The Middle East is undergoing something of a revolution… an entrepreneurial revolution. Clusters of small, tech-focused startups are popping up in cities across the region in Amman, Beirut, Cairo, Dubai, Riyadh, and Gaza City.
This provides a bit of good news for the region amid its many longstanding challenges— ranging from political instability and the war in Syria, to high levels of unemployment and widespread corruption.
3 KEY FINDINGS
- A small but vibrant startup culture is developing in the Middle East, even among its many challenges.
- Startups are popping up in cities from Beirut to Dubai and an infrastructure is developing to help support these new ventures—including startup accelerators, tech media, and new funding sources.
- Western organizations ranging from MIT to Google to Turkish Airlines are engaging with the startup community—and there are opportunities for other firms to do so as well.
The increase in entrepreneurial activity and investment in the Middle East’s startup scene is being driven by factors that include:
- A lack of alternatives. The Middle East is plagued by high youth unemployment. More than 25% of the region’s 15- to 24- year-olds are thought to be unemployed. For some, this lack of opportunity translates into the desire to build something on their own. As Christopher Schroeder, an investor and author of Startup Rising, put it, “A new generation of Arab entrepreneurs isn’t waiting for public institutions to solve traditional problems or create business opportunities. Instead, they are using technology to address them now.”
- Attractive demographics, tech adoption rates. Despite corruption, unrest, and other distinct challenges, the Middle East has certain attributes that make it a natural fit for the kind of tech entrepreneurship being witnessed today. The region boasts a young, tech-savvy population—which makes it attractive to the kinds of companies starting up in the region.
- Successful predecessors. Nothing inspires like success, and startups in the region can point to a few regional firms making it big. Most notably there is Maktoob, a Jordanian Internet portal that boasted 16 million users in the Middle East when it was acquired by Yahoo! for $175 million in 2009. As one observer noted, “the Maktoob takeover was a flash point for the fledgling tech scene [in the Middle East]… there is a palpable rise in confidence among the region’s entrepreneurs.”
3 MIDDLE EASTERN STARTUPS
Nothing communicates the energy and potential of the startup scene in the Middle East as well as the companies and entrepreneurs themselves. Consider these examples:
- Namshi. This online shopping site based in Dubai has attracted substantial funding for a startup in the Middle East— some $34 million from investors including JP Morgan and Rocket Internet.
- Elevision is a digital media company that provides news, weather, advertising, and other content on flatscreens mounted in the elevators in Dubai’s many high-rise business and residential buildings. It raised US$1 million in late 2012 and more again in 2013. Its website claims nearly 3 million monthly ad impressions across its network of 55 residential buildings and 26 commercial buildings that use its service.
- Bey2ollak. Some startups in the region are little more than localized adaptations of ideas that have worked elsewhere in the world. Bey2ollak is a social traffic and navigation app that lets drivers share information about traffic and road conditions, much like Waze.
3 BUSINESS IMPLICATIONS
- The development of a startup culture in the Middle East will lead to an increase in acquisition and partnership opportunities for Western firms. Organizations with interest in the MENA region, but with low appetite for developing their own local capacity, should track startups and consider them for potential acquisition and partnership opportunities.
- Firms should consider ways in which the services being offered by Middle Eastern startups might intersect with—or even disrupt—their plans in the region. For example, could a carsharing startup or a chauffeur service like Careem (described above) reshape young people’s expectations about personal mobility? Combined with income constraints and/ or cultural factors, could it orient Middle Eastern youth away from vehicle ownership and toward shared-use models, more readily than has occurred in World 1 markets like the US and Europe?
- While there are distinct challenges to working in the region, the cost of launching a startup in the Middle East is low. One startup accelerator in Egypt suggests that the initial launch can cost as little as $9,000, and it staggers investment in new companies over the course of a year, which results in a total investment of only about $90,000 to $140,000 over twelve months.39