After a year marked by political, economic, and social transformation, the momentum for change has seeped into the business environment, driving an entrepreneurial spirit particularly in the tech area.
With more than 50 per cent under the age of 25, the Middle East has the world’s youngest population. This poses both tremendous challenges and important opportunities.
A report by The World Economic Forum (WEF) and Booz & Company that was released last fall points out entrepreneurship as a key ingredient for Arab states looking to accelerate growth and cope with increasing demands from their citizens.
”There are myriad benefits to fostering a start-up friendly environment”, said Habib Haddab, CEO of Wamda, which aims to inspire, connect and empower entrepreneurs in the region, who was co-chair of the WEF Special Meeting on Economic Growth and Job Creation in the Arab World in Amman in October 2011.
“Not only do start-ups employ their owners, but the spill over benefits for the larger economy can be significant. As start-ups mature into small and medium-sized enterprises (SMEs), they become significant contributors to employment and Gross Domestic Product (GDP),” he said.
A tech entrepreneur himself, Habib Haddad argues that “ideas in general are useless, it’s execution that matters. So really it’s about helping entrepreneurs to take that leap”. He also embraces the notion of “the power of Yalla”, basically conveying the meaning of “come on, let’s do it!”
Though venture capital (VC) firms have existed in the Middle East and North Africa for the past decade, they have mainly preferred to make larger investments in revenue generating companies, leaving many young entrepreneurs with exciting proposals out of the loop.
Now, the landscape seems to be changing with early stage venture firms, investors, and incubators leading the way to provide funding, mentorship, and a networking platform for young entrepreneurs.
Oasis500 is one such early stage and seed investment company that is making its mark in the Middle East. A Jordan based company, it seeks to bridge the gap between early stage funding from family and friends and the later stage of becoming a mature company with real revenues. During this in-between stage, it provides mentorship, incubation, additional follow up investment, and training programs.
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The demand for such services was evidenced by the 350 applications received by the Training Boot Camp of which 65 were selected to participate in the program. Though the participants were largely from Jordan, almost a quarter came from outside the country, reflecting the trend in the region.
Oasis500 believes that rising entrepreneurs will have a positive and significant impact on the economic landscape of the region. In this spirit it has embarked on an ambitious program of investing $30 million in five hundred companies by 2014.
SeedStartup, another seed venture fund, is also making its mark with young entrepreneurs. A UAE based company, it focuses on digital media, selecting 5-10 startups, and providing mentorship, investment, and networking services. It invests up to $25,000 in each startup with a flat 10% equity stake.
Larger venture funds are entering the region this year, further facilitating the startup process for entrepreneurs. Plug and Play, based in Silicon Valley, has helped 500 companies raise more that $800 million in venture funding creating over $2 billion in value. This successful VC firm has opened an Egypt chapter called PlugandPlay Egypt which is providing access to joint ventures with US entities, strategic partnerships, Silicon Valley experiences, as well as mentorship and training programs.
The boom of early stage and seed funding for new companies is encouraging and exciting for entrepreneurs in the Middle East but without a conducive business environment in which to operate, it may prove difficult for them to mature and flourish. Governments will need to do their part to ensure that this happens.
Restrictive legislation is the main obstacle for doing business in the Middle East. According to the World Bank’s 2012 “ease of doing business” rankings, Egypt is ranked 110 and Jordan is ranked at 96 out of a total of 183 countries.
A Carnegie Endowment report points out bankruptcy laws, lack of transparency regarding business legislation, and the absence of formalized networks as large obstacles for entrepreneurs starting new businesses in the Middle East and North Africa.
“I would like governments to focus a lot more on culture”, said Ahmed Youssef, a partner at Booz & Company, at the WEF meeting in Amman in October. According to Youssef, governments have the ability to contribute in a number of ways, including infrastructure, and work to make entrepreneurship accessible and attractive to the young population in the region.
Still, governments are engaging with these issues. Egypt and Jordan are working to improve the business environment and have instituted reforms. Egypt eliminated a minimum capital requirement while Jordan reduced it from 1000 Jordanian dinar to 1 Jordanian dinar. Both countries have also facilitated the process of registering new businesses.
The rise of early stage and seed funds should encourage entrepreneurs, who will need to increase pressure to encourage governments to institute reforms. The future holds promise. 2011 was coined as “The Year of the Protester.” Perhaps 2012 will be the “Year of the Entrepreneur.”