Ask an American VC or angel investor what comes to mind when they think of the Middle East, and many are likely to say “war.” “When I see my friends from business school,” said Tarek Assaad, a 2000 MBA grad from Stanford University and managing partner at Egypt’s largest tech VC firm, “the discussions we have are always around problems—because that’s all they see in the media.”
But the Middle East’s startup ecosystem is booming: 2016 saw nearly $1 billion in venture funding—up from $200 million the previous year, according to MAGNiTT, a Crunchbase-like tracker of regional deals. Companies from Morocco to the Gulf States are developing everything from new payment systems to bug tracking software, as well as local counterparts to TaskRabbit and Rent the Runway. And entrepreneurs here are hoping that the stereotypes will fade, or at least evolve, especially among the U.S. and European investors whose help they need.
The enthusiasm was palpable earlier this month at RiseUp, one of the region’s premier entrepreneurship summits, now in its fifth year. In many ways, it looked like any Western tech conference. Hoodies and jeans predominated. Flocks of young people flitted about in matching logo T-shirts. Sleek sofa-decorated stages were backed by thumping house music. But, because this was taking place in Cairo, there were also flurries of headscarves, swaying palm trees, and periodic calls to prayer wafting over the campuses where the event was held.
Over 5,000 people showed up, more than double the 2,300 who attended the first conference in 2013. A handful of Western tech luminaries, like Kiip’s Brian Wong, came to give talks. And an evening pitch competition, with hefty prizes (by local standards), drew standing-room-only crowds. “The culture is changing,” said Dalia Kamar, the organizer of this year’s summit. “There used to be stigma in not working for a big company or a bank. Now, having your own startup is seen as a lot more attractive.”
Regional conflict notwithstanding, Western techies and VCs remain skeptical because there have only been a handful of big-ticket exits (notably Amazon’s half-billion-dollar purchase of Souq.com earlier this year), and there are only a few potential unicorns looming on the horizon. Many startups appear to be focused on narrowly local—rather than globally scalable—enterprises. And, along with the absence of a mature angel-to-VC pipeline, there remain many regulatory obstacles to founding a new company.
What is promising, though, is the large number of Western-educated techies, like Assaad, who are giving up stable, lucrative careers in the West and returning home to dive into this emerging world. U.S.-based tech firms are meeting them there: Famed Silicon Valley VC firm 500 Startups has created a Middle East specific fund, 500 Falcons, which intends to infuse $30 million into local companies, and the online learning platform Udacity is developing unique, Arab-specific tech education. Stripe’s Sarah Heck, an executive with the company’s entrepreneur-focused Atlas product, said the energy in the Middle East has led her to make two trips to the region just this year. “You’d be hard-pressed to come to an event like RiseUp and not say there’s something interesting going on here,” she said.
Fast Company chatted with some of the players helping to build the Middle East ecosystem—from first-time founders to serial entrepreneurs and one would-be unicorn. Here are their stories.
Ahmed Moor, First-Time Founder, 33, Jordan
Company: liwwa. Lending platform that connects small- and medium-sized businesses with loans from individual investors and larger banking institutions.
CV: Born in the Gaza Strip. Grew up in Sudan, Haiti, Sierra Leone, Nepal. Graduated from the University of Pennsylvania and Harvard University (MPP). Standard & Poor’s.
Founded: 2012. Started operating in 2015. Cofounder: Former senior software developer at Etsy.
Results so far: 225 loans to about 170 small businesses. Total underwriting of almost U.S. $8 million.
Pace of growth: From March 2015 to spring 2016, liwwa underwrote $1 million in loans. This year, they underwrote that much in November alone.
The Opportunity: Access to capital for Middle Eastern small- and medium-sized businesses is a $250 billion challenge.
Inspiration: Organizations like the World Economic Forum have identified three primary large problems globally: climate change, access to healthcare, and access to finance.
When he realized they were on to something: “Shortly after we launched our web application, we had about $1 billion in demand. A lot of that was junk demand. We’d never service that. But it brought home that there’s something to this.”
