Helping the Palestinians set up their own Start-Up Nation

Between a right-wing Israeli government and Palestinians bent against working with Israelis - some Israelis and Palestinians dare to work together.

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January 19, 2018 08:47
Helping the Palestinians set up their own Start-Up Nation

Israeli venture capitalist Yadin Kaufmann, a major investor in Palestinian startups, sits down with Palestinian entrepreneur Peter Abualzolof at a conference in Ramallah in 2014. . (photo credit: Courtesy)

 
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It’s not easy being an Israeli investor in Palestinian start-ups.

Business ties between the sides are getting harder to sustain as Palestinian boycott activists bark louder and Israel’s right-wing government is not actively negotiating as part of the peace process.

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“Palestinian companies could benefit greatly in being connected to Israeli entrepreneurs," the Harvard-educated, Israeli venture capitalist Yadin Kaufmann said on Thursday.

“And Israeli companies could benefit, in some cases greatly, from being connected to Palestinian partners. But it’s a bit of a chicken and an egg. When there is no political process, many Palestinians are unwilling to build these business relationships,” he added.

The daunting political climate has yet to stop Kaufmann – who as an Israeli Jew, must request army permission each time he visits Ramallah – from co-founding a West Bank venture capital fund and investing in Palestinian companies.

“People in this region, and especially when it comes to politics, are used to thinking in terms of a zero-sum game. On political issues, if the Palestinians gain something it’s because we have to concede something. And it may be something that’s very difficult to give up. When it comes to business and economic development, things are not zero-sum games. They can be win-win solutions,” he said.

Sadara Ventures, started in 2011 with Palestinian software entrepreneur Saed Nashef, is the first financing vehicle to explicitly target investments in Palestinian tech firms. It reminds Kaufmann of when he joined Athena Venture Partners 30 years ago, which was Israel’s first venture capital fund.



Not one multinational tech corporation has set up shop in the Palestinian territories, Kaufmann added, leaving much work to do.

“I see Palestinians who are entrepreneurial, driven and motivated to try to build something. And they really lacked the tools, the resources to get a start-up off the ground, because there was no risk capital available at all,” he said.

Backers of Sadara Ventures include liberal US philanthropist George Soros and companies such as Cisco and Google, helping the fund to raise $30 million. Sadara has paved the way for another half-dozen funds and private equity players – focusing on later-stage companies – to operate in the Ramallah and Rawabi-based tech ecosystem. And this year, Kaufmann and Nashef are opening a second fund that is open to Arab entrepreneurs in Jordan and to Israeli Arabs.

Also called the Middle East Venture Capital Fund, the Sadara Fund has invested in six Palestinian start-ups so far, looking at companies in the seed and series A funding stages.

“Like anywhere new, there’s no track record yet and as I say, you have to find investors willing to invest based on what they believe is an opportunity, but not based on an existing track record of Palestinian companies,” Kaufmann said.

One reason Kaufmann and other Israeli investors are boosting the West Bank’s tech ecosystem – building up the Palestinian economy – is because they believe it’s in Israel’s security interest.

“I think this is clear, to almost the entirety of the Israeli political spectrum, that it does not do us any good in Israel to have our next-door neighbors be poor, unemployed and desperate,” Kaufmann said, adding that’s why the army has cooperated in providing permits.

Without being asked, Kaufmann refers to the West Bank as “Palestine.” And the Israeli venture capitalist doesn’t dismiss the unequal economic relationship between the two sides; how Israel’s GDP per capita towers at $37,300 in 2016, while the West Bank figure stood at around $3,700.

In addition to being a full-time investor, the New York-born Kaufmann – who was recently named to Foreign Policy magazine’s top 100 global thinkers in 2017 – has helped launch the Palestine Internship Program.

PIP hosts Palestinian university graduates and places them with multinational companies and start-ups in Israel. The participants – half of whom hail from east Jerusalem and half from the West Bank – get their first work experience through the program.

Around 200 applicants applied for 10-15 slots in the last three- to six-month program. There are 39 alumni of the program, placed in companies from Thompson Reuters to HP Indigo, to Intel.

“It’s not about coexistence but it’s about business and it’s about giving people skills... These young people, especially once given the tools that they’re getting through PIP, can go back to the West Bank and change the face of the economy, by hopefully helping to put Palestine on the global technology map,” Kaufmann said.

The program has gotten much of its funding from USAID and the State Department, leaving it vulnerable to President Donald Trump’s proposed aid cuts.

With Sadara, Kaufmann and Nashef work to pinpoint exciting Palestinian start-ups. With at least 2,000 Palestinian engineering and technology students graduating each year, pitches abound for fund managers.

One start-up enjoying success in raising capital is Freightos, an online marketplace for ship-bound freight, which has raised $55.9m. so far, according to Crunchbase.

Other companies include Yamsafer, an online travel agency focusing on Arab clients; Souktel, which offers telecom services to groups working in conflict zones and remote areas; Socialdice, which streamlines the hiring process in the Middle East; PinPoint, which hosts mobile gaming; and WebTeb, a provider of Arabic-language medical information.

Officially, Sadara is constituted as a US fund and the investors are mostly US entities. That helps insulate the fund from the worst ups and downs of the Israeli-Palestinian conflict.

Kaufmann has previously invested in Israeli start-ups that helped devise satellite communications systems and invent the portable USB flash drive, among others. He made aliya in 1985 and has worked in venture capital since 1987, when he joined the management of Athena Venture Partners.

Kaufmann sighs when asked about the political climate – the lack of the peace process, continuing Israeli military control over the West Bank, and the Palestine Liberation Organization’s central council’s endorsement of the Boycott, Divestment and Sanctions movement earlier this week.

“We’ve kept our heads down. The entrepreneurs are doing what they know how to do and what they want to do, which is to focus on building businesses. They don’t stop developing their product or trying to market or raise money when some kind of political announcement gets made or when something happens on the ground,” Kaufmann said, adding that Israelis during the intifadas and the various wars didn’t stop innovating either.

“More and more people recognize that perhaps business progress can help create the conditions that ultimately, when the leaderships on both sides are ready and able to sit down and negotiate a solution,... may make their jobs easier.”

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