Helping the Palestinians establish their own Start-Up Nation
It’s not easy being an Israeli investor in Palestinian startups.
Business ties between the sides are getting harder to sustain as Palestinian boycott activists bark louder and Israel’s right-wing government is not actively negotiating as part of a peace process.
“Palestinian companies could benefit greatly in being connected to Israeli entrepreneurs,” the Harvard-educated Israeli venture capitalist Yadin Kaufmann said on Thursday.
“And Israeli companies could benefit, in some cases greatly, from being connected to Palestinian partners. But it’s a bit of a chicken and an egg. When there is no political process, many Palestinians are unwilling to build these business relationships.”
The daunting political climate has yet to stop Kaufmann – who, as an Israeli Jew, must request army permission each time he visits Ramallah – from co-founding a West Bank venture capital fund and investing in Palestinian companies.
“People in this region, and especially when it comes to politics, are used to thinking in terms of a zero-sum game. On political issues, if the Palestinians gain something it’s because [Israelis] have to concede something. And it may be something that’s very difficult to give up. When it comes to business and economic development [though], things are not zerosum games. They can be winwin solutions,” he said.
Kaufmann started Sadara Ventures in 2011 with Palestinian software entrepreneur Saed Nashef. It is the first financing mechanism to explicitly target investments in Palestinian tech firms.
It reminds Kaufmann of when he joined Athena Venture Partners, Israel’s first venture capital fund, 30 years ago. Kaufmann said that not one multinational tech corporation has set up shop in the Palestinian territories, leaving him much work to do.
“I see Palestinians who are entrepreneurial, driven and motivated to try to build something. And they really lacked the tools, the resources to get a start-up off the ground because there was no risk capital available at all,” he said.
Backers of Sadara Ventures include US philanthropist George Soros and companies such as Cisco and Google, which have helped the fund raise $30 million.
Sadara has paved the way for another half-dozen funds and private equity players – focusing on later-stage companies – to operate in the Ramallah and Rawabi-based tech ecosystem. And this year, Kaufmann and Nashef are opening a second fund that
will be open to Israeli Arabs and to Arab entrepreneurs in Jordan.
Also called the Middle East Venture Capital Fund, the Sadara fund has invested in six Palestinian start-ups so far, looking at companies in the seed and series A funding stages.
“Like anywhere new, there’s no track record yet and, as I say, you have to find investors willing to invest based on what they believe is an opportunity but not based on an existing track record of Palestinian companies,” Kaufmann said.
One reason Kaufmann and other Israeli investors are boosting the West Bank’s tech ecosystem – thereby hoping to build up the Palestinian economy – is because they believe it’s in Israel’s security interest.
“I think this is clear to almost the entirety of the Israeli political spectrum that it does not do us any good in Israel to have our next-door neighbors be poor, unemployed and desperate,” Kaufmann said, explaining that that’s why the army has cooperated in providing permits.
Without being asked, Kaufmann referred to the West Bank as “Palestine.” Likewise, the Israeli venture capitalist didn’t dismiss the unequal economic relationship between the two sides: Israel’s 2016 GDP per capita was $37,300, while in the West Bank it was around $3,700. IN ADDITION to being a full-time investor, the New York-born Kaufmann – who was recently named by Foreign Policy magazine as one of the top 100 global thinkers in 2017 – helped launch the Palestine Internship Program.
PIP hosts Palestinian university graduates and places them with multinational companies and start-ups in Israel. The participants – half of whom hail from east Jerusalem and half from the West Bank – get their first work experience through the program.
Around 200 applicants applied for the 10-15 slots in the last three- to six-month program. There are already 39 alumni, who have been placed at companies like Thomson Reuters, HP Indigo and Intel.
“It’s not about coexistence but it’s about business and it’s about giving people skills... These young people, especially once given the tools that they’re getting through PIP, can go back to the West Bank [and east Jerusalem] and change the face of the economy by hopefully helping to put Palestine on the global technology map,” Kaufmann said.
The program has gotten much of its funding from the US Agency for International Development and the State Department, leaving it vulnerable to President Donald Trump’s proposed aid cuts.
At Sadara, Kaufmann and Nashef work to pinpoint exciting Palestinian startups. With at least 2,000 Palestinian engineering and technology students graduating each year, pitches abound for fund managers.
One start-up enjoying success in raising capital is Freightos, an online marketplace for ship-bound freight, which has raised $55.9m. so far, according to Crunchbase.
Other companies include Yamsafer, an online travel agency focusing on Arab clients; Souktel, which offers telecom services to groups working in conflict zones and remote areas; Socialdice, which streamlines the hiring process in the Middle East; PinPoint, which hosts mobile gaming; and WebTeb, a provider of Arabic-language medical information.
Officially, Sadara is constituted as a US fund and the investors are mostly US entities. This helps insulate the fund from the worst ups and downs of the Israeli-Palestinian conflict.
Kaufmann has previously invested in Israeli start-ups that helped devise satellite communications systems and invent the portable USB flash drive, among others.
He made aliya in 1985 and has worked in venture capital since 1987.
Kaufmann sighs when asked about the political climate – the lack of a peace process, continuing Israeli military control over the West Bank, and the Palestine Liberation Organization’s central council’s endorsement of the BDS movement earlier this week.
“We’ve kept our heads down. The entrepreneurs are doing what they know how to do and what they want to do, which is to focus on building businesses. They don’t stop developing their product or trying to market or raise money when some kind of political announcement gets made or when something happens on the ground,” Kaufmann said, adding that Israelis during the intifadas and the various wars didn’t stop innovating either.
“More and more people recognize that perhaps business progress can help create the conditions that ultimately – when the leadership on both sides are ready and able to sit down and negotiate a solution... – may make their jobs easier,” he said. •