The Abraham Accords and its impact on the 48er startup
‘Historic’, ‘ground-breaking’ and ‘momentous’ was how the world’s media described the Abraham Accords, the normalisation of relations between Israel and the UAE in an agreement signed in September 2020. Bahrain, Morocco and Sudan, swiftly followed the UAE in recognising Israel, but others, most notably the Palestinians in Gaza and the West Bank, were less supportive of the Accords, seeing it as negatively impacting their cause for statehood.
Politics aside, the agreement was intended to normalise trade relations and open new opportunities for investments for both the UAE and Israel.
Among those who held a more nuanced view of the trade partnership was the 1948 Palestinians living in Israel. This community, often overlooked by the outside world, comprises some two million Palestinian citizens of Israel, accounting for 22 per cent of the country’s population. Sometimes referred to as Palestinian Israelis, Arab Israelis, 48-Palestinians, they are the Palestinians who remained inside Israel’s borders in various Arab cities, towns and villages like Haifa, Jaffa, Nazareth, Acre and others, after the 1948 War.
While their quality of life is far below that of the Jewish population in Israel according to the Central Bureau of Statistics, the 48-Palestinians have Israeli citizenship and passports, affording them more freedoms than Palestinians in Jerusalem and Gaza and the West Bank, with better work opportunities, higher salaries and wages and greater freedom of movement – freedoms that have been a point of contention and resentment among the different populations.
For some, if not most of 48-Palestinians, the Abraham Accords offered the prospect of visiting and engaging with the wider Arab economies that had up until then, remained off-limits. Chief among them was the 48ers tech startup community, commonly referred to as the 48ers, who had hoped to tap into the investment capacity of the Gulf and form partnerships to grow their businesses.
But a year since the agreement, little has been done in the way of engaging the 48 ecosystem of startups, with official UAE interest directed mostly at the Israeli startups instead.
Tel Aviv divide
Israel’s startup ecosystem is one of the most advanced in the world and home to the highest startup per capita (one startup for every 154 residents). Investment in Israeli startups rose by 25 per cent last year to $6.8 billion, doubling the number of unicorns in Tel Aviv to 20.
In the first quarter of 2021, almost $5.4 billion was invested across 172 deals according to the ICV Research Centre.
But as successful as Israel’s startup ecosystem is, the 48er community has remained outside of the fold, relying mostly on its own small network for investment, talent and opportunities. Of the $6.8 billion raised in 2020, less than $20 million of that was invested in Arab-led startups.
This is because Tel Aviv is at the heart of Israel’s startup ecosystem, a city that for most of the 48ers is difficult to reach, both physically and socially. There is a lack of transport infrastructure connecting Arab cities and villages to the capital, which has resulted in higher unemployment rates among Palestinians. In fact, Jewish Israelis are 33 per cent more likely to be employed than Palestinians, due to the lack of infrastructure and employment opportunities in the Arab areas as well as widespread economic and social discrimination according to the Central Bureau of Statistics.
“The transportation infrastructure in Israel is very bad, especially in Arab areas. There is not even a train station in an Arab city, this makes the commuting very hard,” says Rabea Zioud, co-founder of Hasoub, a non-governmental organisation (NGO) empowering Palestinian tech entrepreneurs in Israel. “They’re also very bad in terms of the workplace. We do not have the opportunities for people who just want to work with minimum wages inside the Arab cities and villages due to the lack of Industrial areas, they need to go and travel to Jewish cities. You need transportation, to speak the language [Hebrew], you need a lot of skills, which is a barrier for many people.”
His co-founder Hasan Abo-Shally adds: “It severely damages the economic potential of Arab villages, a lot of this is systemic in terms of infrastructure and investments, and it is part of the bigger challenge that we’re facing as a minority.”
The military link
Many of the startups in the Israeli ecosystem were forged in elite military units focused on developing technology. From these units, innovation networks have emerged, creating a robust ecosystem of startups and talent that continues to benefit its recruits.
