The first-ever venture capital fund to invest in Palestinian high technology opened for business on Tuesday with almost $29 million in capital and the backing of some of the world's leading technology companies.
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Sadara Ventures/The Middle East Venture Capital Fund will invest in Palestinian companies developing innovative, new technology in mobile, Internet content and technologies, social networks and software outsourcing, Yadin Kauffman and Saed Nashef, the fund's two managers, told a news conference in the West Bank city of Ramallah. Sadara's investors include Google and Cisco.
The Palestinian-administered areas may seem an unlikely place to invest in
start-up companies. The West Bank and Gaza are in political limbo, with
the peace process stalled and the Islamist Hamas group in control of
Gaza. Israel restricts movement of people and goods inside the West Bank
with a network of roadblocks and closely monitors trade and travel
But Nashef said the tiny Palestinian information technology (IT) sector
has many of the characteristics today’s most successful Silicon Valleys
had in their earliest stages, before they took off.
“Palestine has many strong educational institutions and thousands of
very highly skilled entrepreneurs in software and telecommunications. It
has a culture of entrepreneurship, and a culture and drive to make and
build something," Nashef told The Media Line on the sidelines of the
The Palestinian IT industry has about $300 million in annual sales and
employs about 3,200 people, about the size of a medium-sized US company.
Technology exports amount to just $10 million a year. Most companies
are providing IT services rather than developing new products.
But the area boasts 10 institutions of higher education with engineering
programs, turning out some 2,300 graduates a year. Even more young
Palestinians go abroad to further their studies.
"Many have been educated in Western schools and have made it back to
Palestine to contribute both on the business and social sides," Nashef
said. "All of these elements come together to make a very interesting
combination and make the situation ripe for early opportunities. It's a
ground floor opportunity."
Nashef himself is one of those returnees. He was born in Jerusalem,
worked for Microsoft for six years in the US and is founder and
co-managing director of Equiom, a software consultancy with offices in
Washington and Colorado.
Nevertheless, the Palestinian-administered areas have no venture capital
funds and no experience in the start-up culture of fast-moving,
risk-taking entrepreneurship. In a seminar following the news
conference, Kauffman, Nashef and other industry figures invited for the
day explained how venture funds work and how budding entrepreneurs
should pitch their proposals.
"We will be looking at these companies solely on a business basis…
businesses that become world class companies," Nashef told the audience.
"You need to think big."
Sadara will make two to three investments per year of $2 million to $3
million each, with the aim of creating a portfolio of 10-15 companies.
It will generally hold its stake in a company for between four and seven
years before selling its shares to another company or floating them on
the stock market.
Sadara's $28.7 million in capital isn't a lot by global venture capital
standards, but Kaufmann said the funds will go further in Palestine than
they would in the US or Israel because Palestinian labor and other
costs are much lower.
"For the industry here, it's quite an impressive amount of money and an
amount that will enable us to start investing and building a portfolio
of about a dozen companies," Kaufmann said.
Sadara also hopes to leverage its investment by seeking co-investors,
including capital from its investors that, in addition to Google and
Cisco, includes the European Investment Bank, George Soros' Economic
Development Fund as well as Steve Case, the co-founder of AOL.
Sadara will also turn to the Israeli venture capital industry, one of
the world’s biggest, which Kaufmann said cannot only serve both as a
source of joint investment and expertise for Palestinian entrepreneurs
but serve as an inspiration.
"In the mid 1980s, high tech was a very small industry. There weren't
that many entrepreneurs and there were no venture capital funds before
1985," said Kaufmann, who co-founded Veritas Venture Partners in 1990,
one of Israel's first VC funds.
Cooperating with Israel's bigger and experienced technology industry may
make business sense, but it may encounter into political obstacles in
the absence of a peace agreement between Israel and the Palestinians.
Kaufmann said Sadara's portfolio companies would be expected to make
decisions on a purely business basis but that the fund wouldn't compel
them to work with Israeli partners.
In spite of the obstacles to doing to business, the Palestinian economy
has seen rapid growth in the past several years, Palestinian Authority
Telecommunications and Information Technology Minister Mashhour Abudaka
told the conference
"The information technology sector in Palestine is witnessing rapid
growth despite the standing and recurrent challenges. We are used to
them. We are becoming resilient," he said...
Kaufmann said he, too, wasn't deterred by the political uncertainty in
Palestine or the Middle East. "What I think distinguishes successful
entrepreneurs from those who don't succeed is getting the job done and
overcoming any challenges on the way," he said.