Founded in 2006, Techstars has invested in more than 2,200 companies in 15 years. In the process, the startup accelerator has supported entrepreneurs in over 150 countries, more recently expanding into the Middle East.
With a current market cap of $27 billion, the network began with three basic ideas: "entrepreneurs create the future, collaboration drives innovation, and great ideas can come from anywhere."
Techstars launched its first accelerator in MENA – Techstars Dubai – in 2018, with a similar initiative following a year later in Abu Dhabi. Both programmes were open to participants from around the world, not just the Middle East.
Introducing the Class of 2021
COVID-19 impacted Techstars' first Abu Dhabi accelerator in early 2020, and forced their latest iteration to operate virtually. Although designed for startups across a variety of verticals, a key focus for those selected this year was FinTech.
"The UAE is the leader in FinTech innovation, comprising some 25% of the FinTechs in the region," says Vijay Tirathrai, managing director, Techstars Hub 71.
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It's also a vertical that's seeing considerable investment. "In 2017, there were 30 FinTechs that raised nearly $80 million," Tirathrai tells ZDNet. "By 2022, estimates predict over 500 FinTech companies in the Middle East will raise over $2 billion in venture capital funding."
Among those participating in the 2021 accelerator were: Pax Credit, a digital financial services company for international students from India, China and other large markets; Flaist, a digital experience platform for banks and financial institutions; Klaim, a payment claims solution for the medical sector that recently closed $1M in funding; and Paymob, a point-of-sale mobile app designed to replace card payment terminals.
A region ripe with potential
Originating in San Francisco and expanding into MENA through Techstars, Gopalan highlights support – including mentoring to raise capital and government efforts to foster startup growth – as a key reason why the UAE is an emerging global hub for tech companies.
Abhinov Balagoni, founder & CEO of Pax Credit, agrees, pointing to: "the streamlined process for registering technology startups, availability of service providers supporting them across their lifecycle, and a growing number of international VCs setting up shops in the UAE."
"I believe UAE will become the de facto FinTech hub of MENA, and a major player in EMEA," Balagoni adds.
Although the COVID-19 crisis forced the latest accelerator programme from Techstars to operate differently, some saw this change as beneficial.
Kosta Du, CEO & co-founder of Paymob, says that the pandemic made it easier to access Techstars' global network, and it also accelerated the adoption of new tech solutions – for example, by encouraging MENA countries that are reliant on cash to go digital.
Another area ripe for innovation is remittances, with Gulf nations like UAE home to a 90% expatriate population, and others – like Egypt – boasting a large diaspora population that continues to support friends and family back home.
"MENA is the global leader in cross-border payments and remittances by volume, and the adoption of blockchain solutions can drastically reduce transaction costs as well as quicken funds transfer speed," Balagoni says.
According to Techstars Hub 71' Tirathrai, roughly 85% of FinTech firms in the MENA region operate in the payments, transfers and remittances sector.
"We're also going to see more and more opportunities surrounding open banking," says Karim Dakki, CEO at UAE-based startup Klaim, citing buy now, pay later (BNPL) options as "the next important opportunity."
BNLP allows consumers to pay for goods and services in instalments over time, often without interest. Though Dakki cautions that all of this "depends on its acceptance by the user, the regulator, and the banks."
Spanning three continents and 21 countries, and with a population close to 600 million, the Middle East is one of the world's most heterogeneous regions, Tirathrai says. This makes it culturally, politically, and economically diverse – and scaling across these territories "requires patience, execution prowess, and the right connections."
Companies moving to the region, therefore, have practical and cultural considerations to contend with, such as navigating the unfamiliar regulatory framework and forming local connections on the ground.
There is also a limited FinTech infrastructure and STEM talent pool, which Pax Credit's Balagoni cites as a major challenge for early-stage startups in the region. "Having said that, we have seen significant progress in the past year or so," he adds.
Banks and regulators play a pivotal role in helping to secure the readiness of the region.
Although some startups are positive about the part these bodies have played, others – like Klaim's Dakki – are keen to see them do more. "FinTech development is negatively impacted with a dependency on the banks," he says.
"Banks have neither the willingness to take the risk [or] the drive for innovation…Many FinTechs labor under a dependency on the bank, and the regulator needs to step in."
Nonetheless, the central banks of Egypt, Bahrain, UAE, and Jordan have adopted specific initiatives to regulate digital payment services. This includes crowdfunding regulations introduced by the Dubai International Financial Centre (DIFC), Bahrain, and Abu Dhabi Global Market (ADGM).
Tirathrai hopes to see greater willingness to use debt financing as an alternative means of accessing capital. "As long as the regulators keep the field open for startups and modernize the rules, that inevitably will accelerate growth," he says.
Banking on the future
According to Paymob's Kosta Du, SMEs account for 80% to 90% of total businesses across MENA, and with many countries still cash-reliant and others beginning to utilize digital FinTech alternatives, there is an ocean of opportunities for startups to explore.
Sovereign-backed funds, such as the Abu Dhabi Catalyst Partners ($1bn), Ghadan Ventures Fund ($145m), Global FinTech Fund ($100m) and DIFC FinTech Fund ($100m), are keen to seize this potential. FinTech is hot right now, and receiving the lion's share of tech investment.
And as far as Tirathrai is concerned, that only looks set to continue. "Venture Capital investment into Middle East Fintech companies is set to explode," he says.
"The broader landscape is even more exciting, with the entire MENA region home to some of the world's most unbanked populations, particularly in Africa. [There are] tremendous opportunities on our doorstep for FinTech adoption."