries, deal sourcing, and administrative overheads.

Carried interest

Regional standards are the same as international standards, usually with 20% of profits beyond a threshold return point (hurdle rate). Returns are usually paid on a typical “waterfall” arrangement, with LPs recovering their capital (and typically a preferred return) before the GP participates in any upside.

GP commitment

Regional fund principals typically commit 1% to 5% of the size of the fund. Such interest alignment is intended to reassure LPs that the GP has skin in the game for the performance of the fund.

Evolving Market Standard Terms: Investor Protections and Governance

In the past few years, investor sentiment has pushed a trend towards better balanced and clearer terms of funds. The following have become standard.

Preferred return (hurdle rate)

The majority of funds now have a hurdle rate (approximately 6% to 8%) before the GP can begin to receive carried interest. This gives LPs a minimum return prior to profit sharing.

Clawback provisions

Regional LPs expect clawback provisions, which allow them to recover excessive carry distributions if the fund performs poorly in later years.

Key person provisions

These protect LPs in case a named fund principal leaves, becomes incapacitated, or is otherwise unable to act in their capacity. Consequences may be as extreme as suspension of new investment or even winding up, unless replacements are agreed by LPs.

No-fault divorce and removal rights

LPs may bargain “no-fault” removal rights to have the GP removed by super-majority vote without cause. This is protection against misgovernance and a way of monitoring performance.

Transparency and reporting requirements

Funds should provide quarterly and annual financials, a portfolio, and ESG reporting, particularly in the event of institutional or sovereign LPs.

LP advisory committee rights

LP advisory committees (LPACs) are increasingly common and play a significant role in managing conflicts of interest, valuation problems, and approvals for deviations from investment policies. Keystone investors are typically offered a role on the LPAC.

VC funds operating in the UAE and the wider GCC region are subject to regulatory oversight. While the approach to regulation varies depending on the jurisdiction, there is a general trend towards light-touch yet well-defined frameworks that aim to protect investors while encouraging innovation and capital investment.

Free Zone Jurisdictions: the ADGM and DIFC

Both financial centres are the preferred jurisdictions in the UAE for the set-up and operation of VC funds due to their internationally benchmarked legal frameworks, independent regulators, and tax-neutral regimes.

The ADGM

This is regulated by the FSRA. VC funds can be set up under the FSRA’s Fund Rules, which designate them as exempt funds, qualified investor funds, or public funds, depending on the fund’s structure and investor profile.

VC funds benefit from a customised venture capital regime introduced by the ADGM, providing easier registration, reduced capital adequacy and regulatory burdens, and easier capital deployment arrangements for early-stage investment.

The DIFC

This is regulated by the DFSA. Like the ADGM, the DIFC offers the same fund categories (exempt funds and qualified investor funds), with lighter disclosure for professional investors.

VC funds benefit from a similar customised venture capital regime as that introduced by the ADGM, providing easier registration, reduced capital adequacy and regulatory burdens, and easier capital deployment arrangements for early-stage investment.

The managers of VC funds must obtain a fund manager licence and are subject to rules on risk management, anti-money laundering (AML) and investor disclosure.

Mainland UAE

Onshore UAE

In mainland UAE, the Securities and Commodities Authority (SCA) substantially updated its VC funds regime in 2023 in order to encourage the establishment of investment funds onshore in the UAE and to reduce the applicable financial and administrative requirements, including:

• a reduction in minimum share capital requirements for fund management companies; and
• the removal of ownership restrictions previously in place for such entities.

Nonetheless, VC activity is not typically conducted via onshore fund vehicles, due to the complexity of regulation and the civil law framework.

The UAE and wider GCC VC ecosystem has undergone a remarkable transformation in recent years. While private capital remains a key driver, the ecosystem is increasingly shaped by strategic public sector involvement, shifting fund strategies, and an increasing need for long-term investment vehicles. Some important observations that reflect this changing landscape are as follows.

