The terms accelerators and incubators are used interchangeably but there are subtle differences. Accelerators do seed funding, provide mentor to young entrepreneurs and usually after three months present this idea in front of qualified venture capitalists to go for the next round of funding. Acceleration is like putting more fuel to run faster.
Incubators on the other hand finance, guide and mentor those entrepreneurs who seem to have viable business model that can either improve or create certain process, product or service that did not exist before. Incubating companies provide healthy and productive environment to transform idea into reality and help young entrepreneurs in developing business plans and to market and execute the project. This activity can create successful sustainable companies that can eventually help economies to grow and create more jobs for the local markets. Incubation is about developing something under controlled environments.
The most popular model of accelerator is Y Combinator started by Paul Graham at Silicon Valley where young companies get initial seed funding (average ticket $20,000) in exchange of small equity (never exceeds more than 10 percent). Y Combinator team will help young entrepreneurs to give clear direction and refine their idea what ticks people and after 3 months will make a pitch in front of potential investors. Other US famous accelerators are Techstars and IdeaLab.
Middle East accelerators are adopting the same model of Y Combinator and trying to promote local talents. If we Google top ten accelerators of Middle East region that are promoting young entrepreneurs, countries like Jordan, Egypt and the UAE names will surface but no such company exists in Saudi Arabia. This includes Oasis500 based in Jordan, SpeedStartup in the UAE and Flat5Labs in Cairo and Wamda supported by Abraaj Capital (private equity firm of MENA region).
An analysis of brief history of international acquisition of local startup companies in the region reveals that there are very few success stories. Maktoob was bought by Yahoo, GoNabit which was group buying site was acquired by living social, Yahoo acquired license to use technology of Yamli for transliteration service, Kammelna which is a gaming website was acquired by Turkish company Peak Games and very recently 500Startups which is silicon valley accelerator invested in Jordan based Jeeran (works on yelp model) are some of the worth mentioning business deals.
The main reason that we don't find any incubators in Saudi Arabia, may be the risk aversive culture that exists locally as investors feels more comfortable to put their money in public equities and real estate projects to get better returns. The other reason may be lack of legal framework to promote these kinds of accelerators or incubators outside the academia environment.
However, this landscape is changing very rapidly in Saudi Arabia. Recently Waed, an initiative from Saudi Aramco started promoting young entrepreneurs and anyone with a business idea can apply on their website. During July, Endeavor, which is a non-profit organization that started its operations in South America in 1997 and promotes high impact entrepreneurs globally, has opened their affiliate office in Saudi Arabia. Endeavor-supported companies have generated 200,000 jobs and are expected to generate $5 billion in revenues this year. KAUST for the first time is holding a three-day event for Jeddah entrepreneurs in September and has joined hands with various companies and academia. These efforts from various sources will eventually help to promote entrepreneurship in the country.
Despite lack of business incubators in Saudi Arabia, we have witnessed some successful startups in Saudi Arabia. Khalid Alkhudair is one of the few young entrepreneurs who founded Glowork.net to bridge the gap between Saudi employers and female employees who were having difficulties in finding good jobs. The portal, which now has partnership with various Universities and equally appreciated by the Ministry of Labor, has created new way for Saudi women to work from home while employers are able to monitor them remotely using technological solutions.
Essam Alzamel is another young Saudi entrepreneur who is CEO of Remal IT. Kammelna is online social gaming startup, which was launched by Essam and the popular game Baloot is based on regional cards. The game was an instant hit and this year Essam sold Kammelna to Turkish Social Game developer Peak Games.
Recently, a new breed of social media platforms are also getting popular for crowd sourcing (crowd funding) like kickstarter and Indiegogo where entrepreneurs are directly accessing common investors by displaying details of their projects on these websites and hoping that small contribution by many will help to raise seed money.
The success of OUYA fund raising on kickstarter that managed to raise $1 million only in eight hours grabbed world attention. It is important to understand that raising funds does not guarantee that OUYA or any other company that used these platforms will be able to deliver product on time and generate profits. However, it is a good indicative barometer that public is interested in the project and it may guide venture capital or Angel investor companies to form their investment strategy based on these sentiments.
The success of crowd sourcing will also encourage entrepreneurs in Saudi Arabia to launch these of kind of web platforms. This means that it is possible that in coming years regulators like SAMA and CMA may have to change laws to allow social media platforms to handle financial transactions.
In brief, the business environments for startups is continuously improving in the region and many new initiatives, which have already taken place in Saudi Arabia, will encourage young entrepreneurs to start new businesses and help to improve economy.
— Tariq Rishi works in the private equity/venture capital industry.
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Role of startup accelerators, incubators and social media in promoting entrepreneurship
