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Latam Accelerator Report 2015 - Fundacity

#MiddleEastAcceleratorReport

The region

Startup accelerators play a major role in today’s tech world and new accelerator programs are launched almost everyday. According to Natty Zola (TechStars, MD) they became, “a proven way to quickly grow a startup by learning from experts, finding great mentorship and connecting to a powerful network. They provide resources that reduce the cost of starting a company and the early capital a team needs to get their venture off the ground or to achieve key early milestones. They have become the new business school.” In many ways, accelerators have become a rite of passage for thousands of entrepreneurs across Middle East and around the world.

The Middle East Accelerator Report 2015 from Gust and Fundacity provides an exclusive inside look at accelerator programs in the countries across the region. This report’s objective is to understand how the accelerator industry has developed in the region, how accelerators are funded and monetized, while providing insights on the direction of the industry in the near future.

To create this report, we surveyed 142 organizations, out of which 46 qualified as accelerators and shared their data with us.

Total investment in the region

US$12,290,715

in 666 startups

by 46 accelerator programs

  • 430

    90

    51

    30

    26

    24

    10

    5

    Latinamerica
    • Top countries by investment

    • Israel

      US$8,707,700

    • Egypt

      US$1,000,000

    • Jordan

      US$979,015

    • Turkey

      US$624,000

    • Arab Emirates

      US$600,000

    • Saudi Arabia

      US$200,000

    • Top countries by investment

    • Israel

      US$8,707,700

    • Egypt

      US$1,000,000

    • Jordan

      US$979,015

    • Turkey

      US$624,000

    • Arab Emirates

      US$600,000

    • Saudi Arabia

      US$200,000

5

Startup Exits Reported by accelerators in 2015

TOP 10 SEED ACCELERATORS

By capital invested

    • Israel

    KamaTech accelerator

    US$3,500,000

    Israel | Public fund

    • Israel

    ICL Innovation

    US$3,000,000

    Israel | Private fund

    • Egypt & Saudi Arabia

    Flat6Labs

    US$1,200,000

    Egypt & Saudi Arabia | Private fund

    • Jordan

    Oasis500

    US$979,015

    Jordan | Private fund

    • Israel

    MS Ventures Israel Bioincubator Fund

    US$750,000

    Israel | Private fund

    • Arab Emirates

    TURN8

    US$600,000

    Arab Emirates | Private fund

    • Israel

    Keyrus Innovation Factory

    US$500,000

    Israel | Private fund

    • Israel

    Hub:raum

    US$327,700

    Israel | Private fund

    • Turkey

    Türk Telekom PİLOT

    US$250,000

    Turkey | Private fund

    • Israel

    Smart Transportation Accelerator

    US$250,000

    Israel | Public fund

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EVOLUTION OF THE ACCELERATOR INDUSTRY IN THE REGION

  • New accelerators

  • Year

  • The accelerator industry appears to be experiencing a growth phase in the Middle East. Since 2013 there has been an increasing number of new accelerator programs launched in the market.

  • 75% of the new programs launched in the Middle East in 2015 were in Israel.

  • 50% of the new accelerator launched in the Middle East in 2015 are non-profit.

PROFIT OR NOT-FOR-PROFIT?


  • The Middle East is the only region with a higher share of non-profit accelerators than for-profit accelerators. This is likely to continue to be the case as half of the new accelerator programs launched in 2015 are non-profits.

  • Not-for-profit accelerators generally do not take equity and tend to focus on industries with a specific public benefit, such as Health Tech and Edtech. They may also focus on providing new opportunities for minority groups.

  • For-profit
  • Not-for-profit

SOURCES OF FUNDING


    • 100% Private funding

    • 100% Public funding

    • Mix of both (Public/Private)

    • Other sources


  • Accelerators stimulate growth of companies and this leads to job creation. In addition, they lead to innovations that can solve important problems faced by society both locally and globally.

  • Accelerators are difficult to monetize and fund in the short term (within 12 months) because early stage ideas usually require many years before they provide returns to shareholders. To support this period of growth, governments around the world provide subsidies and grants to stimulate new accelerators and help them operate.

  • In the Middle East, 23% of accelerators reported they either received a mix of private and public funding or were 100% publicly funded. This is significantly lower than in any other region globally.

  • 64% of Middle East accelerators reported that they are solely funded through private capital. This funding usually comes from former successful entrepreneurs who became investors, individual investments or other sources such as angel groups, venture capital funds or corporate investment funds

HOW DO ACCELERATORS GENERATE REVENUE?


    • Short term

    • Long term


  • Many Middle East accelerators follow the traditional “cash for equity” model, first established in 2005 by Y Combinator. In exchange for investing a small amount of seed money into a startup (around $25,000 on average), accelerators will receive equity in the startup (usually between 5% and 10%).

