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Highlight & stories
Regulators and the broader community coming together to ensure the digital startups’ survival during the ongoing COVID-19 pandemic
Dhaher Almheiri CEO, ADGM Registration Authority
Startups, like many of the world’s businesses, have been dramatically affected by the ongoing COVID-19 crisis. Markets shutting down, borders closing, airplanes landed. After years of developing the regional startup ecosystem and financial resources invested into creating innovative tech hubs, the global pandemic has revealed how smaller businesses and tech startups are more vulnerable to the tsunami effect of such turmoil and tribulations.
Prior to the pandemic, Abu Dhabi Global Market (ADGM) and the broader financial sector in the UAE have been at the forefront of providing corporates, SMEs, and startups with the necessary environment and infrastructure to conduct business and encourage investments and innovation. More business measures and financial support are injected since March to offer businesses the additional lifeline to sustain and/or innovate. For example, at ADGM, we recently announced a series of mitigating measures that could potentially extend the runway for founders and address some of the concerns around cash, debt, and laying off their manpower. Albeit being able to connect the dots among various ecosystem stakeholders, the ongoing global crisis highlighted the gaps, particularly when it comes to identifying the urgent needs and the role that startups play in the economic wheel.
As a commercial and financial regulatory body and community builder, we recognise that protecting our young tech startup community as well as the corporates during this period is an incremental part of responding to and managing the crisis. While medical workers are treating patients and testing cases, our role lies in safeguarding the integrity of our ecosystem and preparing for our future economy, where knowledge-driven innovations and new business models can continue to lead the way to lessen the long-term impact of COVID-19.
Governments relief schemes provide critical financial security, safeguarding the future
When the world entered a bear market and oil prices have reached an all-time low, we reassessed our role within the full spectrum of the digital economy to provide a crucial lifeline to startups during these difficult times. Some governments have stepped up in supporting founders with helpful resources, opening bidding for government contracts, and communications support. Though, in light of the ongoing COVID-19 outbreak, governmental agencies and private sectors could work more closely to explore innovative mechanisms to help founders cope and reassure markets.
For instance, many startups are still not yet generating revenue and might not be eligible to benefit from financial support measures from the federal government, risking their funding rounds which they were hoping to finalise before the crisis hit. Leveling the playing field between startups and large companies gives the former access to the same incentive packages and care schemes.
What’s more, regulatory and professional bodies could offer free consultation services to extend the cash runway for startups to avoid layoffs and furloughing employees (going back to the basics of cash management and running lean). Retaining talent for growth-stage startups is crucial in its process, particularly as hiring has become more difficult in recent years. Losing employees today could mean taking a long time to recover and go back to ‘business as usual’ when the crisis is over.
Another way that regulators and governments agencies could support innovators and startups is by encouraging pivoting by allowing rapid licensing and distribution of COVID-19 related solutions. To maintain a certain income, many startups and companies around the MENA have started delivering medical supplies and groceries. Providing startups this temporary security net allows them to sustain their businesses while they explore other revenue channels.
Furthermore, professional firms could volunteer pro bono services such as playing the role of a mediator, who is appointed to help startups recover unpaid fees in return for services. The mediator, in this case, ensures all liabilities are met as per the provisions stated in the agreements, therefore protecting founders and small-scale companies.
Besides, the government and other financial and regulatory bodies in the country could temporarily change bankruptcy rules, or at least suspend them for several months, to give startups more leeway on the obligation to file for bankruptcy. This will provide a boost in confidence among the founders, in addition to trusting the country is working alongside them to face the crisis. Also, tax payments that are due could be pushed back as a form of debt relief scheme.
Governments, VCs, and entrepreneurs are all in this, together
As for maintaining the relationship between founders and investors, regulators can play an active role in incentivising VCs to go forward with investment rounds. Specifically, governments could provide equity-based liquidity packages designed to save startups at risk of failure. Meaning, governments provide convertible loans to startups but they are to be equally matched from private investors. For example, the UK government announced last week about its ‘Future Fund’ which hopes to rescue ‘high-growth companies’ amid the crisis. Another way to look at it is by also incentivising the private sector to invest in startups through providing tax breaks (as things are done in CSR activities).
In line with the government’s role in fostering a thriving tech ecosystem, the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market has recently started the pilot of a new AI-powered ‘RegBot’ aimed at VC fund managers. The bot utilises Natural Language Processing (NLP) to automate the license acquisition process for VCs, which ensures all collected information complies with digitization strategy which will not only transform the way regulations are made but also the impact they leave.
Though, for all of these to work, founders and entrepreneurs need to re-innovate their business models to match the market’s needs, in addition to making financial negotiations that will pay off in the long run. For instance, many startups around the world are offering employees an unusual deal: get more equity in return for a pay cut. Also, many startups are offering customers bundles of services and further discounts to encourage take up and sales.
Lastly, but not the least important, the broader community of business leaders and consumers plays a major role in how the crisis plays out in the long run. Since our inception, ADGM has consciously paid particular attention to the wellness and stress of individuals throughout the community. We invite all members of the community to engage with us in a direct and transparent conversation, in the hope to manage the crisis with the least amount of damage.
Word of the year: Resilience
At this point, one thing is for sure, for the private sector to integrate resilience into its work, policymakers need to prioritize resiliency measures and translate strategy into action. Regulators, entrepreneurs, and the community need to work hand in hand to prove that money spent now will pay off in the long-term. The shift in mindset will reap endless benefits to the startup ecosystem if the next pandemic comes (or when it comes).
In addition to all the support we have been providing startups, we truly believe that this tests our agility and resilience towards adversity. Today, we are given an unprecedented opportunity to reinvent our business models for a truly all-digital future.