Just over a year ago, as the ink was still drying on the Abraham Accords, Israeli tech entrepreneurs were racing to the United Arab Emirates in the hope of partnering Israeli innovation with Emirati capital. Such unions have been slow in coming, but this week saw the announcement of the biggest one to date – and it turns the model on its head.
OurCrowd, a Jerusalem-based company that raises capital globally sourced from a cohort of some 160,000 small and institutional investors, became the first Israeli venture capital firm to get a license from the Abu Dhabi Global Market to operate in the UAE.
The new venture, OurCrowd Arabia, will be taking on multiple roles. But a key one is to serve as a conduit for the company’s 160,000-strong community to invest in Emirati startups.
“OurCrowd is Israel’s most active investor, and we hope to become one of the most active in the Emirates. We have a lot of investors who believe in the future of entrepreneurship in the region,” said Jon Medved, OurCrowd’s founder and CEO.
OurCrowd Arabia will also raise capital in the UAE to invest in Israeli startups and venture capital funds. In addition, Medved and Sabah al-Binali, who was named senior executive officer and executive chairman of OurCrowd Arabia, said they aim to foster tie-ups between the UAE’s growing number of startups and those in Israel.
OurCrowd also hopes to upend the Israeli tech-Emirati capital model in another way: by doing research and development in the UAE. “We expect that, long term, our operation here will have an R&D function,” Medved said, declining to elaborate.
Meanwhile, he added, about a dozen OurCrowd portfolio companies already had partnerships with Emirati companies in areas such as drones, financial technology (fintech), cybersecurity, airport security and artificial intelligence.
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The idea is to use the UAE as a gateway to large swaths of the world that are largely inaccessible to Israeli startups, he and Binali explained, either because of politics or lack of familiarity with local markets. This isn’t limited to the Middle East, but is geared toward South Asia and Africa as well.
“Venture capitalists and entrepreneurs have been solving the problems of the world, but so far they have focused on only one part of the world. There are so many other problems to be solved in Africa and Asia, and that will provide an unending market for solutions,” Binali said.
Technology isn’t always fungible, he explained. “African problems are different from American problems. This is financial investing, impact investing – it’s very complementary.”
OurCrowd Arabia is entering the UAE tech scene at a time of immense growth for both the local and global industry. Fundraising by tech startups across the entire Middle East and North Africa has been gathering pace, growing more than 50 percent between 2016 and 2020, according to Magnitt, a Dubai firm that tracks the industry. In the first half of this year (the last period for which there were publicly available figures), fundraising shot up by 64 percent from the same time in 2020.
In Abu Dhabi, for instance, the state’s $110-billion sovereign wealth fund has consolidated all its venture capital operations into a single platform called DisruptAD and hopes to cultivate 1,000 local startups by 2025. Abu Dhabi’s Hub71 incubator offers free office space and housing for startup employees, and has as much as $2.5 billion to invest in hosted companies.
Gulf governments are keen on fostering their tech industries as part of bigger plans to diversify their economies away from oil. But compared to the Israeli tech sector, the Middle Eastern and North African (MENA) industry is tiny: Magnitt says that in the first half of this year, funding for tech startups was just $1.2 billion, of which the UAE accounted for just under two-thirds of the total. Israeli startups during that time raised $11.9 billion, a 150 percent year-on-year increase, according to the IVC Research Center.
The heady growth of the past year or so in Israel and MENA is part of a worldwide phenomenon. Globally, tech fundraising jumped 140 percent in the first half to $292.5 billion, according to industry tracker CB Insights. There’s so much capital available that traditionally neglected corners of the tech world, like the Middle East, are enjoying a surge in investment.
The growth is due to an accelerating transition to digital models for services ranging from health care to education that took place in tandem with COVID lockdowns. Once a rarity, startups valued at more than $1 billion – dubbed “unicorns” – have become commonplace; 250 were born in the first half of 2021 alone.
But another driver has been all the available capital for technology investment, as non-tech investors look for ways to get better returns in an era of very low interest rates. The average valuation for the youngest (seed-stage) U.S. startups in 2021 was $3.3 million, more than five times the level in 2010.
With companies in Silicon Valley and Israel, not to mention traditional tech laggards like Europe, commanding such high valuations – Medved called them “nose-bleeding” – Emirati startups look attractive, and especially the newer startups.
“Our entrepreneurs are sophisticated ... but because there is so little access for the big U.S. good funds to look at companies at the early stage – they come in the later stage – you don’t get the same valuations,” Binali said.
Slower, more strategic
Gilad Carni, whose UAE Israel Innovation Office advises tech companies in the two countries, said Israelis have only gradually come to understand the Emirati way of doing business. Emiratis are enthusiastic about the opportunities, but work more slowly and think strategically, he explained.
“Things are moving, but [it’s not like you] land in Dubai airport and suitcases of money are there waiting for you,” Carni said. “Things are happening – less opportunist and more strategic. There are memorandums of understanding being signed, business contracts being signed, there is some business. … It takes time. It’s going to happen.”
Carni said Emiratis want a local Israeli presence, something OurCrowd Arabia now provides. “They would love you to open an office with three to five people or have a UAE national be a partner of the local office,” he said. But he’s not sure how many will respond, as “Israelis like to be in Israel.”
One area that has developed quickly, he noted, is the UAE serving as a conduit to Arab markets formally closed to Israeli business – for instance, an Israeli firm using a Dubai distributor to sell in Saudi Arabia.
“We’re seeing Israeli cybersecurity, homeland security, fintech, construction tech selling in countries that you’d never believe Israel would sell to,” Carni said. “In the past, only big Israeli companies could do that. The change is that, now, smaller Israeli companies without the resources to open a satellite office in Europe can sell to those countries.”