Looking West: Globalizing Arab startups
Looking West: Globalizing Arab startups
This is an old post that was published on Zawya’s Monthly Newsletter: MENA Private Equity Insight in last October. I just wanted to have it on my blog too. I hope you like it.
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In a new exponentially growing and massively connected world, global companies and even global startups can reach global audiences much more easily than ever. Language is not a barrier any more, and innovations in web and mobile products and services can be easily customized for language, location or maybe culture if needed. Although I wonder if there is still a need for customization at all, knowing that user needs are becoming almost the same around the globe.
However, Arab VCs, including myself until very recently, are still encouraging entrepreneurs and startups in the MENA region to create local copies of successful international online products to serve the Arab user, and only the Arab user. The rationale behind this is simple. Local startups have much less competition, and much less risk. We just have to live with the fact that they also come with less returns.
On the other hand, if global companies want to expand to Arabia, there will be a hope that they will acquire their local copies, just like Maktoob and GoNabIt. This worked in different parts of the world earlier, so why not in Arabia?
For the past three years, local or regional startups in the Arab world have been a trend; everyone wanted to do one. Creating an Arabic copy of a successful international startup to target Arab users sounded like the best thing to do. Even we VCs wanted to invest in the Facebook of Arabia, the Twitter, the Amazon, eBay, KickStarter, Mint, Foursquare, and even the AOL of Arabia.
I wonder if this is still valid. I wonder if we have already missed that train! Facebook, Twitter, Foursquare, KickStarter and many more companies have already expanded to Arabia without the need to acquire any local clones. Things have changed dramatically.
This local focus resulted in neglecting whoever is trying to create a global startup among Arab entrepreneurs. Although they come with high potential, they also come with higher competition and much higher failure risk. In addition, such entrepreneurs need more funding because they have a higher customer acquisition cost. So angel investors and venture capitalists rarely invest in them.
This forces those entrepreneurs to convert back to local markets to feel accepted in such a community, and have more chances to get funded, than to keep their dreams limited by the local or regional market potential.
However, some might leave all these limitations behind and just move to Silicon Valley to pursue their dreams. There, they will at least get a chance to pitch to American VCs and angel investors who actually prefer global ideas and bigger markets. And a few years later, we hear about an Arab-American who sold his company to Google or Microsoft.
As a result, the Arab world loses two main opportunities: the job opportunities that would be created if such startups were funded; and the wealth achieved by the bigger returns such startups would achieve in the long term.
Some might argue that US investors won’t invest in a couple of founders coming from the desert to create the next big thing. Well, Silicon Valley is changing too. During 2012, a new trend of “Globalizing Silicon Valley” was noticed. I personally know many US investors who invested in non-US startups coming from Eastern Europe and Latin America, from markets that are still considered “emerging”.
US investors have realized that in this era, where knowledge is accessible everywhere, it doesn’t matter where you come from if you have true added value or true innovation. They just want you to be close to them to learn more from mentors and peer innovators and entrepreneurs; hence you have to move there to get funded by them.
Institutions such as 500Startups, Founder Institute, and Plug and Play Tech Center are all expanding their investment activities outside the US. Moreover, there are now incubators and accelerators in Silicon Valley that are created and designed specifically to help and support entrepreneurs and startups coming from outside the US. This includes mentorship, advice, training and legal and logistical services. The most recent examples of such only-global-startup accelerators in the Valley include BlackBox and NestGSV.
Even governments around the world have seen this new trend and begun to encourage their entrepreneurs to build bridges with the Valley’s mentors and investors. Governments have realized that local versions of Silicon Valley in their own countries would work only for startups targeting the local markets. But for their entrepreneurs who are working on global startups, there must be a connection to the original Silicon Valley in order to make a global success.
Countries like Israel, India, Australia and many others have realized this early on, and they are continuously sending their entrepreneurs to California on long-term missions.
I would urge Arab VCs and angel investors to pay attention to entrepreneurs pitching global ideas instead of continuously ignoring them. Then depend on institutions that create bridges between Arabia and the Valley to support their portfolio companies and help them benefit from US mentors and expertise instead of continuously losing them.
