Crypto in the desert: the founders of a VC fund that backs early-stage blockchain start-ups explain why they see Dubai as the next global hub

• CV VC invests in blockchain start-ups across Europe, Africa, and the Middle East.
• It recently launched a Dubai incubation program, offering firms up to $125,000.
• Its CIO and Dubai managing partner spoke to Insider about the fund’s expansion plans.

For some industry insiders, a second ‘crypto valley‘ – the major blockchain hub located in the small Swiss town of Zug – is emerging in the desert. Dubai is establishing itself as a potential crypto capital, according to the venture capital firm CV VC.

“Dubai will lead the revolutionary blockchain charge in the UAE region,” the Swiss company’s managing director in the emirate, Oliver von Wolff, said. “Its governing and leadership entities view blockchain as an intrinsic component of their vision to ensure the wellbeing of its economy and citizens.”

CV VC’s ‘picks and shovels‘ investing strategy focuses on blockchain start-ups rather than individual tokens or networks. It has invested in 32 early-stage blockchain companies from around the world, with offices in locations including Zug, Cape Town, and Dubai.

Last week, the venture capitalists partnered with the DMCC Crypto Centre to launch their incubation program, CV Labs, for the Middle East. Von Wolff and the firm’s chief investment officer Olaf Hannemann explained to Insider why they see Dubai as the next global crypto hub.

Dubai’s crypto hub

“It’s still early days in the Middle East,” Hannemann, one of CV VC’s co-founders, told Insider. “But when we expand from Zug we look at three rationales – access to start-ups, access to investors, and how we can grow within our existing ecosystem. Dubai fits all three criteria.”

CV Labs has on-boarded 35 firms in Dubai, which makes up around 25% of the region's blockchain start-ups. Start-ups that complete the CV Labs incubation program receive an investment of up to $125,000.

In April 2018, the UAE government launched the Emirates Blockchain Strategy, which aimed to transform 50% of government transactions to blockchain by 2021. CV VC said these initiatives were encouraging significant innovation in Dubai, one of the country's seven states.

"Blockchain is a strong and growing industry here thanks to government regulation, capital, and talent," von Wolff said. He talked Insider through those three factors.

First, several policies have sought to encourage crypto firms to relocate to Dubai. For example, in 2020 the emirate's government launched a 'crypto valley' in its free zone, where there is no personal or corporate income tax.

"In Dubai, things can move very fast - if someone in the royal family is very interested in a business, then top-down decisions are made," von Wolff told Insider. "That makes it a very unique place for blockchain and crypto."

Secondly, the UAE attracts significant foreign direct investment. According to the government, it brings in $10 billion of overseas funds each year, more than any other Arab country. Hannemann and von Wolf said that this made Dubai attractive as a region for expansion.

"In 2019, foreign investment grew by 135% in Dubai," von Wolff said. "It fell in 2020 due to the pandemic, but has bounced back this year and has already surpassed last year's total."

Thirdly, CV VC's Dubai leadership team said that the city's status as a hub for ex-pats added to its potential as a global blockchain hub.

"The government makes it very comfortable for ex-pats coming here," von Wolff told Insider. "There was significant immigration during the pandemic, but there's still a huge demand for foreign talent in the blockchain space, and Dubai is a hot spot for human capital."

'Picks and shovels' venture capital

As venture capital specialists, CV VC have a different approach to most crypto investors. They purchase stakes in start-ups that provide blockchain and crypto tools, which what VC analysts call the 'picks and shovels' approach.

"The future of VC is about more than just money," Hannemann told Insider. "We want to help these crypto and blockchain start-ups to grow without just spoon-feeding them."

"Some crypto VC firms almost have more of a trading or hedge fund mindset, because they're investing in individual tokens, but for me that's not truly venture capital," he added. "It is much more about long-term growth and building connections."

As CV VC expands, Hannemann said it would continue to seek out regions like Dubai, where it feels it can benefit from being an early-stage investor. The fund recently set up an office in Cape Town to improve its access to sub-Saharan Africa, and it has made further investments in Brazil and Egypt.

"We always think about which markets we can be relatively early into, as opposed to those that are already developed," Hannemann said. "We're a young start-up ourselves, and it's not like Silicon Valley ever waited for us."