The Future of Palestinian Startups

The Middle East startup ecosystem may be on the rise, but Palestinian entrepreneurs continue to struggle with funding challenges. So far in 2022, startups in the MENA region have raised close to $2 billion, a 46% YoY growth compared to last year, according to data platform Magnitt. Most of the funding went to the three biggest startup destinations in the region - UAE, KSA and Egypt - each receiving hundreds of millions of dollars in funding. Meanwhile, Palestinian startups received only $9.5 million, according to Startup Genome.

Suffering from a fragmented market, limited access to regional and international investors, and regulatory challenges, Palestinian startups are significantly underfunded. Even when funding is received, it’s very low compared to both peer ecosystems and the phase average, drastically limiting their future growth prospects. 

“Investments certainly remain a challenge, but it’s getting better,” says Ambar Amlah, Chief Operating Officer at Ibtikar Fund, a Venture Capital Firm based in Ramallah. “There are some angel investments, but not much. We’re currently the only player in the VC space, so we’re continuing to provide capital to fill a gap in the market and help these companies grow.”

However, even with limited investor presence, entrepreneurs continue to find ways to attract funding and unlock opportunities in Palestine and beyond. Funding Challenges Since its founding in 2015, Ibtikar Fund has helped Palestinian entrepreneurs become investment-ready and overcome common startup challenges. From dealing with regulatory issues to entering new markets and scaling across the region, the VC firm has played a key role in securing investments to help get Palestinian startups off the ground. 

“There are misunderstandings and uncertainty regarding our ecosystem,” explains Amlah. “It’s not only from the traditional VCs, but certainly from family offices and high net individuals who are still a bit nervous about investing in Palestine.”

To assure investors, the VC firm helps register Palestinian startups outside the country, and creates simple and straightforward agreements amongst other services to boost investor confidence in locally founded startups. “This gives investors a sense of, ok, there’s governance and the structures that we understand and know,” she says. “But I think if a company were to approach investors on their own, and it was registered here, they would be hesitant to invest.”

While Ibtikar Fund may help with securing investments, it’s still the only active VC in Palestine. Suna Zoabi Othman, founder of Palestine-based meditation app Tawazon, believes that fundraising is challenging for most startups, but having limited VCs makes it even more arduous for Palestinian entrepreneurs to raise investments. “I think finding a seed fund here, and having only Ibtikar is really hard,” says Othman. “It’s only one VC. It’s either you get accepted or go to angel investors, which is also not easy.”

MARKET EXPANSION

Expanding to other markets is therefore crucial for Palestinian startups. With a population of just over five million people living in the West Bank and Gaza, according to data from the United Nations, entrepreneurs know that they must quickly enter and expand to neighboring or international markets if they want to attract investor interest. Saudi Arabia, UAE, Egypt and Jordan are all markets that Palestinian entrepreneurs consider when expanding their businesses.

“As a VC, we can’t look at a company that only has Palestine as a market, it’s too small,” Amlah explains. “You need to prove that you can replicate, expand and sell in a much larger market either regionally or beyond.”

Although it launched during the COVID-19 pandemic, Tawazon already has some of its biggest clients in the GCC, particularly in KSA, UAE and Kuwait. In 2021, it also expanded to Abu Dhabi after winning the HUB71 competition. 

“Being part of Abu Dhabi Global Market (ADGM) is something that we really count on when we want to do B2B business,” says Othman. “We’re opening our B2B to schools and companies, who are interested in having paid subscriptions for their students or employees.”

Tawazon is not the only startup eyeing regional expansion. Christina Ghanim, founder of Kenz Woman, an online lingerie store, established her business in Ramallah, Palestine, in 2017, but soon realized that to grow her startup, she needed to enter a much bigger market in Saudi Arabia.

“At Kenz, we’re focusing on entering larger and more established markets, so we can scale there,” says Ghanim. “The business is registered in Palestine, but we’re not importing goods because of logistical challenges. It is one of the main reasons that we are focused on the Saudi market. At the same time, we’re creating economic opportunities and jobs, and really building a company with its headquarters in Palestine.”

Last year, the startup raised a six-figure Seed A round, and it is currently fundraising to continue scaling in KSA and across the region. 

FUTURE IS TECH

In Palestine, there are imposed restrictions of movement and trade, which ultimately impacts the local startup ecosystem. The restrictions prevent people and goods from moving freely inside and outside the country, further limiting startups’ access to capital and outside markets. But while this can be a setback for most Palestinians, it has also led to the creation of a significantly strong tech sector in the country’s frayed economy.

“Tech is the only way,” says Alan El Kadhi, Director at Gaza Sky Geeks (GSG), tech hub and startup accelerator in Gaza and, more recently, the West Bank. “The tech sector is where the internet can overcome restrictive movement barriers, and give people a real opportunity to establish a business and earn an income online.” 

While GSG supports local entrepreneurs in establishing startups, it is also committed to providing Palestinians with tech skills and training to not only prepare them for the future, but to enable them to have jobs and businesses with a regular stream of income.

“Startups have a very high chance of failure, so we also want to do other things to provide a much greater chance of success for Palestinians, which is educating people in tech so that they can work online as freelancers, remote employees, or establish businesses as tech services companies,” explains El Kadhi. 

Almost 3,000 students go through GSG’s tech training programs each year to learn about coding, programming, social media marketing and much more. The organization is also graduating 16 startups this year, with eight startups receiving $20k each to expand their business, either locally or regionally.

Recognizing the importance of tech skills, Gaza-based entrepreneur Dalia Shurrab decided to launch her startup, Mompreneur, in 2020 to help female entrepreneurs market and sell their products online.

“Our main goal is to provide women with tech skills to help them grow their business and connect them with people who can support them on their entrepreneurial journey, whether that’s by connecting them with delivery companies, financial institutions and payment gateways, or other startups,” says Shurrab.

With many Palestinian women taking on side projects to augment their income, Shurrab teaches them how to sell their products locally, as well as internationally to countries like Turkey, UAE and Jordan.

Last year, Mompreneur expanded to Jordan, and is now seeking funding to continue growing the business and reach more women in Palestine.

“The only thing open for us is the internet,” she says. “Palestinians are learning on the internet, developing their skills on the internet, and communicating with the outside world through the internet. We cannot only rely on the local economy anymore; we have to look at the global or gig economy and grow through the internet. That’s the only way.”