Tamer Azer, Venture Capitalist, 32, Egypt
Company: A15. A venture capital fund and a venture builder with an ecosystem of 17 portfolio companies generating more than $100 million in revenues.
CV: Raised in Egypt. Graduated from the University of Toronto and the University of Oxford. Fahrenheit 212 (a global innovation strategy and design firm).
The opportunity for Egyptian startups: Egypt has 90 million people alone. Startups that find a solution in an emerging market that big have probably found something that will work in other markets, like India, Pakistan, or China.
How the Middle East can fund its own startups: As wealthy families in the region with family (investing) offices transition power to younger generations, many are showing interest in entrepreneurship, funds, direct investing, and in being limited partners.
Why they still need Silicon Valley and other experienced investors: “What we don’t have, and what we want international investors for, is the experience. I’m willing to coinvest to learn from them—about transactions, growth, how they support their organizations, and how they help them expand internationally.”
Joy Ajlouny, Prospective Unicorn, UAE
Company: Fetchr. Courier company that uses mobile phone-based GPS technology to enable packages to be delivered in parts of the world that lack functional street address systems.
CV: Graduated from George Washington University. Founded and ran a designer boutique in New York City. Her previous startup, BONFAIRE, a luxury accessories ecommerce site, was acquired by Moda Operandi (owned by LVMH & Conde Nast).
Founded: 2012. Funding: $53 million, including from New Enterprise Associates.
Birth of the partnership: After Aljouny sold BONFAIRE, she was invited to mentor a group of entrepreneurs from the Middle East. One idea—a GPS-fueled shipping solution—resonated with her because many packages BONFAIRE sent to the region were returned because shippers couldn’t find the recipient. Aljouny joined forces with Idriss Al Rifai and began to pitch VCs.
The global significance: “In emerging markets, the transaction doesn’t take place at a laptop. You’re ordering COD. The transaction takes place at the door. The shipping company is the one getting your money and closing the transaction. Our numbers are higher than other shipping companies because we use tech to find the customer.”
Mai Medhat, First-time Founder, 30, Egypt and UAE
Company: Eventtus. An all-around events management app, whose social component allows attendees to identify and connect with other attendees.
Accolades: Entrepreneur of the Year, Arabian Business.
Funding: $2.65 million from 500 Startups & Algebra Ventures.
The Dream: To be the No. 1 events platform worldwide.
Inspiration: Medhat and her cofounder went to a startup event in Cairo, but it didn’t offer an easy way for attendees to identify the people they’d most like to network with. They spent a year traveling the world, attending events, to research what tech organizers were using, and discovered there was a major gap they could fill.
The Opportunity: “Five million events happen every year. $500 billion is spent on events. And there’s no one player who’s dominating everything. We think we can do that.”
Moment of Distinction: At the Global Entrepreneurship Summit at Stanford University last year, Medhat was one of three founders who joined President Barack Obama and Facebook founder Mark Zuckerberg onstage for a discussion about startups.
Philip Bahoshy, MENA ecosystem tracker and connector, 33, UAE
Company: MAGNiTT. A “Techcrunch-meets-Crunchbase-meets-Platform” for startups to connect with investors, mentors, and professional services.
CV: Family from Iraq. Grew up in the U.K. Graduated from the London School of Economics and INSEAD (MBA). Barclays Wealth.
Inspiration: The absence of public data in the region on which companies were getting funding, which led Bahoshy to create a platform to collect and disseminate that information.
Why MENA shouldn’t be evaluated on exits—yet: If it takes seven years for a company to exit—and three years to get to meaningful seed or Series A funding—it’s still too early to see if momentum exists from the most recent startup surge.
Promising signs from regional governments: “Governments at every level are pushing for innovation, trying to diversify away from oil dependency. The UAE government is putting in huge initiatives to push for innovation. The Saudi crown prince has made the initiatives for 2030 [called “Saudi Vision 2030″] to make it easier for entrepreneurs to come here.”
