Palestinians Reach For Their Tech Startup Future

Sitting in Snobar, a cool bar shaded by fir trees in deepest Ramallah, George Khadder is practically thumping the table as he speaks. A Palestinian who has worked in Silicon Valley, he talks passionately about his desire for Palestinian entrepreneurs to control their own destiny. “I came back from Silicon Valley because I believed I could affect change,” he tells me. It’s a sentiment that has been echoed during President Obama’s visit to Israel and the West Bank. This week Obama specifically spoke about programs designed to stimulate the Palestinian technology ecosystem and build bridges with the large and well-developed Israeli tech community. “Over 100 high-tech companies have found a home on the West Bank, which speaks to the talent and entrepreneurial spirit of the Palestinian people,” he said.

Back in Snobar, you could easily mistake my conversation with a group of tech entrepreneurs to be happening in some hip part of Europe – perhaps a Berlin ‘beach’ bar by the river Spree. But this is no ordinary party of the world, and these are no run-of-the-mill entrepreneurs shooting the breeze about raising VC or launching a startup.

Even amidst the enormous political and cultural difficulties created by the ongoing conflict between Israelis and Palestinians – consider the huge ‘Peace Wall’ and tight security that make it very hard for anyone, let alone entrepreneurs, to move around – you can find technology companies plying their wares.

But I hadn’t had to simply catch a taxi from the airport to visit these entrepreneurs. Weeks earlier, I’d had to make contact with a local NGO that could get me into the West Bank, arrange to be driven through armed Israeli check-points, spend only a few hours meeting startups and then get back out. In such an environment, you could forgive a Palestinian tech entrepreneur for not being as boosterish as their Silicon Valley counterparts.

Ironically, the difficulties of the security situation make technology potentially the ideal industry for Palestinians. The ‘exports’ online, like web sites and apps, are not subject to the usual rules and regulations associated with Israeli security.

The frustration and impatience of Palestinian tech entrepreneurs is palpable. They are champing at the bit to energize their own tech ecosystem, despite the difficulties of day to day life. How do you develop smartphone apps when so few in the population have smartphones and there are no 3G networks available? Palestinians don’t have the unfettered broadband and 3G connectivity their Israeli neighbors only a short drive away have. How do you meet potential investors if you can’t get out of the Gaza Strip because of restriction on travel both for you and the investors? How do you organize a simple hackathons? With security being a major concern of the Israeli government mobile phone towers are limited by height to prevent them from being used as firing positions.

What’s at stake is an industry which could bring enormous economic benefit to the Palestinians, greater stability and perhaps even positively better relations with Israel.

In this part of the world, creating a tech startup doesn’t involve Valley-style cash out for the founders, an earn-out and then on the next startup. A thriving Palestinians tech industry could actually transform an entire, economically deprived, area. Tech could actually end up meaning peace.

But there is frustration amongst Palestinian entrepreneurs over the pace of growth amongst home-grown, product based startups.

Around a low table strewn with coffee and drinks, I discuss tech trends and the local movement to launch a tech revolution amongst Palestinians with a group that calls itself the Peeks. Standing for ‘Palestinian Geeks’, this 2,500-strong membership, was built largely on a Facebook group (and on Twitter: @peeks_ps) but has become a vehicle for a new generation hungry to emulate the culture of Silicon Valley.

Unlike many of the more established trade bodies, Peeks is all about something any TechCrunch reader will be aware of: entrepreneurs, startups and geeks.

Started in 2010, Khadder and his fellow Peeks founders set out to create a sustainable economy of entrepreneurs for Palestinians residing in the West Bank and the Gaza strip.

In the Peeks community, members will post events and news, debate and look for people to help. It’s a grass roots community of entrepreneurs to support each other, engage with students, industry, and the wealth of Palestinian expats working in tech around the world.

They realised there was a lack of entrepreneurial culture, no ‘trust culture’, and a fear of failure. There was also a lack of research, a lack of links between the private culture of startups and education and little private sector skills in the education system. So they plan to develop “sustainable knowledge based resources” and do offline events like meet-ups and hackathons.

As Khadder – who works with solar startup Yafa Enerrgy – says: “What we need is a vision to bring this together. There has not been such a vision in Palestine.”

Whether a vision exists of not, Peeks appears to be pushing at a gradually opening door. Already Gaza has seen its first incubator open up, the Business and Technology Incubator (BTI), and product-based startups in the West Bank are starting to appear.

