Tech Startup Ecosystem in West Bank and Gaza FINDINGS AND RECOMMENDATIONS This map was designed over a map produced by the Map Design Unit of the World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. Content Authors and Acknowledgements 1 Executive Summary 2 Measuring and Analyzing the Tech Startup Ecosystem in the West Bank and Gaza 5 Measuring the Tech Startup Ecosystem 5 Analyzing the Tech Startup Ecosystem 6 The Tech Startup Ecosystem in the West Bank and Gaza 9 Skills 12 Supporting Infrastructure for Entrepreneurship 14 Investment 17 Community 20 Startup Success Factors 23 Gap Analysis and Policy Recommendations 24 Summary of Gap Analysis and Stage of Ecosystem 24 Policy Recommendations 25 Appendix: Survey Methodology and Analysis 28 Methodology 28 Short-Term Success 32 Long-Term Success 32 Notes 33 References 34 LIST OF TABLES Table 1.1 Networking Assets 7 Table 1.2 Categories of Ecosystems 8 Table 3.1 Development Stage of Ecosystem 24 Table 3.2 Policy Recommendations 25 LIST OF FIGURES Figure 2.1: Startup Growth in the West Bank and Gaza 9 Figure 2.2: Time to Complete Procedural Tasks in Life Cycle of a Startup Across Regions 10 Figure 2.3: Percentage of Female Founders Across Analyzed Ecosystems 10 Figure 2.4: Gender Distribution of Founders in the West Bank and Gaza 11 Figure 2.5: Previous Function of Founders by Gender in the West Bank and Gaza 11 Figure 2.6: Previous Role Type of Founders by Gender in the West Bank and Gaza 11 Figure 2.7: Average Age of Founders Across Various Ecosystems 12 Figure 2.8: Age at Founding by Gender 12 Figure 2.9: Highest Degree Earned by Founders 12 Figure 2.10: Previous Educational Background by Gender 13 Figure 2.11: Educational Experience Founders 13 Figure 2.12: Previous Functions of Founders at Time of Founding 14 Figure 2.13: Previous Role Type of Founders 14 Figure 2.14: Accelerator Programs Attended by Startups in the West Bank and Gaza 16 Figure 2.15: Acceleration Multiplier for Funding Probability (Quantity) 17 Figure 2.16: Acceleration Multiplier of Investment (Quality) 17 Figure 2.17: Median Investment Amount by Year of Existence 18 Figure 2.18: Funding Breakdown by Gender of Founder(s) 19 Figure 2.19: Growth of Founders and Connections 20 Figure 2.20: Connections in the West Bank and Gaza Ecosystem 21 Figure 2.21: Visualization of Ecosystem Connectivity 22 Figure 2.22: Success Factors 23 List of Boxes Box 1.1: GERN Ecosystems Connections Mapping Project 6 Box 2.1: Accelerators and Incubators 15 Box 2.2: Selected Domestic Accelerators and Incubators in the West Bank and Gaza 15 Box 2.3: Venture Capital firms in the West Bank and Gaza 19 Box 3.1: What are Coding Bootcamps? 26 Terms Used Startup A newly established business venture that is in its first stages of operation. This report focuses on tech startups, which are those that have a technological component. These startups are typically designed to scale up quickly. Startup Ecosystem The combination of people, startups at various stages and other stakeholders and organizations supporting or connecting to these startups, interacting in multiple dimensions to create and scale new startup ventures. Scale-up (Firm) A firm that has an average annualized growth in employees (or in turnover) of greater than 20 percent a year over a three-year period with at least 10 employees at the beginning of the period (ScaleUp Institute 2014). Venture Capital (VC) An institutional investor that provides financing to startups and small early stage firms. Usually VCs look for high growth potential firms to exit the investment in the short term. Angel Investor An investor who invest in ventures (primarily at an early stage) in their personal capacity (that is, investing their personal money) and may or may not have an active advisory or guidance role for the founders in the venture. Mentor An experience person who can provide advice, knowledge, or connections to a startup founder. Mentors usually have strong business acumen and practical experience through former entrepreneurship experience or industry knowledge. Business Acumen This term refers to the theoretical or practical knowledge of how to develop and manage a business, including commitment and speed in understanding and dealing with risks and opportunities in the business environment. Exit (startup exit) Generally, refers to the point at which a founder or early stage investors sell their stake in the venture, either through a private acquisition or public offering. For the purposes of this report, it refers more broadly as the point at which a startup is sustainable or has received sufficient funding to grow in the medium term (for example, five years). All dollar amounts are U.S. dollars unless otherwise indicated. Authors and Acknowledgements The authors of this report were Victor Mulas, Kathy Qian, Jade Garza and Scott Henry. Matt Lerner, Kwame Robinson and Mireille Raad also contributed to this report with data analysis and visualizations. The survey was conducted by Agility Management and Financial Consulting. The report was edited by Colin Blackman (Camford Associates) and designed by Wenceslao Almazan. The peer reviewers were Carlo Maria Rossotto (Lead ICT Policy Specialist, TDD), Issa Aghabi (Investment Officer, Venture Capital, IFC) and Elena Gasol Ramos (Senior Private Sector Specialist, FCI). The Tech Startup Ecosystem in West Bank and Gaza report has been prepared as part of the World Bank Group Finance for Jobs Series of Projects (F4J SOP), an initiative designed to support innovative financing instruments to facilitate job creation through the deployment of private capital in the West Bank and Gaza. The F4J SOP is led by Abdalwahab Khatib, Stefanie Ridenour, and Peter Mousley, and it provides support through a range of interventions, including early-stage financing for