Government-Backed VC Funds and Sovereign Investment

Sovereign engagement

The most distinctive feature of the regional VC ecosystem is the extremely active participation of government-backed investors. Players such as Mubadala Ventures (UAE), STV (Saudi Arabia), and Bahrain’s Al Waha Fund of Funds are at the centre of early-stage capital formation. These funds invest in start-ups directly or indirectly through commitments to private VC managers with the goal of diversifying national economies and entrepreneurship.

Strategic co-investment programmes

Platforms like the Dubai Future District Fund and Saudi Venture Capital Company (SVC) are catalysts that facilitate matching private capital and de-risk early-stage investment. Co-investment arrangements are meant to focus on sectors enabling national visions (eg, fintech, AI, sustainability, etc).

Fund-of-Funds and LP Activity

Fund-of-funds (FoF) growth

Investors like Al Waha Fund of Funds (Bahrain) and ADQ’s DisruptAD have employed an FoF strategy to develop regional VC infrastructure. Through investment in regional and international VC managers, these FoFs fill capital gaps and enable knowledge transfer to the region.

Regional family offices and institutional LPs

There is a perceptible change in the role of institutional investors and family offices investing more capital into VC funds as limited partners. Several are asking for longer-duration, sector-specialised strategies and more transparent governance as part of their capital deployment plan. This is combined with a rise in the profile of VC investment across UAE and regional family offices more widely.

Impact Funds and ESG Orientation

Increased interest in impact investing

Though still nascent, impact-driven VC funds are becoming increasingly popular, especially in areas like healthtech, edtech, cleantech and agritech. Sovereign wealth funds and development institutions are increasingly linking the mobilisation of capital to ESG outcomes and long-term social returns.

Idea-stage investing

While solid funding for Series A and early-stage investing in the UAE and wider GCC region exists, there is still a distinct lack of investors in the region who are keen on deploying capital at the pre-seed stage (ideation, prior to minimum viable product (pre-MVP) or pre-revenue stage), as happens in more developed markets like the USA and Singapore. However, this does appear to be shifting, with the entry of Antler MENAP into the ecosystem with a USD60 million fund, aimed at day-zero and idea-stage investing in the MENA region, and willing to invest in companies earlier, as compared to other regional funds that seek to invest with proven traction at seed stage.

VC due diligence in the UAE and wider GCC is becoming increasingly rigorous as the ecosystem evolves and investors become more sophisticated. While early-stage deals may still have thinner processes, Series A and later financings typically follow global norms, with structured assessments across legal, financial, operational and compliance areas. The scope of diligence typically reflects the nature of the investor, with government funds, family offices, and institutional VCs holding themselves to higher standards.

Scope and Level of Due Diligence

Early stage (pre-seed, seed)

At the early stage, due diligence is typically limited and founder-focused, with an emphasis on team capability, market opportunity and product validation.

Legal documents may be reviewed in summary, and most deals are founder warranty-based with fewer formal investigations.

Growth stage (Series A onwards)

At the growth stage, due diligence is formalised and more extensive.

Investors are likely to appoint legal, financial and tax advisers to conduct independent reviews, especially if institutional or cross-border investors are involved.

The organisation and timing of a new round of funding – particularly when anchor investors are involved in a growth-stage company – are influenced by a range of considerations including deal complexity, jurisdiction, investor mix, and company readiness. While these are mostly aligned with international customs, local nuances have a tendency to qualify negotiations and decision-making among participants.

Growth rounds often involve a complex interplay among existing investors, new anchor investors, and the company. Managing these dynamics effectively is crucial to a smooth completion.

Existing v New Investors

Alignment and negotiation

Existing investors generally wish to maintain their rights and protections (eg, anti-dilution, pro-rata rights, and board representation).

New anchor investors may request enhanced rights – such as liquidation preferences, veto rights or preferred information access – that can affect the cap table and governance.

Bridge investors

Occasionally, bridge investors from previous rounds act as bridgers, bargaining with the firm while introducing new strategic capital.

Representation by Law

Joint v independent counsel

Earlier rounds often use joint counsel in order to economise on costs.

Growing rounds, particularly involving institutional or government-linked anchor investors, tend to include independent counsel for:

• the firm;
• the new group of investors; and
• occasionally, the existing investor group (mainly if institutional or holding wide rights).