Elie Habib, Serial Entrepreneur, 44, Lebanon
Company: Anghami. The region’s first music streaming and digital music distribution platform.
Founded: 2011. Traction: 57 million users. At any given moment, a couple million people are using the service.
How music is experienced differently in the Middle East than in the West: Many countries in the region are conservative and don’t have public meeting places for music—like clubs or concert halls. Anghami simulated the social aspect of music by creating ways for people with similar tastes to connect—leading to network effects that boosted virality.
Not an app: Mobile data can be expensive. App downloading—even for apps like Snapchat and Spotify—is rarer in the Middle East than in the West. Anghami uses a browser-based mobile progressive web app instead. The company also partnered with 24 mobile operators to exclude Anghami streams from data charges.
Why regional brands have an advantage in emerging markets: “Did Uber succeed in Russia or China? No, because there isn’t a one-size-fits-all approach. In the U.S., iPhone and Android are maybe 50/50 of the market. In Egypt, Android is 90%. When Apple launched in the Middle East a year and a half ago, people told us, ‘You’re toast.’ But we grew more when they launched. We try to solve the problems of the local people. The problem that Spotify solved for someone in Sweden is a different problem than in the Middle East.”
Elissa Freiha, Angel Investor, 27, UAE
Company: WOMENA. Sources startups for direct angel investment by its women members, and educates women with resources on how to add value to startups.
CV: Emirati-American who grew up in Paris. Graduated from the American University of Paris.
Accolades: First woman to win Investor of the Year at the Arabian Business Startup Awards. Arabian Business’s 100 Most Influential Arabs in the World.
Notable Investments: AlemHealth (now a Y Combinator company). Bayzat. Souqalmal.
Inspiration: The funding ecosystem in the Middle East is still nascent, and investors used to working with traditional asset classes don’t always understand how to find and assess startups.
How the focus on women came about: Many family offices in the Middle East are run by men, who were skeptical about what Frieha and her cofounder, both women and just 23 when they started, could teach them.
What Middle Eastern entrepreneurs could do with Silicon Valley money: “A startup [in the U.S.] that was popular and that crashed was a juicer that was powered by your phone. It raised $100 million. Do you know how much we could do here with $100 million? $500 million of well-invested funds could probably bring the Middle East ecosystem up to the U.S.”
Willie Elamien, Accelerator, 33, Egypt
Company: Flat6Labs. An accelerator founded in Cairo in 2011 that has since expanded to Dubai, Jeddah, Abu Dhabi, Beirut, and Tunis.
CV: Originally from Sudan. Grew up in England. Graduated from the University of Cambridge. HelloFood (a Rocket Internet company). Now: Managing Director of Flat6Labs Cairo.
Prominent Flat6Labs Cairo graduate: Instabug (subsequently a Y Combinator company, now funded by Accel Partners, that was started by two Cairo University students in their senior year).
The quality of Egyptian startups: “Nearly every company is solving a real issue, because otherwise they have no chance of getting any funding. [In the U.S.,] you can get several million dollars when you are in prototype or just thinking about the idea. Somebody will just chuck their money at you. It’s very different here. You really have to demonstrate that you’re solving a challenging, real problem with scope for growth.”
Mona Ataya, Serial Entrepreneur, UAE
Company: Mumzworld. The first all-around online marketplace for mothers, children, and babies.
Accolades: Arabian Business’s 100 Most Powerful Arab Women. Arabian Business’s World’s 100 Most Powerful Arabs—Generation Next
Milestones: Mumzworld is the largest and deepest catalog of mother, baby, and child products in the region—over 150,000 products, 20,000 of which are exclusive to the company. Some global brands view Mumzworld as a key distribution channel for the region.