startups, investment co-financing for medium sized private investments, and a skills focused Development Impact Bond. To support the investment and job growth objectives of the Finance for Jobs Project as well as address some of the challenges linked to entrepreneurial capacity and early-stage financing, the World Bank has designed an instrument – the Entrepreneurship Ecosystem Matching Grant (EE-MG) – that will help develop the investment pipeline in the West Bank and Gaza. Drawing on lessons learned from other matching grant programs, the objective of the instrument is to bring more early-stage investments to ‘bankable’ status by working through existing Investment Funds (IFs) to provide the necessary support and capacity building to entrepreneurs. The design of the instrument draws on the current knowledge of the ecosystem as well as addresses some of the key challenges that limit the entrepreneurial ecosystem. The EE-MG under Finance for Jobs is a pilot instrument that will require new approaches to experimentation and learning by doing. Baselining and data collection, analytical capabilities to interpret and capture lessons as well as feedback loops will be critical to ensuring success. Hence the role of the Tech Startup Ecosystem in West Bank and Gaza report in providing an analytical base to guide the implementation of the EE-MG and other startup ecosystem interventions. Financial support for this report was provided by the Department for International Development (DFID). The findings, interpretations, and conclusions expressed here are those of the authors and do not necessarily reflect the views of DFID or the Board of Executive Directors of the World Bank or the governments they represent. Authors and Acknowledgements 1 Executive Summary Technology is one of the main drivers of productivity questions. It provides new data and analysis of the tech and economic growth (Anders, Ng, and Robyn 2005). startup ecosystem in the West Bank and Gaza. The analysis Developing countries have traditionally had difficulties comprises: (i) an attempt to provide an accurate description in both developing technology and absorbing and measurement of the economy’s tech startup ecosystem; foreign technology. Seventy to eighty percent of the and (ii) a comparison and gap analysis of four key components productivity gap between developed and developing of the tech startup ecosystem (skills, finance, entrepreneurial countries is estimated to result from the lag in the supporting infrastructure, and community). adoption technologies by these countries (Comin and Mestieri 2014; Comin and Hobijn 2010). The objective of this report is to provide a better understanding of the status of the West Bank and Gaza startup ecosystem Tech startups are an effective mechanism to both and provide policy recommendations for policy makers and create local technology and absorb foreign technology. other stakeholders who are interested in supporting the In recent years, there has been a surge of tech startups growth and sustainability of the ecosystem. across the world. Fueled by global technology-led cost reductions and increased access to resources, tech entrepreneurs are increasingly emerging in both Analysis Limitations developed and developing countries. These tech- enabled startups represent an attractive investment Measuring the tech startup ecosystem is difficult. Relevant for early stage investors, as they can be used to databases of startups are not readily available, and the test, launch, and validate a business much faster fast-paced and multidimensional dynamics of startup and cheaper than in traditional ventures. However, ecosystems – with new ventures constantly being created, to attract financing to ensure the growth of these failing, being closed, being bought, or transformed (changing businesses, there needs to be a better understanding names and/or purpose) – makes accurate measurement over of how these tech entrepreneurs form ecosystems, time inherently difficult. what are the internal dynamics of these ecosystems, how they work, what makes them grow and achieve For this analysis, 423 entrepreneurs were surveyed in the sustainability, how they connect with the local West Bank and Gaza between December 2016 and February economy to result in productivity and employment, 2017 and relevant data was collected for 142 startups and and why some ecosystems are more effective than 196 startup founders.1 The survey was based on the standard others at this. questionnaire from the Global Entrepreneurship Research Network (GERN) Ecosystem Connection project (see Box 1.1). This report is part of a broader research initiative The findings and conclusions of this analysis are based on this (See Box 1.1) that aims to provide answers to these survey and so there are some limitations to this analysis. The 2 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA dataset is not exhaustive and only represents a subset The supporting infrastructure (for example, accelerators, of the ecosystem’s startups. Moreover, it is subject to mentors) and the community is still maturing. Accelerator survivorship bias and does not include startups that were programs neither generate quantity nor quality of startups no longer in business when data was collected. Historical with many of them being supported by external funding data about startups was collected through existing programs, suggesting a need to improve the quality of founders who were available at the time of the survey. these programs. Furthermore, while substantial amounts of grant financing are available, the accelerators have yet Despite these limitations, the subset of startups provides to establish an effective channel through which startups unique insights of the ecosystem. The data was collected can absorb funding