This segregation gives autonomy, particularly where rights are renegotiated or significant shareholder protections are recalibrated.

Investor Consents and Governance Thresholds

Majority requirements

The majority of shareholder structures require majority or “super-majority” approval for a new round – usually 51%, 66%, or 75% of existing preferred shareholders, depending on the protective provisions.

Consent by all investors

Some legacy agreements can be made amendable by unanimous consent, particularly for alteration in key terms such as liquidation preferences or founder equity provisions. These provisions will often cause negotiation delays or mandatory changes.

Drag-along and tag-along rights

These provisions are generally revisited in growth rounds, particularly where the round is likely to include an exit avenue for the future or a secondary sale.

Convertible Notes

In the UAE and wider GCC, while common stock (ordinary shares) remains the underlying equity instrument in early-stage financings, alternative instruments are increasingly being used to provide flexibility and meet the evolving needs of start-ups and investors. Convertible notes are a staple in pre-seed and seed rounds, especially where valuations are uncertain or where deals need to close quickly. These notes typically carry a discount rate – typically between 10% and 30% – on the share price in the next priced round, along with a valuation cap which provides an upper limit on how high the conversion price can be. Some convertible notes will also carry an interest rate, typically between 5% and 8% annually, although the expectation is that they will convert instead of being repaid. Maturity terms range from 12 to 24 months, at which point the notes either convert or trigger a repayment or renegotiation event.

SAFE Instruments

SAFE (simple agreement for future equity) instruments are also starting to gain more traction in the region, particularly in jurisdictions like the DIFC and ADGM where regulatory regimes more closely approximate international standards. SAFEs are simpler than convertible notes, lacking an interest rate or maturity term. They convert to equity upon a qualified financing event, usually with a pre-agreed valuation cap or discount. These instruments are especially popular in very early-stage rounds (eg, friends-and-family or accelerator-backed financings), since they carry very little administrative and legal overhead. Government-related entities and incubators in the UAE and Saudi Arabia are increasingly willing to invest using SAFEs, which is normalising their use in the local ecosystem.

Preferred Shares

Starting from Series A rounds, the main investment instrument is preferred shares. These are equity instruments with senior rights to ordinary shares to help secure the investor and give them a voice in the company’s decisions. The preferred rights entail a one-time non-participating liquidation preference that ensures investors are refunded their money before ordinary shareholders if the company is sold or liquidated. Anti-dilution protection is the norm and is usually established as a weighted average adjustment, which gives the investors some downside protection in future down rounds. Board representation rights are usually negotiated by preferred shareholders, from a single observer seat to formal voting rights depending on the round size and investor control. Additional protection mechanisms include veto rights over significant company choices such as issuances of new shares, alterations in corporate structure, mergers or exits, and budget approval. Dividends are sometimes discussed but tend to be non-cumulative and not often paid, except on an exit or wind-up. Collectively, these tools indicate a more institutional method of venture financing across the UAE and wider GCC.

In the UAE and wider GCC growth-stage financings, transaction documentation tends to be in keeping with international documentation practices, particularly those adopted in the UK and US venture sectors. The foundational documents align with what institutional money and sophisticated investors would expect, especially in cross-border transactions in DIFC or ADGM-incorporated vehicles, which tend to serve as the jurisdictional base of regional start-ups because of their sound common law framework.

The SSA and SHA

The principal document is the share subscription agreement (SSA), which establishes the conditions under which new investors will subscribe for shares. This includes significant commercial terms such as the size of the investment, pre-money valuation, closing conditions, warranties, and investor rights. It also typically includes provisions regarding the mechanics of the issue of shares, representations and warranties by the company, and conditions precedent to closing. Besides the SSA, a restated and revised shareholders’ agreement (SHA) is usually bargained to govern the duties and rights of all the shareholders upon investment. The SHA typically includes board size, decision-making thresholds, transfer restrictions, information rights, pre-emption rights, tag-along and drag-along rights, and anti-dilution rights.

