I’ve known about the Maktoob acquisition (and its price tag) for some time now, when the deal was still perceived as a rumor in the market. The exact figure of the deal isn’t known but Yahoo disclosed the rough price tag in their most recent earnings report. My friend Faisal Ghori, at Middle East Ventures, recently wrote a piece in the Huffington Post about what this acquisition meant for technology investment in the region.
Like all initial acquisitions in an emerging region, the acquisition certainly validates the market. Some of the fastest growing websites, on a percentage basis, are either in Arabic or Middle East focused, primarily because the region is still catching up to the rest of the world from an internet usage perspective.
Faisal’s title is spot on – Maktoob does give hope. Entrepreneurs in the Middle East are operating in a climate that is remarkably challenging, at least from a technology and company building perspective. I know in Jordan Queen Rania and others are trying to open up the business climate; in Saudi, there is an effort to build a world-class research university that the sponsors are hoping will lead to a knowledge economy; there have been a couple of (mostly failed) attempts in Dubai during the boom era to do the same; and even Libya is getting in the mix with its NECD.
But from a venture perspective, the region has a long way to go. Twelve years leading to a ~$80m outcome is just not a great return from a venture perspective. The Arab world isn’t alone in this conundrum. Despite all the buzz around India, it’s as challenging for an early stage company targeting the domestic Indian market to grow into a large, valuable enterprise. The largest exit there is around the $500m mark, which is certainly not good, but not what investors on the venture side need to see on the largest possible outcome.
Until entrepreneurs in the region start building companies that target large, addressable markets outside the Arab world, I don’t think you’ll see really large outcomes in the region. I’ve looked at the data for GDP/capita and growth rates, and the economic fundamentals just don’t justify very valuable businesses on the early stage consumer market if the company is only targeting the Arab market. Perhaps I should share some of this data in a later post. I could be wrong here – some of the things I’ve seen in the online gaming space suggest that you can build rapidly growing companies even on the back of low GDP/capita countries, but that’s my two cents.
I wish it was different. I’ve studied Arabic for several years now, first at Stanford (poorly), then in Sana’a for a year (poorly) and most recently at London Business School (again, poorly), where I was the only student in my class to use Arabic to fulfill the school’s second language requirement. I’ve traveled throughout the Middle East, spent time in Fes at the Sacred Music Festival, backpacked through most of Jordan and Yemen, visited Jerusalem, Cairo, the Sinai, Dubai and made the pilgrimage to Mecca. To say I have an affinity for the region and language is a mild understatement.
But I’m glad to see entrepreneurs trying. I’ve heard of someone building a chip startup in Jordan, another doing the same in Egypt to commercialize some academic research around silicon that does decimal math vs binary math (which reduces the need for a pokey software translation layer that is often prone to errors in finance), and Zvi Schreiber’s G.ho.st (Global Hosted Operating System) is an interestingly ambitious project, not just because of its raw technology challenge, but also because it’s being developed jointly by Israelis and Palestinians in Ramallah and Modiin. Similar to what happened in India in the last decade, I’m starting to hear about engineers in the Bay Area think about returning home to the Mideast to build companies. A lot of these will probably be good founder-return businesses (another post) but hopefully there will be a few with broad ambitions to build global companies that might lead to good investment returns. I just think we’re still another five years away right now.
