A founder in Beirut, Dubai or Riyadh who receives their first institutional term sheet almost always looks at one number first: the valuation. That instinct is understandable — but for the venture capital term sheet MENA founders are increasingly negotiating with regional and international investors, it is also the wrong place to start. Valuation prices a single moment. Capital structure decides what happens to that value in nearly every scenario that follows: the next financing round, a modest exit, a difficult year, or the outsized outcome everyone is hoping for.
The short answer: A term sheet's headline valuation sets the price of one moment in time. Its capital structure — liquidation preferences, board composition, protective provisions and anti-dilution mechanics — determines how proceeds, control and future financing are actually distributed for the life of the company. A well-structured deal at a lower valuation frequently produces a better founder outcome than a poorly structured one at a higher price.
This is the first article in an 11-part series in which we break down the legal architecture of venture financing, mechanism by mechanism, for founders and in-house counsel building companies in the region.
Why Founders Fixate on the Wrong Number
Venture financing exists to solve a specific problem: an investor commits capital before a company has proven itself, while the founder holds far more information about, and control over, how that capital will actually be used. Preferred equity — the liquidation preferences, anti-dilution rights and protective provisions that make up the "structure" of a deal — is the accepted institutional response to that imbalance. None of it is designed to strip founders of operational control. It exists because an investor's own obligations to its limited partners require a defined set of protections before capital can be committed at all.
The practical consequence is that terms accepted in an early round rarely stay isolated. They become the template the next round is negotiated against. A liquidation preference structure that looks immaterial in a seed round — when the capital raised is small relative to the company's potential value — can become the single most consequential document in the company once two or three rounds have stacked on top of it, particularly if the company exits below the combined value of its preference stack. That is the scenario in which structure, not valuation, decides whether founders and employees see any real return at all.
What Changed in the UAE in 2025
Until recently, this was largely a theoretical problem for UAE-headquartered founders, because the mainland limited liability company — the vehicle most operating businesses actually use — could not easily support it. All shares in an LLC had to carry equal value and identical rights, which made standard venture preference structures difficult to implement directly in an onshore entity. That is a large part of why so many MENA-facing venture deals have historically been routed through the DIFC, ADGM, or an offshore holding company instead — a structuring question we cover in Part 2 of this series.
That changed with Federal Decree-Law No. 20 of 2025, issued in October 2025, which amended the UAE's Federal Decree-Law No. 32 of 2021 on Commercial Companies. Among other reforms, the amendment now permits limited liability companies to issue multiple classes of shares carrying different economic, voting and other rights — including dividend priority, redemption rights and liquidation preference — and introduces a statutory basis for drag-along and tag-along rights. In practical terms, a UAE mainland LLC can now support the same kind of venture-style economics — tiered preference shares, founder-retained voting control alongside investor economic rights — that previously required an offshore or free zone structure. That is a genuinely significant shift for any founder currently drafting a shareholders' agreement, and it changes a question we would have answered differently as recently as late 2025.
Lebanon's Quieter Reform
Lebanon made a comparable, if less publicised, move several years earlier. Under Lebanon's Commercial Law No. 126 of 2019, which reformed the 1942 Code of Commerce, preferred shares were formally introduced as a distinct category of share within the Lebanese joint stock company (société anonyme libanaise, or SAL) — a class of share previously permitted only for banks and other regulated financial institutions. For a Lebanese SAL raising outside capital today, that means a genuine legal basis exists for preference structures without necessarily needing an offshore vehicle — though, as we will see in Part 2, jurisdiction selection is rarely decided by that factor alone.
The pattern across both jurisdictions is the same: MENA corporate law is actively catching up to venture-style capital structures, not simply importing them wholesale from Delaware or English law. Founders and counsel working from generic international templates without checking which mechanisms are actually available — and enforceable — in the entity's home jurisdiction risk drafting a shareholders' agreement that reads correctly but doesn't hold up the way it was intended to.