Other Typical Documents

Other typical documents in the transaction package are a disclosure letter, which qualifies the warranties in the SSA, and a set of board and shareholder resolutions to approve issuance of shares and execution of transaction documents. Where conversion of convertible instruments is being performed as part of the round, conversion notices and capitalisation tables to reflect the new ownership are also required. Legal opinions may be issued to authenticate the company’s true incorporation and ability to sign into the agreements, especially in cases involving institutional or foreign investors.

Official Templates

Templates-wise, no single “official” set of forms is utilised across the GCC. However, many law firms and investors make significant use of adapted variations of UK-style BVCA or US-based NVCA templates. In a few instances, home-grown accelerators such as Hub71 in Abu Dhabi or AstroLabs in Dubai have established simplified templates for early-stage use, though these are less common in growth rounds. The DIFC and ADGM ecosystems similarly encourage the use of common law-based precedents, and international advisers active in the region will invariably demand documentation equivalent to that used in their home jurisdiction practices, once again encouraging global norms in regional deal-making.

In worst-case scenarios such as a winding-up, UAE and wider GCC-based VC investors tend to secure terms that highlight capital protection and limit exposure to under-performance. Sitting atop those protections are liquidation preferences that give investors the right to repay their initial outlay – plus some added indulgences – in advance of any proceeds disbursed to ordinary shareholders, founders and staff.

Liquidation Preferences

The most common liquidation preference in the region remains the one-time non-participating preference. This gives the investor the option to get back their invested amount or to convert it into ordinary shares and share in the exit proceeds, whichever is higher. With the recent tightening-up of funding conditions, however, some investors have been able to obtain more investor-friendly terms, including participating in liquidation preferences. In such cases, the investor receives their investment back first and then also participates in the residual proceeds pro rata with regular shareholders. While less common in the past in the GCC, such provisions are becoming more common in new term sheets, particularly when investors feel they are assuming greater risk due to a company’s valuation reset or capital structure issues. Compounding preferred returns – where a preferred return vests on an annual basis and compounds over time – are still rare but have surfaced in selected growth and bridge rounds, usually when investors are investing follow-on capital into distressed businesses.

Anti-Dilution Protections

Anti-dilution protections are widespread and are typically standard in Series A rounds and beyond. The dominant type is weighted average anti-dilution, which presents a reasonable trade-off between investor protection and founder dilution. This equation pegs the conversion value of the preferred stock to that in a down round at a later time, based on the quantity and price of a new issue. Full ratchet anti-dilution protection, which resets the conversion price as if all the preferred stock had been issued at the new lower price, is more aggressive and unusual, but can be negotiated in early-stage deals when founders have little bargaining power, or in distressed follow-on financings when risk to investors is high.

Pre-Emption Rights

Pre-emption rights on issues of new shares are usual and are typically granted to all major investors. These rights allow investors to maintain their percentage of ownership by subscribing to their pro rata share of any future equity issue. In other cases, such a right may be limited to future rounds of a particular size or may be excluded from issuances such as employee stock option pools or strategic equity placements. Subscription rights are usually combined with notice provisions and designated response periods to provide procedural clarity.

Downside Protections

Generally, investor conditions across the region approximate global VC practice, but recent market turbulence has tilted negotiations slightly in favour of investors. In particular, downside protections like participating preferences, stronger anti-dilution protections, and stronger pre-emption structures are gaining traction, especially in those companies raising at lower valuations or under falling runways.

VC-backed investors of companies in the UAE and wider GCC typically negotiate a measured but significant amount of management and corporate control, particularly as the company develops to Series A or growth-stage rounds. They typically exercise such control through board presence, protective provisions, and contractual information and consent rights in shareholders’ agreements.

Board Presence

Representation on the board is perhaps one of the simplest and most ubiquitous forms of influence. Large investors, especially lead institutional sponsors or state-related funds, will typically negotiate the right to appoint one or more members of the board of directors. Occasionally, this is also the right to appoint an observer who attends meetings but does not vote. The size and composition of the board are often resolved in the shareholders’ agreement, with places reserved for founders, investors, and perhaps independent members to be agreed among the parties.

