The nascent technology sector in the Arab region needs to be reinforced by government support and backed by proper funding from sovereign wealth funds (SWFs) and local institutional investors if it is to flourish and create the next technology titans, according to regional venture capital firm that invests in technology start-ups.

Beco Capital stated that the Arab World has the opportunity to participate in the sixth technological revolution and will need to back the sector with policy action that involves improving access to capital and easier, supportive regulation.

“In the last 400 years, we missed the major five technological revolutions; the industrial revolution, steam engines, steel and electricity, automotive production and now IT since 1971. This is our opportunity to leapfrog into the next phase of development if we all realise the importance of this tech revolution that is happening around us and support it. We should back the sector with capital and easier and fast-tracked regulation,” said a statement.

Speaking at the recently concluded eighth MIT Pan Arab Conference on growth and sustainability in the evolving landscape of the region, Dany Farha, the company’s chief executive officer, said: “The technology sector is vastly underfunded in our region and local regulations do not encourage or support start-up funding or even early stage funding.”

In the United States, five per cent of public company dividends are invested in technology start-ups, which is low by all standards, while in the Gulf Cooperation Council (GCC) states, this figure is estimated to be much lower at a mere 0.15 per cent of the listed companies’ dividends, with the UAE faring slightly better at 0.59 per cent.
“Investing in the tech sector should become a matter of strategic importance and governments need to encourage their SWFs to channel funds towards our regional emerging Titans and to offer them special VIP handholding to form true strategic partnerships,” said Farha.

“This will fast-track these companies to become public and quickly cultivate our ecosystem. We are not talking about government hand-outs here but about developing a new asset class for investors in order to propel the next generation of start-ups.”

Supporting winning start-ups or potential ‘unicorns’ - a Silicon Valley term for tech companies which are expected to break the $1 billion valuation ceiling, will create sustainable economic value and contribute to alleviating the standards of living, according to Farha.

Access of start-ups to smart capital and operating within friendlier regulatory frameworks in the region could tackle some of its pressing challenges and speed track the role of entrepreneurship and innovation in an evolving Arab World, he said.
Governments should realise the importance of this tech revolution that is happening around us and support it wholeheartedly. They should back the sector with capital and easier regulation.

Keeping locally-bred, world-class start-ups that will become the next technology titans in our ecosystem will create a virtuous cycle of entrepreneurship and innovation.
“Investing in regional start-ups at an early stage will lead to growth, create value, generate more and better paying jobs, Farha affirmed.
“Arab governments should invite their SWFs, some of which are consistently ranked amongst the world’s top ten, to finance venture capital in a strategic move to retain value. When winning start-ups get local funding, their enterprise value, profits and talent will be recycled into the local economy and invested in new winners,” said Farha.

“Loosing a winner to an international strategic buyer or VC firm in an early exit narrows the ripple effects on the economy and limits the broader outcome. The region risks loosing its technology unicorns if it allows its technology champions to be snapped by international investors too early, and this, it should try to avoid at all costs,” he said.

“Investing in regional start-ups, growing them and taking them public on the local exchanges or selling them to a strategic buyer will spur merger and acquisitions (M&A) activities, carrying on the positive cycle in the economy and generating shareholder returns, one of the ultimate aims of SWFs”, he concluded. - TradeArabia News Service