  • In the Middle East, only 15% and 38% of accelerators rely on startup exits to generate revenues in the short and long term, respectively. This is the lowest percentage globally. It is likely a result of the high percentage of non-profit accelerators operating in the region, where they may be choosing social impact startups and not simply those that have a promising exit strategy.

  • Since cash flow is typically re-invested by startups to grow the business rather than pay dividends and exits usually do not occur earlier than 3 - 5 years into a startup's lifecycle, accelerators generally would not make a profit on investment for several years. To make up for the expensive day-to-day upfront costs of operating their programs, accelerators have recently begun exploring new models that allow them to generate revenue. These alternatives include mentorship fees, renting out office space, hosting events, and corporate sponsorships and partnerships.

  • 96% of Middle Eastern accelerators plan to increase their revenue in the short-term by incorporating alternative revenue models apart from startup exits.

  • Similar to other regions in the world, a large number of Middle Easter accelerators rely on corporations for revenue generation. 47% of the accelerators surveyed reported that corporate partnerships are an important revenue channel in the short term (within 12 months) and 53% in the long term (greater than 12 months). Similarly, corporate sponsorship also plays an important role for accelerator revenue generation: 53% of accelerators reported relying on corporate sponsorship in the short term and 47% in the long term.

  • We predict that the relationship between accelerators and corporations will grow significantly in the Middle East. An increasing number of corporations - both large and mid-sized - are looking to startups as a source of innovation to help improve operational efficiency. Startups are also increasingly looked towards for new or differentiated products that they can bring to market.

  • Unlike other regions, accelerators in the Middle East are less likely to monetize in-house services like events, workshops and mentorship. In Europe, Latam, Asia and Oceania for instance, more than 20% of the accelerators reported they expect revenues in the short term from event fees whereas only 9% of Middle East accelerators reported the same.

TOP 20 ACTIVE ACCELERATORS

By number of startups accelerated in 2015

    • Country

    • Accelerator

    • Startups accelerated in 2015

    • Arab Emirates
    • in5 Innovation Centre

    • 70

    • Lebanon
    • UK Lebanon Tech Hub

    • 45

    • Israel
    • Bronica Entrepreneurship Center at Technion

    • 30

    • Israel
    • HAC - Herzliya Accelerator Center

    • 30

    • Israel
    • SUN - StartUp North

    • 30

    • Israel
    • Capsula

    • 22

    • Israel
    • Create Tel Aviv

    • 22

    • Israel
    • 8200 EISP

    • 20

    • Israel
    • TechForGood

    • 20

    • Israel
    • AtoBe Startup Accelerator

    • 14

    • Israel
    • A3I Accelerator

    • 12

    • Israel
    • Smart Transportation Accelerator

    • 11

    • Israel
    • Inno-Negev

    • 11

See the full list

    HOT MARKETS

    in the region for the 2016

    % of accelerators that reported an interest in investing in these markets in the next 12 months

    • Internet of things

      80%

    • Mobile apps

      71%

    • Wearables

      63%

    • Health

      57%

    • Big data analytics

      55%

    • Fintech

      55%

    • Saas

      51%

    • Cleantech

      47%

    • Cloud services

      47%

    • E-commerce

      45%

    • Education

      43%

    • Adtech

      39%

    • Social media analytics

      37%

    • Biotech

      35%

    • Drones

      33%

    • Real estate

      27%

    • Others

      22%

    In terms of investment focus, Internet of Things has clinched 1st position as the hottest market in the Middle East, with 80% of accelerators reported to have an interest in investing in startups from this field. Globally, this is the highest level and it appears to be an area where most Middle Eastern accelerators are focused on.

    THE LOCAL INSIGHT

    "How do you think accelerators in your country are doing compared to the rest of the world's accelerators and what competitive advantages do you think they have?"

    • Matt Penas - TURN8 Dubai
    • Moshe Friedman

      KamaTech accelerator (Israel)

      We are definitely seeing a growth in the accelerator phenomena in Israel: the number of programs is growing rapidly, the quality of accelerators is improving and the quality of graduating companies is continuously breaking records, both in terms of funding and exits. This is due to 2 reasons. First, an increasing number of big corporates (such as Microsoft, IBM, Citi, Coca-Cola, Samsung, Deutsche Telekom and others) understand the importance of innovation and startups in general, specifically the power and uniqueness of the Israeli innovation eco-system. They are opening accelerators in Israel to tap on this innovative spirit. Secondly, new groups of the population are increasingly trying to join this phenomena and they include under-represented groups like women, Arab Israeli Ultra-Orthodox and people who live in the periphery etc. Traditionally, these groups do not participate in the tech scene in large numbers, but more and more programs are taking off to help these minorities and under-represented groups integrate into the Israeli startup ecosystem recently. As a result, we are seeing more talent, people, ideas and even more diversity and innovation.