Protective Provisions

Along with the seats on the board, investors typically acquire veto rights – so-called protective provisions – over significant corporate actions. These can include any alteration to the company’s constitutional documents, issue of new securities, change of share capital, incurring of debt obligations in excess of an agreed amount, acquisition or disposal involving a significant sum, changes in business strategy, approval of yearly budgets, or any exit event. These rights are usually exercisable by a defined class of preferred shareholders or by a majority of such shareholders acting together, depending on the shareholding pattern.

Information Rights

Investors also rely on information rights to gain insight into the company’s performance and governance. These are typically rights to get quarterly or annual financial statements, board decks, and management updates. In subsequent rounds, investors may require audited accounts, future-oriented business plans, and notice of significant events or litigation.

Representations and Warranties

Representations and warranties are typically provided by the company and, in some cases, the founders. They cover a wide range of subject matters including corporate existence and authority, ownership of shares, compliance with laws, financial statements, intellectual property, litigation, material contracts, employment, and compliance with taxes. Founders can also be asked to make certain warranties of IP ownership and employment arrangements to ensure that significant assets and relationships are irrevocably assigned to the company. These representations are generally not backed by personal liability but investors can ask founders to sign founder undertakings or provide warranties to stress their alignment and risk transparency.

Pre-Closing, Post-Closing and Information Covenants

Covenants and undertakings typically relate to matters which must or must not be done by the company before or after closing. Examples include pre-closing covenants such as obtaining board or regulatory approvals, due diligence, or refraining from taking major actions without permission. Post-closing covenants typically address maintaining insurance, having appropriate accounts, protecting IP, maintaining agreed staff incentive schemes, or preventing specified corporate action without investor consent. Investors may also require information covenants that require periodic financial reports, reporting updates, or filing of business plans and budgets.

Remedies for Default

As for remedies for default, the standard in the region – specifically in the DIFC, ADGM or other common law-compliant domiciled companies – is contractual remedies. These are typically the right to sue for damages, request specific performance, or in some cases, terminate the transaction if the default occurs prior to closing. Indemnities are occasionally agreed upon in cases of known risk or where vigilance is of greater concern. It is less likely, nonetheless, that founders would personally face financial liability except in cases of fraud, bad faith, or breach of fundamental warranty or a material warranty. Escrow or holdback terms are rare but may appear in larger or cross-border transactions with international investors calling for greater assurance.

The UAE and other GCC states have initiated sets of government and quasi-government programmes to facilitate equity financing in stage-growth companies. They are part of a broader economic plan to become independent of the oil trap and turn the region into an engine of innovation and entrepreneurship. In spite of differences in jurisdiction approaches, there is a common narrative of direct co-investment vehicles, venture arms of sovereign institutions, financing through accelerators, and targeted support for strategic areas.

Abu Dhabi Initiatives

In the UAE, Abu Dhabi-based Mubadala Investment Company has taken the lead through its Ventures unit, directly investing in high-growth and technology firms regionally and globally. It regularly co-invests with institutional VC players and collaborates with them, de-risking deals and bringing in additional capital. Similarly, the Abu Dhabi Investment Office (ADIO) offers financial and non-financial support to scale-ups and start-ups, including equity-based incentives, typically facilitated through public-private partnerships or partnership with incubators like Hub71 in the ADGM.

The ADGM has developed its own specific Regulatory Framework for Fund Managers of Venture Capital Funds, and supports fintech innovation through the “Regulatory Laboratory”, its regulatory sandbox that allows start-ups to test products in a controlled environment.

Support in Dubai

Dubai’s approach is more ecosystem-driven, with entities like the Mohammed Bin Rashid Innovation Fund (MBRIF) providing support that includes innovation funding and guarantees, though typically not direct equity. Meanwhile, Dubai Future District Fund (DFDF), backed by the DIFC, and Dubai’s Sovereign Wealth Fund (Investment Corporation of Dubai), directly allocates capital to early and growth-stage ventures, particularly in fintech, smart cities, and sustainability sectors. The DIFC Innovation hub aims to act as an accelerator for start-ups, in particular, fintech start-ups.

Expectations of Support Programmes

Such programmes typically come with expectations apart from financial return, for example, localisation, job creation, or alignment with national development goals. Investors and start-ups engaging with government-backed parties can expect a formal application process, additional reporting requirements, and – at times – longer time horizons. The strategic support and reputational stamping ground that come with such deals can, nonetheless, be highly beneficial, particularly when raising follow-on capital or expanding regionally.

