Why the Middle East Startup Ecosystem needs a reboot?

Why are we calling it a reboot? Isn’t that everything is going great for MENA startups?

Let’s talk some numbers.

Forbes article here presents a not-so-exciting picture of the startup scene in MENA. Funding in 2017 fell by 36% as compared to 2016. And 27 % out of the $560mn chunk, has gone to Souq & Careem. It was a similar picture in 2016, the only bright spot being the overall funding that neared almost $1bn.

A population of 350mn, MENA countries overall GDP(~2.5 Trillion) exceeds many startup growing countries, the likes of India (Source: IMF). MENA boosts of having one of the highest penetration of popular video & social media platforms like Twitter, Instagram, and youtube. Yet, the boost in consumption isn’t growing as exponentially as local online platforms and startups.

Hence, the reboot is needed.

Learn from the Mecca of startups — Silicon Valley:

Startups and Silicon Valley are two words synonymous with each other. The San Francisco based city was the breeding ground of the very first startups and is best known for its entrepreneurial ecosystem. The current scenario is that the governments, all over the world, are running long and hard to transform their cities on the lines of the culture of Silicon Valley, to make for a more conducive and approachable atmosphere. While the likes of Bangalore (India), Singapore City (Singapore), Tel Aviv (Israel), Stockholm (Sweden), etc. have gone on to replicate (to a very large extent with their local flavor) the Silicon Valley culture, a lot of others are still trying to catch up.

In the middle east as well, except Dubai, no other city has anything great to show for, in its entrepreneurial ventures. It’s not that other cities lack potential. Saudi Arabia, Kuwait, Bahrain, Oman, are some of the highly capable markets in the middle east and have huge growth prospects as well. Yet, they remain far from being considered an open & vibrant market.

The reason can be anything from stubbornness to change/adapt, to free-flowing unaccounted-for capital, or due to lack of innovation. But first, let’s have a look at the things that make Silicon Valley stand tall in the crowd.

• Silicon Valley thrives on approachability.
• The number and diversity of active investors.
• Innovation is always in the air.
• The Bay area attracts the best of the talent pool.
• You’re not asked to jump down a cliff if you’ve failed.
• Money does not guarantee success and it’s NOT easy to raise it (a common misconception).

Now, it’s not that the Middle East completely lacks these factors.

Look at Dubai for an example. Apart from the unmatched wealth capability, the city’s high-tech infrastructure and engineering arm is such that only a few other nationalities in the world can match. With a tech-savvy cosmopolitan culture, Dubai is the startup hub for the Middle East and is not too far behind Silicon Valley.

Funding Ecosystem:

The funding ecosystem of Silicon Valley involves accelerators, incubators, angel investors, seed rounds, series A-B-C rounds, pre-IPO funds, mentorship programmes, along with an active and eager to fund investors base. Then there are bigger companies continuously acquiring young and early-stage startup ventures. And all of these forms the main cog of a sustainable startup ecosystem.

Without a systematized funding environment, it’d have never been possible for unicorns like Airbnb and Uber to grow with such a pace, to where they’re now.

The scenario with most of the growing startup cities of Middle East is that all of the above talked about aspects are still in their nascent stages. Fewer accelerator programs, limited funding options, the absence of high-profile (experience & expertise) investors, fewer options to avail higher funding rounds, all contribute to the current state of the things. When promising startups with good growth and impressive products meet these conditions, they fail to survive. And that’s something, the Middle East startup ecosystem, on the whole, has to think about.

What cities like Riyadh, Jeddah, Doha, Kuwait City and others can do, at this moment, is facilitate the formation of a group of smaller funds. Majority of the startups die because they don’t get funds to progress beyond the seed stage. Building out a number of smaller funds, with a respectable corpus for each of them, will at least get the startups running. And later, with one or two bigger funds, these would then be able to get past the growth stage, to a point where either they could be acquired by bigger players or offer diverse product line-ups.

Thinking local and Acting local as well:

Another issue with Middle East startups is the focus on the local only. Though it’s a silver lining of sorts as well, considering the fact that it has happened to be a very tough ecosystem to make inroads for global players.

Take the example of Amazon’s acquisition of souq. Now, it’s well-known that whenever Amazon enters a new market, it does so by launching its own platform and then infuses money to beat the competition. However, that did not happen this time. The reason is that souq was catering to the local market in the best possible way and along with the team the company had assembled, the acquisition [rather than bringing its own platform] made every sense for Amazon.

Middle East startups are well-built to suit the local demands but still not thought out for the global audience. One reason that justifies this, is the still uncaptured space of putting businesses online and maximizing the offline-to-online potential of the whole region. This can be accelerated with ease if theavailability of talent pool is more ubiquitous. No startup capital has ever fostered without the right atmosphere and availability of talent pool.

Look away from Dubai:

There’s one city in the Middle East, slowly following in the footsteps of Silicon Valley. And from which, the entire Middle East can actually learn a lot.
The city of Amman (In Jordan).
A small and well-supported environment has enabled Amman in nurturing the creative talent, giving way to some really interesting technology startups in the country. The city has been a consistent presence in the top places to open a tech startup in the Middle East and is catching up at a very high pace.
There are, however, a couple of very strong reasons for the emergence of Amman, as the Middle East’s prime startup hub.

Founded in 2010, Oasis500 is a leading early stage and seed investment company, based in Amman. Right from its very inception, the firm has been very active in its endeavors and till date has given a shoulder to 130+ startups from the MENA region, as per the company’s website. With a total seed investment of 8M+ USD till date, it won’t be wrong to say that the incubator has been the principal reason behind the success of a lot of local startups, taking their ideas from concept to reality. And without the passion of Jordanian tech community, this might not have been possible.

Another seemingly unusual reason that has helped Amman, is one particular practice followed in some Arab nations, such as Saudi Arabia. This rule forbids the establishment of companies, that have accepted foreign funding, in the respective countries. Now, Jordan does not have any such rule with respect to foreign ownership, which enables the entrepreneurs/startups from these restrictive nations, to turn towards the Jordanian capital to practice their art. In recent years, several hundred entrepreneurs, including some women entrepreneurs as well, have made the Jordanian capital of Amman, their abode.

The above two factors highlight that if not anything else, then just having an open ecosystem with good mentorship programmes can go a long way in meeting a city’s entrepreneurial aspirations.

Apart from these, the newly found acceptance of the trial and error (okay to fail) approach, thinking beyond the incremental and obvious, a forever inclination towards innovation, the creation of several new funds, etc., have all helped in bringing Amman to its current state. Organizations such as the Queen Rania Center for Entrepreneurship (QRCE) and the Jordan Open source Association, have also taken it upon themselves to develop an entrepreneurial mindset among the youth and nurture the startup aspirations.

Although the progress of the startup community, in the Middle East, is there for everyone to see, and get enthusiastic about. The culture is still in its nascent stage, and it would be exciting to see how it unfolds in the coming years.

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