Previous track record: “I came back to the region in 2000 [after having worked overseas for Procter & Gamble and Johnson & Johnson]. With three other entrepreneurs, we started Bayt [an online recruitment and jobs search engine]. This was during the internet bust. There was 2% internet penetration. No one was online. Even the thought of adding a CV online was inconceivable because of confidentiality. Leaving the safety of Johnson & Johnson was probably one of the riskiest things I’ve ever done. But the company was profitable in Year One. Today Bayt has over 450 employees, and one in every two people online in MENA today have a CV on Bayt.”
Karim Elsahy, Serial Entrepreneur, 37, Egypt
Company: Elves. A human-assisted chatbot concierge service.
CV: Raised in Atlanta. Moved to Egypt (where his parents were from) as an adult. Graduated from the Savannah College of Arts and Design (Masters in Architecture). Cofounded three startups, including Elves, with his wife, Abeer Elsisi. Kauffman Fellow.
Funding: Bootstrapped until now. Just closed a $2 million seed round, one of the largest seed rounds in the Middle East.
How it works: Elves use a mix of AI and human interaction to act as virtual assistants who can complete any transaction, from buying concert tickets to rescheduling an entire vacation—for free. Commissions are taken from vendors. A quarter of Elves’s users are in the U.S.
Inspiration: Elsahy recently completed a Kauffman Fellowship in San Francisco, where a lot of the excitement was around bots, AI, and machine learning.
Why real-time human involvement is key to the successful scaling of AI: Often, when you interact with a bot, you’re dealing with the machine. At Elves, you’re dealing with a human (called an “elf”), who is being assisted by the bot. If you ask to change a flight, the machine suggests to the elf the best response, based on what it learned from interactions about what your ultimate intent is. The elf can send out the response or turn it down and instead type in one of their own. That new response gets added the system and tested against the old one over hundreds of elf interactions until the system learns the exact right response for that precise intent.
Their competitive advantage: “My wife and I had a call center [in Cairo]. We’re very comfortable with a large human component, but nobody in San Francisco is. We’re able to do it here because we’re not paying $25/hour. That gives us an edge over anyone in San Francisco.”
Abdalla Amin (Center), College Hopeful, 22, Egypt
Company: Flareinn. A site where budding artists can sell their art and form communities—built by a group of current seniors at Cairo’s Ain Shams University.
Incubator experience: Injaz (a Middle Eastern incubator). Y-Combinator’s online Startup School, mentored from London by the founder of a European ticketing startup.
How he learned how to create a startup: The internet has made it exponentially easier to learn everything startup founders need to know. Amin and one of his current cofounders launched another startup two years ago, solely based on what they’d learned online.
Everyone’s doing it: “I have three or four colleagues at university who started their own companies. One of my friends has an online development solution. There are three of them working on it. In five months, they’ve made more than $12,000.”
Tarek Assaad, Venture Capitalist, 45, Egypt
Company: Algebra Ventures. The leading tech VC firm in Egypt.
CV: Graduated from Ain Shams University (Masters in electrical engineering) and Stanford (MBA).
Evolution of the ecosystem: When Assaad started venture investing eight years ago, there were no events, angels, or incubators. Now there are a plethora of incubators and accelerators, many people interested in angel investing, and events like RiseUp that draw thousands of attendees.
Promising signs: Startups are increasingly able to convince experienced executives at large multinationals—people who followed the traditional, safe career path—to quit their jobs and take positions at startups.
What still needs to happen: “I lived in the Bay Area, and what I saw there that I would love to see here is the virtuous cycle of the ecosystem. Someone starts a company. They get funded. They do well. They exit. They make a lot of money. These successful companies will spawn dozens of successful entrepreneurs, who become angels, advisers, and entrepreneurs themselves. They join another company and help it achieve something difficult.”
Quotes have been condensed for length and clarity.
Editor’s note: While Israel is geographically in the Middle East, its enormously successful startup ecosystem is distinct from that of the emerging scene in the Arab world, which is covered in this story. (For more on Israel’s ecosystem, see Dan Senor and Saul Singer’s book “Start-up Nation.”)