The MENA Funding Backdrop
This matters more as regional deal volume grows, though the exact scale depends on which report you read. MAGNiTT's FY2025 MENA VC Report put total equity-only VC funding across the region at roughly $3.8 billion in 2025, up about 74% year-on-year. Wamda's own annual report counted a higher $7.5 billion across 647 startups for the same year — a 225% increase — though a substantial share of that figure reflects debt financing rather than equity. The two figures aren't reconciled publicly, and we'd rather flag that discrepancy than pick one number and present it as settled. What both reports agree on is the direction: more capital, more deals, and more term sheets landing on founders' desks across the region than in any prior year.
How to Actually Read a Venture Capital Term Sheet in MENA
Three practical habits separate founders who negotiate well from founders who negotiate on valuation alone:
Model the outcome, not just the price. Before agreeing to a liquidation preference multiple or a participation right, run the numbers across a strong exit, a modest exit, and a down round — not just the scenario the current valuation implies. A term that looks standard in isolation can behave very differently once layered on top of an existing preference stack.
Separate economic terms from governance terms. Liquidation preference, anti-dilution and dividend rights are the price of capital and are reasonably standardised. Board composition and protective provisions are a separate category entirely, and they are where founders most often give up more than they realise.
Check which structure your entity can actually support. A term sheet drafted against a generic international template needs to be checked against the law of the entity that will actually sign it — UAE mainland, a UAE free zone, DIFC, ADGM, or a Lebanese SAL each behave differently, and that difference is the subject of Part 2.
The Jurdi & Co Perspective
In our corporate commercial practice, we regularly advise on the questions that sit underneath every financing round long before a term sheet is on the table — how a joint venture is structured, which free zone or onshore vehicle a company should use, and what a commercial contract actually commits a business to. The threshold questions are the same ones a venture financing eventually forces into the open: who controls what, under which jurisdiction's law, and what happens if the relationship doesn't go as planned. Founders are generally best served treating those questions as structural from day one, rather than as paperwork to resolve once an investor is already at the table.
What This Series Covers
This is Part 1 of an 11-part series. The parts ahead:
Part 2 — The Holding Company Question: DIFC, ADGM, Cayman or Onshore?
Part 3 — Preferred Equity: Economic Rights Without Operational Control
Part 4 — Liquidation Preferences: Protecting Downside Without Distorting Incentives
Part 5 — Dilution, Pro Rata Rights and the Option Pool
Part 6 — Board Control vs Shareholder Protection
Part 7 — Protective Provisions: Where Investor Rights Should End
Part 8 — Founder Vesting, Lock-Ups and Transfer Restrictions
Part 9 — Exit Mechanics: Drag-Along, Tag-Along and Liquidity Events
Part 10 — Negotiating a Term Sheet: Red Lines, Fallbacks and Leverage
Part 11 — Building a Coherent Financing Framework
(Internal links to Parts 2–11 will be added once each is published — flagging per our internal linking convention rather than pointing to URLs that don't exist yet.)
Frequently Asked Questions
Is a lower valuation with better terms actually better for founders?
Often, yes — particularly in an exit that falls short of the outcome the original valuation assumed. A high valuation combined with a large liquidation preference multiple and participating preferred rights can leave founders and employees with little or nothing in a modest exit, while a lower valuation with a standard, non-participating structure preserves meaningfully more upside for common stockholders in that same scenario.
Can a UAE mainland LLC now issue preferred shares to a venture investor?
Yes, as of the amendments introduced by Federal Decree-Law No. 20 of 2025. Multiple share classes with differing economic and voting rights, including liquidation preference, are now permitted for UAE LLCs, whereas previously all shares had to carry equal rights. Whether an onshore LLC or an offshore/free zone structure is the better fit still depends on the specific investors involved and is addressed in Part 2 of this series.
Does Lebanon allow preferred shares in a startup structure?
Yes. Lebanon's Commercial Law No. 126 of 2019 introduced preferred shares as a recognised share class for the Lebanese joint stock company (SAL), a right previously reserved for banks. A Lebanese limited liability company (SARL) — the more common vehicle for early-stage startups — does not carry the same statutory basis, which is a relevant factor in choosing a corporate form for a company planning to raise outside capital.
DISCLAIMER: This article is provided for general informational purposes only and does not constitute legal advice. It does not create a lawyer-client relationship between the reader and Jurdi & Co. Laws referenced are current as of the date of publication and may be subject to change; readers should seek independent legal advice before acting on any information in this article.