National military service is mandatory for Israeli nationals, but is not required of the Arabs in Israel, who aside from some of the Bedouins in the country, choose not to enrol. The Israel Defense Force (IDF) training programme extends beyond combat and battle. As one of the world’s best funded armies, it trains its recruits in technology and engineering – skills that have widely benefited Israel’s innovation ecosystem, especially in the cyber security sector. Last year, $2.9 billion was invested in Israel’s cyber security startups and already in the first quarter of 2021, the sector has seen $1.5 billion invested in 17 deals.
“Most of the startups in Israel are in security and cyber because most of them come from these units. The Arab entrepreneurs are not there, our startups are in agritech, autonomous cars, education, fintech and tourism. These kinds of startups are very strange for the ecosystem in Israel and so for us it was very hard to raise investment,” says Fadi Swidan, founder of the Nazareth Business Incubator and vice-president of Haifa-based Takwin VC, who laments the lack of exits and angel networks in the Arab society.
Most of the founders in the 48er ecosystem are highly educated, Phd and/or patent holders and their startups are heavily involved in the deeptech and medical technology space. This is mostly the result of the stellar education available to them at institutions like Technion University, akin to the MIT of Israel, and the industry expertise they accumulate at international tech firms like Google, Microsoft and Nvidia, that have engineering offices in Tel Aviv. There are some 6000 Arab engineers working for such companies, with more research and development (R&D) centres established within the 48ers ecosystem.
But without the training and military tech expertise afforded to their Jewish Israeli counterparts, the 48ers lack access to the same capital and networks.
“This is one of the big problems for Palestinians/48ers, they’re rarely part of these circles and networks,” says Abo-Shally. “Jewish entrepreneurs usually have more connections, they have a more established network. And that’s something that we’re trying to foster at Hasoub – to facilitate better networking opportunities among the 48ers community or between the latter and the wider ecosystem in Israel or globally.”
A few government and private initiatives have attempted to integrate Palestinian founders into the Israeli ecosystem. The government offers grants of up to $800,000 to Arab-led startups as long as founders can prove they have unique intellectual property (IP) and can match the investment with private funding. The Hybrid accelerator, now shut down, was co-founded by Swidan and aimed to train Arab-led startups and provide mentorship. Controversially, the 8200 Alumni Association (graduates of one of the military units) won the tender to operate the accelerator – something that both the Palestinian and Israeli side resented.
“The main problem is trust, because the hi-tech industry began in the 90s and VCs and angels invest in the same profile of entrepreneur. The Arab entrepreneurs come from a different background, they don’t serve in the army, until now it’s complicated for [Jewish Israeli] investors to give them the trust and invest in this new profile of [Palestinian] entrepreneur,” says Swidan.
Those that do raise investment in the 48er community, tend to attract investment from abroad. Hasan Abasi, co-founder of Haat Delivery, a food delivery platform in Haifa, managed to raise $200,000 from an angel investor in Tel Aviv, but his $3.5 million Seed round was funded by VCs in the US, UK and GCC, the latter only possible after the Abraham Accords.
“Arabs in Israel do not have enough chances to get investment because of many limits,” says Abasi. “It took me half a year to reach the first investor, no one wanted to invest one dollar, but once I reached the right threshold, the angel investor not only invested $200,000, but he connected me to all the right people.”
Funding for 48ers
To address this gap in financing, Takwin and Tawasul are two investment vehicles aiming to provide 48ers with investment. Takwin has invested in eight startups so far and is targeting up to 30 deals in the next five years with its second fund.
Meanwhile Tawasul, an initiative spearheaded by Mahmoud Kaiyal connects 48er startups with investors in the GCC and plans to make its first investment “soon”.
“We have technology companies that the GCC ecosystem really doesn’t have and we want to give the GCC investors an opportunity to invest,” he says. “On the other side, we are connecting Palestinians here with a bigger ecosystem in terms of size.”
But while more of these initiatives are starting to emerge, the big influx of GCC money that many had hoped for has not yet materialised.
“I don’t see any real influence [of the Abraham Accords]. From the UAE, they’re looking to invest in much more mature startups, from Series B onwards. They’re not ready to invest in Seed, pre-Seed, Series A,” says Swidan, who adds: “There is a big gap between people who are coming from the government and the private sector in the UAE. The private sector is still hesitant to invest or work here. It is not easy for them. The Arab entrepreneurs who went to Dubai last year and tried to find some cooperation and collaboration, it seems if it is at a government level it is much easier, but the private sector is much more complicated.”