The Introduction of Corporate Tax in the UAE

The taxation of investments in growth, start-up, or VC-backed portfolio companies in the UAE and broader GCC is governed by the historically benign tax climate of the region, although huge changes have come about in the recent past, most notably within the UAE, with the introduction of corporate tax. Generally, there are not many tax frictions for investors, especially compared with more heavily regulated jurisdictions, but the situation is changing and investors must consider structuring and jurisdiction issues when investing capital.

UAE corporate income tax was implemented in 2023 and is a straight 9% of taxable income greater than AED375,000. But qualifying free-zone entities, such as those in the DIFC or ADGM, may be able to benefit from a 0% corporate tax rate on qualifying income, such as qualifying investment income and capital gains. This benefit is particularly well suited to VC funds and holding companies organised there. In order to enjoy these incentives, these entities must meet economic substance requirements and have their income match the published relevant activity lists of the Federal Tax Authority.

Tax Exemptions in the UAE

Capital gains on the sale of shares in portfolio companies are not typically taxable in the UAE, provided the gains are made in a qualifying free zone or are excluded from taxable business income. Similarly, income from dividends to investors is also typically exempt from taxation. Such exemptions are independent of the investment being in a growth-stage or an early-stage company and do not fundamentally differ from those of other corporate investments, assuming the structure adheres to qualifying conditions.

In structural terms, from a fund point of view, most VC funds in the region are established as limited partnerships, private funds, or other pass-through vehicles in jurisdictions like the DIFC, ADGM, Cayman Islands, or Jersey. These vehicles enable tax-neutral flow-through treatment such that tax liabilities are borne at the investor level and not the fund level. The chosen structure is typically a matter of investor preference, target jurisdictions for deployment, and regulation, with the DIFC and ADGM becoming increasingly popular among fund managers seeking a combination of local presence and international credibility.

In summary, whereas the fundamental tax regime is investor-neutral and also often investment income-neutral, corporate taxation in the UAE and treatments differentials across the GCC necessitate that investors pay attention to the structuring and domicile of investments to preserve tax efficiency.

See 4.1 Subsidy Programmes, which references Mubadala Ventures, Hub 71 and DFDF.

In addition, regulatory reforms have also been prominent. The UAE has regularly updated its company laws and licensing regimes to make them more favourable to venture activity, including the potential for multiple classes of shares, foreign ownership, and ease of incorporation in free zones like the DIFC and ADGM. These jurisdictions offer English-language common-law systems and regulatory certainty, which make them suitable for fund domiciliation and cross-border investment.

One of the more significant recent developments is the introduction of the DIFC’s Digital Assets Law which came into effect in March 2024 and provides a comprehensive regulatory framework for digital assets, including cryptocurrencies.

Furthermore, the UAE has promoted the development of angel networks, accelerators and incubators that make start-ups investment-ready. Government-backed initiatives such as the Mohammed Bin Rashid Innovation Fund (MBRIF) and sector-specific accelerators provide early-stage support and bring in connections with investors that facilitate follow-on equity investment.

Founders’ and workers’ long-term commitment is generally secured by a combination of contractual and equity-based incentives.

Most common is vesting of equity, generally over a three-to-four year term with a 12-month cliff. This applies to both direct shareholdings and options under ESOPs. In the event that the founder or worker leaves prematurely, unvested shares or options are forfeited.

Good leaver/bad leaver provisions are also prevalent in the UAE in a similar way to in the UK. These determine the terms of exit – bad leavers may even forfeit vested shares, while good leavers may retain some or all of their equity, or be able to sell at fair market value.

Additionally, restrictive covenants (non-compete, non-solicit, and confidentiality agreements) are typically included in employment contracts or shareholders’ agreements to protect the company upon exit.

Investors can also require founder commitments for ongoing involvement in operations, or milestones as a condition of investment.

The most common instruments used to incentivise founders and employees in the UAE and wider GCC are share options granted under an ESOP. They are typically structured as options to purchase shares at a fixed exercise price, ideally linked to the fair market value of the company at the time of granting the shares.