    • Yousef M. Hamidaddin - Oasis 500
    • Yousef M. Hamidaddin

      Oasis 500 (Jordan)

      Oasis500 has set the ground for alternative funding at the idea stage, and this has fueled the creation of a multitude of supporting actors. We now have multiple co-working spaces, technology incubators, and a culture of “can do”. Today if you visit Amman you will find a destination for the startup community in the form of the King Hussein Business Park, and a commitment to innovation. Amman has become the “Place" to start a business, and the value chain surrounds you in every café and office. You can meet angel investors, early venture capital, mentors, and people all ready to help and open doors. Because of the factors above we have the largest startup community in the region, and Oasis500 has a leading position within this community. We have 121 investments, and a valuation for our portfolio that exceeds 130MUSD as witness placing us ahead across MENA. Our portfolio and position in Amman has attracted great founders from Morocco, Tunis, Egypt, Palestine, Jordan, Turkey, and Pakistan. We are clearly on a grow curve.

    • Yousef M. Hamidaddin - Oasis 500
    • Matt Penas - TURN8 Dubai
    • Matt Penas

      TURN8 (Arab Emirates)

      If you are an entrepreneur in Dubai, it is impossible not to be inspired by this city. Dubai itself is looking to the future in everything it does - and it recognises startups as a vital component to becoming a global hub of economy, culture, and diversity. The rising startup acceleration scene is due in part to Dubai's business infrastructure, and perfect geolocation to reach growing markets, but in larger part to the people who call Dubai home: people from all around the world, with various talents and experience and interests, who are committed to entrepreneurship as the way forward.

    • Sami Abou Saab - Speed@BDD
    • Sami Abou Saab

      [email protected] (Lebanon)

      In the last 2 years, the Lebanese startup ecosystem has undergone a major transformation, led by an investment of more than $400M from the Central Bank of Lebanon. Investors, VCs, and the private sector picked up the momentum and established multiple investment and support initiatives for entrepreneurs to jump on the bandwagon. Clearly, this raised the awareness level of the startup scene and we can see a noticeable shift in the risk-taking approach in the minds of young and ambitious graduates. As the only accelerator in the country, [email protected] is committed to be the engine for launching high quality startups into today’s global economy.

    • Sami Abou Saab - Speed@BDD

    CONCLUSION

    The startup ecosystem in the Middle East is highly diverse. Compared to those from other regions around the world, the Middle East's accelerator industry is different in several ways. First, non-profit accelerators are very prominent in the region. Second, the business models of accelerators are uniquely heavily focused on corporate partnerships and sponsorships, with other channels for revenue generation playing a smaller role compared to other regions around the globe. Third, investment and acceleration of startups is concentrated in one area of the region, namely Israel. Lastly, the launches of new accelerator programs only started showing significant growth after 2013, a period much later than other regions around the globe.

    We are seeing a shift from the traditional exits-focused model towards a more diversified accelerator business model. Middle Eastern accelerators rely heavily on corporate partnerships and/or sponsorships to monetize. 72% and 70% of the accelerators relied on revenues from this channel in the short and long term respectively.

    THE REPORT

    • 142

      Institutions contacted

    • 53

      Replies

    • 47

      Accelerators

    • 8

      Countries

    Due to a current lack of consensus on the exact definition of an accelerator, it was important to define as clearly as possible what an accelerator was to compile the report.

    We used the following definition from Miller and Bound (2011), who define accelerators as having the following 5 features:

    1) An application process that is open to all, yet highly competitive.
    2) Provision of pre-seed investment, usually in exchange for equity.
    3) A focus on small teams and not individual founders.
    4) Time-limited support comprising programmed events and intensive mentoring.
    5) Cohorts or ‘classes’ of startups rather than individual companies.

    To collect data, we reached out to two or more team members from each organization. Not all accelerators replied and thus our data is not complete. Organizations contacted were asked to confirm whether they qualify as an accelerator based on the definition above. The data itself was self-reported by the accelerators via an online form. Fundacity and Gust have neither audited the data nor request any supporting documentation.

    Accelerator programs by country

    • Israel

      35

    • Turkey

      4

    • Arab Emirates

      2

    • Lebanon

      2

    • Egypt

      1

    • Jordan

      1

    • Saudi Arabia

      1

    • Palestine

      1

    Report by

    • Gust

    Created By Sebastien Brunet, Miklos Grof and Diego Izquierdo

    Collaborators: Julien Tubbs, David Blake, Tina Glickman, Greg Young, Zigis Switzer.

    #MiddleEastAcceleratorReport

    Gust

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