This complication is partly down to the nationalities of the majority of investors in the UAE, who hail from Arab countries that do not recognise Israel. There is also a reluctance among the 48er community to visit the UAE as part of Israeli delegations.
“As a Palestinian, it is still risky around reputations. There is a lot of politics around the Abraham Accords, to act like everything is ok and good, it wasn’t the case. The Palestinians stayed behind [when the Israeli delegations travelled to UAE],” says Zioud.
It’s a sentiment that Anan Copty, founder of medtech startup Synergymed echoes:
“We’re happy to hear and listen and don’t want to close doors on the one hand, but to be associated with these groups puts us in a difficult situation [with other Arab countries]. When I visited Dubai I heard from investors that if my company was Israeli-owned, [they] would not invest.”
The Abu Dhabi Investment Office (ADIO) recently opened an office in Tel Aviv, to both invest in and convince startups in Israel to relocate to Abu Dhabi.
“The problem is that the main approach of the UAE is relocation, but the entrepreneur’s mindset here is that the first place they want to go is the US and Silicon Valley. The main funding is there,” says Swidan. “Maybe it is easier for the ones looking to penetrate the Arab world to be [in the UAE], but those working in AI, machine learning it makes much more sense to relocate to the US than the UAE.”
For Copty, who was recently awarded the UAE’s five-year golden visa, the prospect of relocating to the UAE sounds more appealing from a social and cultural perspective, rather than a business one.
“If I find investments that help the company grow, I’m ready to move with my family to the UAE. We like the place, if it can be helpful for us to move there then fine, but I don’t see a lot of investors specialised in investing in a medical device company,” he says. “You need to partner with hospitals, you need to do the clinical trials and being in the US will have more advantages, although some hospitals in the UAE have expressed interest in doing joint clinical trials with us.”
According to Kaiyal, ADIO’s relocation efforts are more likely to appeal to the 48-Palestinians than the Jewish Israeli startups.
“The likelihood of a Tel Aviv startup relocating to Dubai or Abu Dhabi is very low, but for a Palestinian startup, it is a relevant market,” he says. “For us, it’s like being at home, it is much easier for us to relocate there and I think this will happen, some startups are currently looking for the right arrangements to relocate to the UAE.”
The deeptech expertise and the types of startups that have emerged out of the small 48er ecosystem is one that is coveted by many Arab countries looking to develop their own innovation ecosystems. There is a real opportunity for the Arab world to better engage with the 48ers and provide them with the market opportunity to expand, to access capital and collaborate with the region’s wider networks.
“The VCs here do not have the right connections [for us], they can connect us to the US, but GCC VCs can help us go to Morocco, to Egypt and connect us with the right people. Although we are living in different countries, we have similar types of thinking and a similar culture and it can help us a lot and give us a chance to go to all Arab countries,” says Abasi.
Such collaboration can benefit both sides, beyond market expansion and investments. The 48er ecosystem tends to lack the softer skills required in business, which are more abundant in the UAE.
“We have a lot of people here with very strong technical skills and strong business, but very few people who work in design, communications, PR and other marketing skills needed to get a business off the ground,” says Abo-Shally. “We see that there’s a need for technical talent in the UAE or in Dubai, I can see that there’s a place for meaningful connection of bringing in co-founders from both sides. But I think eventually we can get to a place where we say, let’s merge these talented [people] and let’s build startups together.”
While there is a sense of disappointment that the Abraham Accords has not ignited the partnerships many in the 48er community had longed for, there is still a strong sense of hope. Most are actively seeking out engagements and investment opportunities alone, rather than as part of official delegations.
“Our entrepreneurs are pioneers and taking all these challenges and finding solutions,” says Swidan. “We are still at the beginning, we still have challenges to overcome, one of them is how to connect with the Arab world around us and have more cooperation and collaboration than just sitting in this bubble of being a 48 Arab.”