Palestinian entrepreneur Mohammad Kilany co-founded Souktel a ‘LinkedIn over SMS’ which matches employees with employers and was designed. ArtTech is a studio producing apps like the X-Bugs game on Android.

George Halabi created SafqaOnline a classifieds site trying to be the CraigsList for Palestinians.FinJANi is an iGoogle-like start page startup. Steadypoint is a Ramallah-based company working to produce an RFQ platform. Idevator is a Zynga-like startup producing games for the Middle East. Yousef Ghandour is founder of Anabasalli, an Android application to assist Muslims during prayer.

It’s a varied list of startups, but the formation of the Peeks group reflects a growing desire amongst a number of Palestinans in the tech community to break away from what has traditionally been an IT outsourcing industry, and one which was frequently subsidised by donors and outside NGOs.

Indeed, even some Israeli tech companies have used engineers based in Ramallah. Sometimes they’ve gone further – the (now defunct) G.ho.st startup (which created a virtual desktop environment for PCs) was started by Zvi Schreiber British-born Israeli CEO who joined with Tareq Maayah, a Palestinian businessman, to start a Ramallah office for the startup in parallel to the Modiin office in Israel.

That said, pure IT outsourcing has been a successful industry for Palestinians.

According to a white paper commissioned by Cisco in July last year the Palestinian IT sector grew over five times from 2008 to 2010 and now accounts for more than 5% of Palestine’s gross domestic product. The paper also noted that the European Investment Bank has put $78 million into the Palestinian high tech sector in the past three years and that Cisco itself has put $15 million into the West Bank since 2008.

Other informal estimates put the size of the ICT industry in Palestine at $350 million, with about $150m spread across telecommunications, and another $20m software development. The majority of that is thought to be in outsourcing companies.

There has also been plenty of outside interest and investment from the likes of Cisco, Google and USAID. All have brought their resources to bare on the emerging Palestinian tech scene. The multinationals clearly trust Palestinians companies to do the work. That’s important to note.

But it’s product-based startups, not outsourcing, that the Peeks and other Palestinian entrepreneurs like them are so desperate to promote and nurture.

It’s estimated that only about 5-10% of the tech market is considered “exportable” – a code word for home-grown startups building product which can be used internationally. It is from these, according to Khadder, “where momentum will come.”

“For Palestine to develop it has to develop tech which is IP based not just outsourcing,” he says. The Peeks group is acutely aware that remaining reliant on outsourcing work is, as one Peeks member put it to me, ‘the bottom of the barrel.”

The irony of the situation is that Palestinian entrepreneurs realise – as Israel did many years ago – they will have to produce startups and their own Intellectual Property. For it doesn’t take a genius to work out that everyone in this region is in the same boat. There are few natural resources, there is political instability and ‘exporting’ product can be difficult.

Sustainability to the Peeks means not having to rely on handouts, and building long term, viable technology products which are created by their own people, not working for someone else in another part of the world.

Khadder (pictured below) believes entrepreneurship is the key: “The [Palestinian] Government, the private sector and academia have been incompetent in their approach to entrepreneurship. We need to see visionaries to promote entrepreneurship.”

You can tell he’s passionate about the subject by the language he uses: “We’re not bloody India either in terms of code or scale or cost. We need to create our own niche in terms of IP and innovation. I don’t care what it is – gaming, social media, anything – the issue is that’s the only way we can build a sustainable tech sector in Palestine,” he says.

Part of the issue is that business groups like the Palestinian Information Technology Association of Companies (PITA) tend give voice to established IT companies not startups. And an aligned organisation, the Palestinian ICT Incubator (PICTI), has had less than sterling success, despite a seven track year record.

“The KPIs have been ‘let’s spend the aid money’ not ‘let’s create a value proposition’,” says Khadder. It’s the fault of both the Aid money plus Palestinians ourselves who have accepted those agendas and not challenged them. The focus has been outsourcing, outsourcing and more outsourcing – nothing to empower tech entrepreneurs. That’s what we’re trying to change with Peeks, at least from a grass-roots perspective.”

Mohammed Musleh, business development lead at PITA, says the situation is more complex: “Peeks is designed to come from the community but PITA is about the companies as they grow. We see ourselves as a second stage, as the companies emerge from organisations like the Peeks. We look at our relationship as symbiotic. We can’t work against each other, we need to work together to ensure that the community grows. When they need things like advocacy and legal advice and more hard core stuff, PITA can be there for them.”

