The road less travelled - why the Middle East is wooing western tech startups

Looking beyond the oil economy, Middle East governments are investing in tech startups. Many are local, but European and UK innovators are also accessing money and non-financial support.


It's a well-trodden route. A UK software startup develops a product for the global marketplace and before too long it has upped sticks and set up either an office or a full-blown HQ in San Francisco or the surrounding Bay Area - often picking up a wadge of US venture capital cash along the way. The United States is, after all, a huge single market for software so it makes sense to relocate to where customers are waiting and investors aren't shy of writing big cheques.   

Of course, not all startups choose to go west as they seek to scale up internationally. In the post-Brexit era, we can expect to see more businesses opening European offices in order to access the single market. But that's not the only option. Increasingly, governments and investors from much further afield are seeking to attract technology businesses with the offer of both capital and market access. 

Abu Dhabi is a case in point. Capital of the United Arab Emirates, the city is actively seeking to position itself as a "home" for British and European startups and is backing that ambition with cash and a number of founder-friendly initiatives, including an accelerator programme open to both domestic and foreign businesses. 

Dubbed Hub71, the accelerator currently hosts around 100 businesses and is supported by eight VC funds offering a mix of equity investments and grants. Meanwhile, Abu Dhabi is also offering paths to citizenship for entrepreneurs who wish to relocate on a longer-term basis and the City's Investment Office (ADIO) has allocated $554 million to support the development of the technology sector.

All of which begs a question. Will there be a rush - or even a trickle - of European and British tech startups to the middle east when funding is also available in more established tech hubs with well-developed and mature ecosystems? 

Dr Tariq Bin Hendi, CEO and Director General of the Abu Dhabi Investment Office (ADIO) acknowledges that investment capital is widely available to European tech businesses. Abu Dhabi, he says, is offering something else on top. 

"We know there is a huge amount of liquidity on a global level and that startups are able to raise capital," he says.  "We say that while there is a capital component available, Abu Dhabi can help companies to diversify their revenue streams."

In that respect, Dr Bin Hendi says, a key attraction of Abu Dhabi is the opportunity it offers to enter new markets in the Middle East with the city as a base. For its part, the ADIO provides both non-financial and financial support designed to reduce the risks associated with operational and capital expenditure when entering a new market. "It's important to say that we are not an equity investor," Dr. Bin Hendi adds.

Solving Problems

The support provided is targeted at companies who can come to the region and solve problems in areas such as financial services, food security and healthcare. This sits within a larger strategy of developing the UAE's technology base and generating IP. 

Abu Dhabi is not alone in its efforts to forge technology links between the Middle East and Europe. Back in March, Saudi Arabia's King Abdullah  University of Science and Technology announced the names of eleven winners from the 2020 cohort of its TAQADAM accelerator. With applications now open for the 2021 cohort, the university is stressing that overseas startups are welcome to take part.

"In the first three years we focused on Saudi," says TAQADAM Programme Manager, Abdulrahman Aljiffry. "In the last cohort, seven of our companies were international."

And as he sees it, the Saudi ecosystem is maturing, with more VC firms investing and angels coming into the market. Equally important, partnerships with universities around the world and financial institutions are making it easier for foreign startups to take advantage of the accelerator or use Saudi as a base. Aljiffry cites the example of the Saudi British Bank, which is a partner in the TAQADAM initiative. It's a division of HSBC and in addition to putting capital into the programme, SABB also makes it easier for businesses to deal with the practicalities of working in the Kingdom - even down to making bank accounts available.

Startups selected for TAQADAM accelerator receive $40,000 in investment with additional capital available to winners. The onus is on businesses that will have an impact in Saudi itself and while the accelerator is sector agnostic, Aljiffry says fintech, healthcare, education and the Internet of Things have emerged as key themes. 

A brief look at the winners of the 2020 cohort reveals a mix of tech-led services and solutions that include a shariah-compliant online financing marketplace (Themar), a securities management platform (Wethaq) and a patient/doctor matching app (Udawi).

Beyond a Wam Welcome

But here's the rub. Countries in the Middle East may be extending the warmest of welcomes to foreign tech startups, but will founders from the UK and Europe choose to buy into the vision? And if so why? 

Well, access to markets could be a big factor. Frans van Eersel is founder of Dopay, a London-headquartered cloud-based payroll service that took part in Hub71 and has established a presence in Abu Dhabi. 

As he explains, Dopay is targeting markets in which significant numbers of employees are being paid in cash rather than bank transfer. "Around the world, there are around 1.7 billion people in this situation," van Ersel says. "We wanted to be close to our markets." Those markets include the Middle East, Africa and Asia.

Abu Dhabi, he believes provides an ideal base. "We wanted a regulated market but also one that is open to change. We wanted to work in an environment that can be trusted." 

As van Eersel sees it, once Dopay is seen to work in the UAE it will be easier to gain approval from other regulators in neighbouring markets.  "So being in Abu Dhabi will help us access other markets," he adds.

At this point, it's worth pointing out that there is a fair amount of two-way traffic between the Middle East and more mature tech ecosystems. Saudi is an investor in western tech, sometimes in a big way. For instance, in 2018 the country's sovereign wealth fund contributed to a $500 million raise by London-based Babylon health. In the other direction, the country is attracting increasing amounts of capital for its startup ecosystem. In 2020, tech businesses in the Kingdom raised $152 million, according to figures by research platform Magnitt, with around 17% of investment into domestic tech firms coming from foreign sources.

Sharing of Expertise

In addition to cash, expertise is being shared. For instance, Plexal - the London innovation centre that is essentially a joint venture between the UK government and developer Delancey - has been running an accelerator programme to help Oman develop its startup ecosystem. 

As Managing Director Andrew Roughan explains, the collaboration came about because Plexal hosted a trade mission from Oman in 2018. Relationships were forged and as a result, Plexal agreed to apply its methodologies - designed to help technology startups scale up - to companies based in Oman. On the face of it, the initiative involved nothing more than a UK organisation imparting skills and knowledge to a less mature technology marketplace. But there was - as Roughan stresses - a lot of collaboration. Oman's Transport Ministry and its SME development agency (RIYADA) playing key roles alongside UK contributors such as Plexal itself and the London School of Economics. "Partnership was the key to making it work," says Roughan.

This in turn has enabled companies working within Plexal to forge their own links with Oman. Roughan cites Cyber OWL, a cybersecurity company that now has opportunities to supply the Omani shipping industry. 

Perhaps none of this surprising. The Middle East faces a future where the oil economy will become much less important and must therefore look to other industries to not only drive prosperity but also address problems that range from water shortages to the requirement for more responsive financial services. And for tech startups such as Dopay, the fact that governments are willing to move quickly to provide financial and regulatory support is an advantage. Against that, there are cultural and political differences that may be a deterrent, Saudi in particular might be seen as a controversial destination following the killing of Jamal Khashoggi. It's also worth remembering that the needs of Middle Eastern governments can be pretty specific and support for overseas tech firms will largely depend on their potential to make an impact on the local ecosystem.  Money and support are available, but probably for a relatively small subset of innovators. Thus, only a relatively small subsection of Western startups are likely to benefit.