Typical terms are three to four-year time-vesting, usually with a one-year cliff. Founders’ existing shares may also be subject to reverse vesting, where the shares are forfeited unless the founder remains with the company for at least some minimum period of time.

Rights under such agreements can only be exercised once vesting conditions have been met. Option holders generally do not enjoy shareholder rights (eg, voting or dividend) until shares are issued after the exercise of options. Exit events will generally result in accelerated vesting or facilitate cash payment of options.

Incentives are generally structured through holding company arrangements in places like the DIFC or ADGM, to facilitate terms that are more easily enforceable (through the common-law courts there) and for flexibility of options.

In the UAE, the absence of personal income tax means that employees and founders generally do not pay tax on the granting, vesting, or exercise of options. This makes equity-based incentives such as restricted share units or stock options attractive from a tax perspective. Corporate taxation consequences may arise at the company level, however, particularly where shares are allotted by a company outside a qualifying free zone.

The structure of the incentive pool – whether effected by direct equity, phantom shares, or options issued via a holding company – also affects tax treatment. Offshore or free-zone vehicles (eg, in the DIFC or ADGM) are often used to control exposure and maximise tax efficiency, especially where the company expects to attract foreign investors or experience international growth. Structuring can help to avoid triggering unintended tax liabilities or regulatory issues in the employee’s home jurisdiction.

The running of an investment round and the implementation of an employee incentive programme are usually dealt with in parallel, because investors usually make the introduction or improvement of an ESOP a condition precedent to their investment. This serves to incentivise and retain important members of the team post-funding.

From a process perspective, the ESOP is typically concluded at or just before the closing of the investment round. Pool size, vesting periods, and treatment on exit are terms that are agreed between founders and investors, and documented in the main transaction documents.

From a dilution standpoint, the ESOP pool is typically part of the pre-money valuation. That is, the economic impact of the option pool dilutes the existing shareholders, including the founders, and not the new investors. The pre-money inclusion is a market convention, including in the UAE, and is normally negotiated at the term sheet level.

Exit provisions in venture deals across the UAE and GCC typically include drag-along rights, tag-along rights, and registration rights (if an IPO). Drag-along rights allow majority shareholders, often institutional investors, to compel minority shareholders to sell their interests in a trade sale on the same terms. Tag-along rights protect minority holders by allowing them to participate in a sale that is initiated by the majority shareholders.

Transfer restrictions are also common and generally include lock-up periods, rights of first refusal (ROFR), and rights of first offer (ROFO). These provisions are intended to prevent undesirable third-party share transfers and maintain control over the shareholder base. The transfers to competitors, or to individuals outside a given group (eg, other investors or affiliates), are commonly prohibited.

Exit triggers are normally connected with a qualified trade sale, IPO, or time milestone – usually five to seven years post-investment – after which, investors are allowed to invoke drag-along rights or seek other forms of liquidity. Put rights or redemption rights are featured in certain agreements, although this is less customary, and these could be subject to enforceability limitations according to the jurisdiction. It is important to remember that the emirates of Abu Dhabi and Dubai have differing laws, and the same applies to the financial free zones, the DIFC and ADGM. Furthermore, there are a number of other free zones, mainly in Dubai emirate (eg, the DMCC), which also have further different laws, registrars and practices.

Due to the relative lack of large-scale exits in the region, there has been a trend towards more flexible investor exit rights. These may be in the form of broader definitions of liquidity events, more comprehensive secondary sale rights, or terms permitting structured exits (eg, share buy-backs or fund-led secondaries) to provide options in the absence of more traditional IPO or acquisition channels.

In the UAE and wider GCC region, IPO exits for start-ups remain relatively rare compared to acquisitions or private secondary sales. Growth companies typically need to reach a significant scale and demonstrate consistent financial performance before considering a public listing. The decision to pursue an IPO is driven by factors such as market readiness, the strength of the business model, and investor appetite for publicly traded companies, all of which mean that IPOs are more common among larger, more mature companies rather than early-stage ventures. In addition, the capital markets in the UAE (and indeed the wider GCC) are relatively nascent, and currently a smaller part of the private sector than other jurisdictions.