But the lack of ‘smart’ investors, a highly regulated economy, an old fashioned banking system, creaky corporate laws (mostly inherited from Jordan) is not helping. For instance, there is no structure in Palestine for different classes of stock or convertible loans.

And Peeks members roll their eyes when you ask them about the activity of NGOs.

Privately, these tech entrepreneurs couldn’t hold back their deep disappointment that aid money and NGO efforts in the Palestinian tech sector has been spent – according to them – “very badly”. As one put it, the money has gone on “splashy events” that achieve little long term value. What money there was has been short lived, and “the KPIs did not stretch beyond a year.”

But not all NGOs come in for criticism. Mercy Corps is one singled out for praise by local Palestinian startups.

The NGO has been working with the Palestinian ICT sector in West Bank/Gaza since 2008, working with universities, TVET institutions and others to try and gear students to what’s called “market-driven subjects” and the softer skills like marketing which are harder to come by in this region. It’s sponsored four Startup Weekends in Nablus and Gaza over the last two years, bringing together Palestinian tech people in a more casual environment. They also helped support a SUW in Nazareth, which was organized by Arabs inside Israel. The NGO is backed by the European Union, Source of Hope Foundation, Google Foundation, and USAID among others.

Tova Scherr, program manager with Mercy Corps says: “I have been working with the tech community in Palestine for the last four and a half years, and it’s exciting to see the changes that have been happening. When I first started the environment was very company-focused. People from different companies did not meet each other much outside of work, and share what kinds of projects they are working on. Now, partly through our efforts at Mercy Corps, Peeks and others, young developers are seeing the value in sharing and helping each other.”

She says recent funding stories are inspiring Palestinian entrepreneurs and “Palestinians abroad are thinking of coming home.”

However, she counsels caution over the view that tech can cure all ills: “There has been a lot of hype about Palestinian technology and its potential to support the Palestinian economy. We are now having a major reality-check and need to be more realistic in our approach of what is and isn’t possible. While there is a lot of potential, computer science graduates in Palestine are not coming out of University with the skills needed to start their own companies or to be strong employees, just out of school. While startups create new jobs and opportunities, I believe startups are not for everyone, and people need to work in established companies as well.”

“It can often take 6-8 years to build a new entrepreneurship ecosystem in the best conditions. On the ground in Gaza and the West Bank, Palestinians face a different reality than Boulder or Silicon Valley. The political realities, movement and access restrictions faced by Palestinians cannot be completely ignored, even if the cloud makes it easier to export virtual goods …but the grassroots efforts coming out to the Palestinian Geek community, combining local efforts and connecting the Palestinian diaspora and interested supporters for help, is taking Palestine to the next level,” she says.

Indeed, despite all the obvious drawbacks and barriers, I don’t hear much griping from the Peeks. Their thoughts are more concerned with trying to support and promote a new culture of entrepreneurialism and acceptance of failure. Indeed, it’s exactly the same culture that helped Israel become a ‘startup nation’ which stands to help Palestine.

To achieve that, the Peeks have “set out to encourage collaboration, foster entrepreneurs, create links to universities. We’ve tried to rediscover volunteerism,” says Khadder.

In saying that he admits that some aspects of business amongst Palestinians has been too fostered by outside aid and what he calls “hand-outs” – and when he speaks you realise that he’s talking like many entrepreneurs talk: they don’t want special favours. In the main they want the restrictions on creating startups, be they legislative or political, to just get out of the damn way.

So far Peeks has managed to punch above their weight. Such as inviting Walid Abu-Hadba, a former VP of Microsoft, one of the highest-ranking sitting executives to ever visit Palestine, even though he visited in a personal, not official, capacity. Others who have visited include Ossama Hassanein, chairman of Rising Tide Capital; Paul Fullerton, Senior Manager, Cisco, among others.

Then there are other signs of a growing local ecosystem, and, crucially, investors.

Sadara Ventures, the newly established VC aimed at Palestinian tech startups was founded by Palestinian Saed Nashef and Israeli Yadin Kaufmann. Kaufmann founded helped start Veritas Venture Partners in 1990 and funded Accord Networks, a videoconferencing company that went public in 2000, and Ubique, an instant messaging pioneer that was bought by AOL in 1995. Sadara plans to invest exclusively in Palestinian technology start-ups and aims to take stakes in about 15 companies over 10 years.

