Yahoo bought Maktoob for $164m last year, the best-known acquisition of the region's internet start-ups.
Yahoo bought Maktoob for $164m last year, the best-known acquisition of the region's internet start-ups.

If nothing is ventured, then nothing is gained



For all the talk about increasing the number of entrepreneurs in the Arab world, very little seems to happen.

But now it looks as though somebody is preparing to put their money where their mouth is. Abraaj Capital, the private equity group, is rounding up a who's who of the region's entrepreneurs at an event dubbed a "Celebration of Entrepreneurship", at the Madinat Jumeirah hotel in Dubai today and tomorrow.

Attending executives include: Naguib Sawiris, the chairman of Orascom Telecom; Samih Toukan, a director of Jabbar Internet Group; and Amr Dabbagh, the chairman of the Saudi Arabian General Investment Authority. They will rub shoulders with wide-eyed students and new entrepreneurs eager for advice on their own future ventures.

There is also the launch of the US$500 million (Dh1.83 billion) Riyada Enterprise Development fund, a "start-up enabling platform" that received $150m from the Overseas Private Investment Corporation (OPIC), a US government agency that invests in businesses within emerging markets.

The influx of a significant amount of cash for new businesses in the Middle East differs from the global trends of decreasing research and development (R&D) spending. Total R&D outlay among the world's leading spenders on innovation dropped last year for the first time in 13 years, according to a recent report by Booz & Company.

While it remains to be seen how the event will help to foster the development of new companies in the Arab world, the fact that entrepreneurship has been placed on such a pedestal is significant.

For the past several years, the region's internet start-ups have emerged as serious businesses that have attracted the attention of larger companies looking towards the Middle East to fuel their growth. The best known acquisition remains the only major one, however, after Yahoo bought Maktoob for $164m last year.

But there has been further development within the sector at grassroots level. Events such as DemoCamp attract venture capitalists and online geeks, but this only furthers the impression that there remains a gap between an Arab Silicon Valley and mainstream business acceptance.

Replicating Silicon Valley, the world's online entrepreneurship centre in California, is unlikely to happen here, regardless of how many glitzy events are staged.

There is no educational outlet such as Stanford University from which to source young brains; no companies such as Google to anchor and churn out innovative yet economical ideas; no revolutionary product to rival the microprocessor.

A vibrant online ecosystem, however, can certainly be built in the Middle East, but it will not happen overnight.

"Let's put it in the context of building a building," said Feroz Sanaulla, the regional director of Intel Capital in the Middle East, at a recent panel discussion on start-ups during the GITEX technology expo.

"Buildings are built brick by brick and an ecosystem will be built the same way. It's the people who come in early to this space and take that risk to build that system who are the people who will build that foundation … To practically make a Silicon Valley a reality here is a very difficult thing. It's a long-term, not a short-term thing."

Traditional values represent another hurdle. Running a website that may be profitable is one thing, but try convincing your family that your new job is worth it after a successful career in accountancy.

"There's a saying: behind every great man, there's a great woman," says Habib Haddad, the founder of Yamli, a search engine tool that helps to transliterate Latin characters into Arabic. "In the Middle East, behind every Arab entrepreneur, there's a mother who thinks her son is crazy he left his job."

Fear that typically haunts the older, risk-averse generation is often rooted in the fact that the online world is fraught with risk and often failure. Yet failing with an online business is not the end of the world - in fact, it is something that should be embraced.

Countless internet entrepreneurs have built up a business only to watch it dissolve less than a year later.

But failed ventures do not necessarily lose a significant amounts of capital as many are funded through small loans and lines of credit. This creates opportunities to learn from mistakes to make the next business a success.

"Failure is part of our lives.," says Mr Sanualla. "We learn from that and move on. We continue to invest in risky businesses. That's our job."

From a technology standpoint, there is also much work to be done. Despite claims that the UAE's broadband internet is among the highest quality in the world, prices remain high and the country has an average connection speed of 3.1 megabits per second, just under half the global average.

Mr Sanualla argues that to foster the kind of innovation the region is capable of, it is time telecommunications operators lowered the cost of broadband internet. "If you really want to transform from a 'building buildings' economy to a 'building knowledge' economy, you need to spend money on equalising and neutralising some of the cost elements of having broadband secular and cheap for everybody," he says.

But iIf there is one thing Silicon Valley and the Arab world share, it is access to money. The amount of cash sourced from oil resources overshadows the cluster of private equity companies that line the famed Sand Hill Road, which helped to fund many of Silicon Valley's ventures.

The Arab world's leadership should also begin examining ways to encourage entrepreneurship sooner rather than later. In the UAE, work to develop a so-called "entrepreneurship visa" should be fast-tracked to help new small businesses along. This could also help to fill the glut of empty office space across Dubai.

It is promising that the introduction of the region's larger private equity companies such as Abraaj Capital can work with the business leaders of tomorrow, opening the doors for governments to take action. In that case, we must hope that the "Celebration of Entrepreneurship" is a sign of a new chapter being written in the Arab world's internet community.

But there will always remain important obstacles that no amount of money can solve. Just ask the mother of any Arab accountant who dreams of making it big on his own.