30 May 2016

Many Gulf residents will be familiar with smartphone apps and digital mediums like cab booking service app Careem, classified ads website Dubizzle or food delivery services such as Deliveroo or Talabat. However, most of these are essentially regional adaptations of successful concepts already in existence overseas.

How long before the Middle East produces a truly ground-breaking, original global phenomenon such as Twitter, Uber or Airbnb? At present, the region accounts for just around 5 percent of the potential investment deals available in the technology startup sector, but it is a growing market.

Fergal Mullen, founding partner at Highland Europe, manages a 332 million euro ($381 million) Geneva-based investment fund which targets tech startup opportunities in Europe and the Middle East. While he sees around 3,000 potential deals a year, he said that only a very small proportion of these come from the Middle East.

"If you take the volume of deals in a given year, we see thousands of deals and it would be a relatively small proportion coming out of the Middle East. I would say less than 5 percent," Mullen said in a phone interview with Zawya.

The firm last month invested $40 million in Nexthink, a Swiss IT analytics firm with offices in the United Arab Emirates (UAE), Qatar and Saudi Arabia and whose clients include Saudi Electricity Company, UAE telecommunications firm du, Saudi-based National Commercial Bank, Dubai-based Jumeriah Group, and the UAE health ministry.

Mullen believes the Middle East has a lot of growth potential. "In Europe, just 10 or 15 years ago, it was a real backwater compared to Silicon Valley [in California]... Fifteen years later and Europe is quite mature," he said. "Silicon Valley has been at this for 50 years, you can't just develop that in five years, the commitments and incentives that have to be made are long-term."

Interest from Silicon Valley

The region is certainly attracting interest from mature markets like Silicon Valley. Middle East Venture Partners (MEVP), which has offices in Beirut, Dubai and Silicon Valley and more than $120 million in assets under management, launched its second fund focused on the Middle East in December.

The $32 million fund, which aims to support local firms, plans to invest between $500,000 and $3 million in the region's early stage tech and mobile businesses, with 10 firms already selected for funding, according to its official website. At the same time, Silicon Valley veteran Dave McClure last year set up a $30 million fund named '500 Startups' to target tech startups in the Middle East and Africa.

"The advantage for the Middle East is that the bureaucracy and red tape isn't like what it is in some Western European countries and the tax regime is very favourable," Mullen said. "If I measure by deal flow, we do see more year-on-year coming out of the Middle East."

In terms of regional growth, Mullen said the majority of the deals were emerging from the UAE, and more specifically Dubai, thanks to a strong government push towards a Smart City approach to digitalisation and innovation.

© Zawya 2016