Towards A Vibrant Startup Based IT Sector Ecosystem in The Arab World
Update: as a result of this post ArabCrunch.NET was developed and launched in private beta to help Arab startups and help the region innovate, continuing ArabCrunch Mission.
In this post I would highlight a few points that I think can help in creating a vibrant startup-based IT sector in the Arab world. This came up to me in light of my recent media citation on UAE’s based newspaper The National.
1-Entrepreneurs & Opportunities:
The amount of Arabic content online is very low, most famous websites are forums, this is somehow an opportunity, and we are seeing more and more startups in the region who are going beyond forums. On the other hand, online advertising is less than 1% of total ad spending in the region, and from recent reports and from my talks to major portals in the region, online ad spending is growing, but not at 100% growth.
Arabic Mobile 2.0 also represent an opportunity. There are few Arabic mobile apps and services, they are mostly silly stuff like ringtones and themes. Today, touch screen iPhone like, WIFI and 3G enabled mobiles are taking a big chunk of the market, for example Nokia 5800 the touch-screen, WIFI, 3G phone is the hottest selling Nokia device in Jordan, as many mobile shops are running out of stock.
Nevertheless the time is gone when start-ups can just copy successful International websites into Arabic and think that’s how the game is going to be. As many global players are localizing their services. Today: facebook, Google, Microsoft and Skype for example all have Arabic versions for most of their services and products. And any Mobile or website player can do that with a little hassle. But some Arabic specific challenges can only be done by Arabs, such as natural language processing (NLP).
However there are many services that need physical local or regional presence and some international startups cannot afford that at this time. So if you are copying them then launch your product quickly, do good marketing and create a large user base, so you can create regional barriers of entry for your International rivals.
But be aware if you are copying an international startup, it does not mean the Arab market will adopt you. A friend of mine who is a geek told me once: The Arab startup should not think I will use his website or service because he is Arabic, I’ll go to the best.
So we need more creative thinking Arab startups, we need startups that think outside the box and come with unique and great ideas that can add value to the end users. At the same time we need ideas that can stand out at the global market place. It does not have to be a break through technology; it might be a simple idea like twitter which is valued today at around $ 400 million.
However, In the web and mobile world I see Global opportunities in semantic web and Mobile 2.0
Most of the current startup projects I saw are in 3 categories: techies doing it alone, part time or full time, or out-sourcing companies is doing it on the side.
To succeed it is not enough to have a great idea, or to be a certified Zend Engineer, you need to execute good marketing & PR strategies in order to gain market share and success. So grow your team and add at least one marketing cofounder who is good, has some good connections and has good technical back ground.
2-Venture Capital and Funding
Venture Capital is a type of funding that an institutional investor offers cash for a startups in exchange for equity, it is a form of funding that is very similar to Mudaraba financing type in Islamic banking, there is no debt and if the startup meets the dust the founders do not pay a dime. VCs typically makes returns via an Initial public offering (IPO) or merger and acquisition (M&A). VCs provide different types of funding at different levels: Seed Money: Low level financing needed to prove a new idea, Startup: Early stage firms that need funding for expenses associated with marketing and product development. And other rounds of funding to grow the company.
The presence of VCs is very important as most startups cannot secure bank loans because they are too small, or in a risky business. In USA, VCs have been the major driving force behind the tech industry, companies like Yahoo and Google would not be here if there was no VC backing, not to mention that most current web startups are VC baked.
So how is the VC seen in the Region?
From my experience I can say VCs in the region are a joke; they are hard to find, and if they do exist they mostly do not invest! However the region if full of wanabe cashless VCs who offer brokering deals and some advice to few investors here and there.
nonetheless this seen is changing a bet with initiatives like Intilaq from Bayt.com, KuvCapital, ICT (growth VC) and older VCs like EFG-Hermes’s Technology Development Fund but these are not enough.
So from how to create a bigger VC industry:
“Gulf sovereign funds have invested trillions in western markets and they lost a lot of that in the current crisis,” “Why not consider the financial returns and the social capital that would come from investing and help creating a vibrant IT sector in the Arab world?”