It’s already put $1 million into Souktel (mentioned above) and hotel booking platform Yamsafer.

Sadara has raised around $29.5 million and is the only VC investing in Palestinian tech companies. There are signs of wider investment: Rasmala Investment Bank in Dubai is invest in the capital market, while the $60 million private equity-backed Siraj Palestine Fund and Abraaj Capital’s $36 million Palestine Growth Capital Fund are private equity funds focused on growth-stage investments in Palestinian SME’s.

Sadara has being being joined by other new initiatives. FastForward is a brand new accelerator in Ramallah modeled on the Startup Weekend “SWNext” five weeks program.

Sadara’s Nashef says he and Yadin “set out to raise our Fund because we both believed that there’s an opportunity to make profitable investments in Palestine, while at the same time creating social impact. The real big deal is founding the first venture capital fund to invest in early-stage tech companies in Palestine, and having it backed by such top-tier investors as EIB, Cisco, Soros (SEDF), and Skoll, among others.”

Although says the ecosystem is “still on the ground-floor, and “there’s a lot of work to be done before we can mature as a tech ecosystem” he expects to invest in two product-based startups per year in Palestine.

While he admits that many short-term opportunities will simply be locally adapted clones of startups that succeeded in the West, he hopes they will start seeing deep tech innovation, though “this is probably several years down the road. You have to understand that what Sadara is doing here is effectively jumpstarting an ecosystem. We’re in this for the longterm, and I’m optimistic on that.”

He says groups like Peeks are “a good start, but not enough. I’d like to see a critical mass of entrepreneurial activities on the ground, taking place regularly, and over a long period before I can comfortably say that entrepreneurs are taking charge of their own destiny in Palestine. We still need more leadership in the community by actual founders.”

He also thinks “outsourcing will be with us for a while, and that’s not necessarily a bad thing. It builds capacity, and creates a cluster that may support IP-based startups. I believe we will need to have our first successful exit story before the local industry landscape undergoes a significant change.”

It’s not possible at this early stage to discern quite what reaction this rise of grass roots Palestinian tech activism will have on the Israeli side. However, there may be hope that this entrepreneur-led approach could pay dividends in relations.

There are even some promising signs from one or two Israeli investors. High profile New York angel investor Jeff Pulver – who invests extensively in Israeli startups – recently told tech magazine Informilo that he would be “looking for Israeli/Arab led start-ups,” in 2013. He recently participated in the first hackathon in Nazareth with Arabs living in Israel and Palestinians, and meet entrepreneurs in Ramallah. Initiatives like the Middle Eastern Education Through Technology,an MIT programme, brings together young Israelis and Palestinians to learn technology and business skills.

Even at the highest echelons of the Israeli technology establishment, there are signs that a thaw might some day develop between the fast-moving world of Israeli technology and the Palestinian side. Even Yossi Vardi, who exited ICQ to AOL back in 1998 for $407m and now commands Godfather-like status in the Israeli scene, said on stage at Dublin Web Summit last last year that he hoped there would be greater cooperation and interaction in the future between technologists in Israel and Palestine.

But for his part Nashef does not see more Arab/Israeli cooperation tech: “It is rare and not very popular given the current tensions. A lot is riding on progress on the political front, and until that happens, this will continue to be a very sensitive issue.”

There’s the rub. One cannot escape the politics on the ground. There remain obvious practical hurdles to Palestinian entrepreneurialism on the ground. Across the West Bank and the Gaza strip unemployment is high and mobility restricted. The restriction on movement means the senior management talent you would normally source from abroad for a start is a very big challenge.

But, like entrepreneurs in any parts of the world outside of Silicon Valley, some of the biggest barriers remain in the mind. Talking to Palestinians and Arabs living inside Israel you’ll find they freely admit, that the age-old risk-averse business culture continues to be one of the biggest hurdles to the development of startups. Then again perhaps this is understandable when so much of daily life is risky and hard to predict enough as it is.

Of course, there is an enormous irony here.

The very technology industry that Israel relied on to pull it out of economic isolation in the 80s and 90s and 2000s is the very same industry that many Palestinian entrepreneurs are looking to to pull them out of a similar predicament.

It’s an irony of such proportions that it is not lost on the small gathering I met in the Snobar in Ramallah.

“Palestine is where Israel was 20 years ago in terms of tech,” admits Khadder. But however long it takes, he, the Peeks and others plan to start the journey towards a new era of Palestinian tech startups.