For those that do choose the IPO route, the main listing venues include the Abu Dhabi Securities Exchange (ADX) and, for companies based in Dubai, the Dubai Financial Market (DFM) or Nasdaq Dubai (DIFC). The offering structure is generally that of a traditional IPO, although some companies may opt for dual listings or use SPVs to streamline the process. The timeline to an IPO is influenced by how quickly a company can build robust corporate governance practices, improve financial reporting, and align with local regulatory standards. Global capital market conditions and regional economic factors further shape the IPO journey.

There is growing secondary-market demand for pre-IPO trading in the UAE and wider GCC, particularly to enable early investor, vested employee, or founder partial exits. Given that most start-ups remain private for extended periods, secondary sales offer an avenue to liquidity without waiting for a total exit. The recent growth of secondaries funds in the region is seen as a means of facilitating these partial exits.

The primary concerns are to maintain control of the cap table, ensure compliance with shareholder agreements, and avoid regulatory problems, especially in those jurisdictions (ie, onshore) where share transfers are restricted or require approvals. The company will typically need to amend its constitutional documents to make shares transferable, identify permitted transferees, and address right of first refusal or co-sale rights. Legal certainty on valuation, timing and entitlement is also necessary to avoid disputes.

Tender offers sponsored by the company are becoming more common, especially for subsequent rounds. These are controlled liquidity events where the company or other investor commits to buying stock from existing owners. These programmes provide controlled, transparent liquidity as well as alignment of investor interests. They also allow the company to facilitate ownership consolidation and prevent fragmented secondaries’ transfers, which can skew future financing or exit options.

In VC transactions in the UAE, sale of a firm’s equity securities is basically governed by companies’ law and, in certain cases, securities regulations, depending on the size of the offering and type of company.

Private Companies

For private companies, particularly free zone-incorporated ones such as in the DIFC or ADGM, equity offerings are generally outside the regulation of public securities, if structured properly. Their law is common law, and a great amount of structuring latitude in private placements is allowed as long as such structuring falls within the limits imposed for the offerees, whether limited by number and/or type. The offerings in these cases usually limit their recipients typically to qualified investors or professional individuals, and do not require prospectuses.

In the case of bigger transactions or where numerous employees are involved (eg, through an ESOP), additional compliance procedures may be required. These can include shareholder and board approval, modifications to the company’s articles of association, and appropriate documentation of share issues or option grants. Where offers are being made across borders, companies should also consider whether cross-border securities’ rules apply, particularly if employees are based outside the UAE.

Public Companies

Where public companies or those planning an eventual IPO are involved, either the DFSA (for Nasdaq Dubai) or SCA (for DFM and ADX) regulations take centre stage. These may include disclosure obligations, prospectus regulations, and private placement limits. Legal structuring at this initial stage thus typically anticipates possible future public offerings by ensuring prior offerings remain within regulatory safe harbours, and by maintaining proper records of all issuances.

Foreign VC investors have comparatively few restrictions when investing in UAE-based growth companies, particularly those which are registered in free zones like the DIFC, ADGM or DMCC. Total 100% foreign ownership and the lack of currency exchange controls make these free zones attractive to international investors.

For mainland UAE companies, the FDI regime has also become significantly more liberalised in recent years. Complete foreign ownership is permitted in the majority of sectors, following cabinet decisions to remove the requirement for a UAE national to own majority shares. However, there are still certain sectors, such as banking, insurance, and certain strategic sectors, that maintain ownership limitations or necessitate local equity participation or regulatory approvals.

In the last 12 months, the trend has been towards more openness. Almost all the emirates making up the UAE have introduced easier procedures to allow full foreign ownership, and regulators have enhanced regulatory transparency. Foreign investors are still required, however, to perform sector-by-sector due diligence in order to determine any remaining restrictions, particularly in regulated sectors or national security-related areas.

Currency exchange remains unrestrictive, and repatriation of capital is generally not restrictive, which is conducive to cross-border VC investment. Generally, the environment has become more welcoming, particularly for the tech and innovation sectors, where the UAE government is actively promoting growth.