On the other hands we have many Islamic banks in the region, why not lobby them to help allocate some of their Mudaraba funds into technology startups?
Some might argue that to create a healthy VC Industry it requires an exit window. Well if the startup idea is global and it become a hit, it can go into an IPO or M&A at a global scale. On the other hand there are some M&A deals happening in the region, look at Maktoob’s acquisitions in the last few years. Also we can have our own regional IPOs, Optimiza is a Public IT company in Jordan. And as the US IPOs window is kinda currently closed even for US based IT companies, why not all the regional stock exchanges merge into one market? I think it is politics.
So in this current VC seen, my advice to Arab Startups is that you can start from your home like me, and do it part-time or full time if you have enough funds. However at a certain point you will need a VC to grow, if you could not get funding from a regionally VC or Angel investor, go to International VCs or angle investors like what Woopra did, after you have your prototype. (Note that the US economy is really in deep recession as VC’s went down by 50% this quarter. )
Research and development (R&D)
Breakthrough technologies mostly come from R&D activities inside universities, study & research centers and companies.
R&D in the Arab world is also not visible too. So there should be national and regional funds for R&D. A $ 5 Billion regional fund can be a start. This can be done via a small cut from Oil profits and another cut from each Arab country, which would be a healthy start to finance all the needed money for R&Ds and VCs activity the region.
To be fair Qatar has dedicated 2.8 per cent of its Gross Domestic Product (GDP) to research under Qatar Foundation, currently about 1,500 million US dollars per year. That is great and applauded, however we want to see R&D in every Arab University and country.
A-It is lame that we do not get for example an affordable high speed Internet access at around 20 GB speed, which is essential for many businesses specially web based ones. Governments should work with Telecoms in the region to bring the Internet speedup and drive the costs down.
B- Governments are one the largest IT customer, but they mostly buy from Microsoft, Oracle.. etc. Few years ago a very senior executive from a well known US based vendor met with a ruler of an Arab country, that country’s official media said that: they met to foster the IT sector in the country, while the real story is that he got his company a multi million deal with that country’s government, basically a fat sale for him!
Arab governments should 1st buy from regional based IT companies if an alternative is available, and use Open-Source projects rather than property based systems, why: 1st, Open source is much cheaper, more reliable and the support is available online, and we have the regional talent. 2nd, by doing so they support the regional IT sector, 3rd, we are not under the mercy of anyone or any political problem, for example Linkedin blocked Syrian users and also Sudan. 4th, Multinational giants do not invest in R&D in the region; they only have sales and marketing offices, so why reward them with easy cash via their local agents?
I am not against Multinational companies or anyone, we need to work with them in many cases especially in certain areas, for example open source software requires hardware that are supplied by a Multinational giants. Also the Open-source community is a global community so being open to the world is a must, above all our religion teaches us to be good with everyone. Though many countries adopted open-source like Brazil, and many countries in the world favor their local companies.
We need to have a better awareness about Arab startups, entrepreneurship, and help techies understand the business side of the game more. This was one of the reasons why I started ArabCrunch and organized ARABCRUNCH DEMO event.
“Israel” is called the 2nd Silicon Valley, a small country with Multi billion Dollars in IT exports. This did not happen by itself, there was a big government intervention in partnership with the private sector (I did around 30 page research about the ICT industry in “Israel” when I was at university). Even in USA the US government Invests billions in R&D. so government intervention is a must in the region to help us create a big IT sector that is based on entrepreneurship which is needed for our economic and national security future.
This effort should be a regional collaborative drive not everyone doing it alone, Mohammed Bin Rashid Al Maktoom Foundation is working in that direction. And this should not be between Arabs only but also all Muslim countries and any non-Muslim countries as well, who want to support the efforts. Furthermore it should be done in partnership between the governments and the private sector.
We should not to forget our history and roots, as the 1st concept of a computer was developed by a Muslim scholar. And as VC started few decades ago, the concept of Mudaraba in Islamic economics was there hundreds of year ago, even some say it was practiced by Arabs before Islam, also the concept of Non Governmental Organizations (NGOs) is in Islam before 1400 years ago called as Waqeef.
Anymore things we need to do? Leave it in a comment.