and deliver actual results. Mentors by snowballing from public data contained in existing are available but they have no impact in startup success, databases, networks from key stakeholders (for example, suggesting limited quality. Since the entrepreneurial accelerators, events, and so on), as well as recommendations community is still in its early stages, like-minded individuals from founders. Although there are startups that were not do not connect easily with one another to form clusters, captured in this survey, nevertheless it provides one of suggesting a silo approach among ventures from different the richest samples of data collected to date on the most networks. This is exacerbated by the separation of clusters influential founders, startups, intermediaries, and other between Gaza and the West Bank. Therefore, capacity ecosystem stakeholders in the West Bank and Gaza. building efforts and the professionalization of accelerators represent priorities in strengthening the ecosystem. Findings Investment seems sufficient for the scale of the ecosystem, The tech startup ecosystem in the West Bank and Gaza is an with a large pool of angel investors. On institutional early stage ecosystem that is maturing (see table below). investment, VC funds report not being able to meet their The key strengths of the ecosystem are the presence targets because of limitations of a quality pipeline. On the of talented people, with highly educated founders (85 other hand, the international connectivity of the ecosystem percent of them having a university degree and 27 allows those investment-ready startups in the West Bank percent with graduate degrees) and the connection with and Gaza to also look for funding in the region and abroad. international networks of knowledge (primarily through international universities and accelerator programs). The West Bank and Gaza ecosystem has one of the largest However, founders tend to be young and with little participation of female entrepreneurs of the ecosystems experience, with the bulk of founders having no previous analyzed. However, these female entrepreneurs are young managerial experience, resulting in limited business and inexperienced, suggesting that they would benefit acumen of founders. from additional support to succeed. Executive Summary 3 DEVELOPMENT STAGE OF THE WEST BANK AND GAZA STARTUP ECOSYSTEM Stage Ecosystem Area Nascent Advancing Mature 1. Community 2. Skills 3. Supporting Infrastructure 4. Investment 5. Constraints OVERALL Policy Recommendations Based on this analysis, a set of high-level policy recommendations for policymakers are provided (see table below), which are further expanded in the report. Ecosystem High-Level Policy Objective Area Recommendation Expand clusters’ connectivity, coordinate private Strengthen coordination among multiple stakeholders and public action, and promote connections to support the ecosystem’s growth. among all stakeholders. Build the capacity of intermediaries and networking assets to increase community and clusters, particularly Expand clusters of intermediaries and establish between Gaza and West Bank. Linkages could also be stronger links with regional and international Community made with Jordan, proximate Arab communities, and networks of talent. the MENA region more broadly. Address gaps in practical business acumen and Expand practical education in universities and through technical training, train pipeline of talent for rapid skills training programs and accelerators startup scale up, and encourage participation of connected with public education programs. Skills lower income/educated population. Increase capacity building of mentors and foster the creation of angel networks. Aim towards Address shortage of quality mentors and professionalization of accelerators and facilitate entry strengthen support services. of international talent (e.g. mentors, entrepreneurs or Support capacity builders) into the ecosystem. Infrastructure Connect ecosystem with domestic traditional sectors Expand support infrastructure to support tech and create tech verticals. verticals and connect startups with market needs. Enable startups to scale up and increase capacity Catalyze early stage financing and increase quality of of investors to strengthen pipelines and get pipeline investment. startups investment-ready. Investment Address processes constraints (e.g. access to loans Reduce constraints for startups’ incorporation and funding). and operations. Constraints 4 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA Measuring and Analyzing the Tech Startup Ecosystem in the West Bank and Gaza This report provides an analysis of the tech startup ecosystem These databases are both open and proprietary. Access to in the West Bank and Gaza. The analysis comprises: (i) an proprietary databases, such as PitchBook, is limited and in attempt to provide an accurate description and measurement some cases restricted (not being open to wider research). The of the economy’s tech startup ecosystem and (ii) a comparison most relevant open databases of startups are CrunchBase and gap analysis of four key components of the tech startup and AngelList. Neither of these databases, however, ecosystem (skills, finance, entrepreneurial supporting necessarily provides accurate or complete information. infrastructure, and community). CrunchBase is a self-reported database which is not curated by an official entity, and as such it may include inaccurate For the purposes of this report, tech startups are defined as information, such as closed or transformed ventures still for-profit business ventures that a) have a financial model being posted with the original data, founders omitted, targeting high growth and b) employ an innovative and and so on. AngelList generally contains more accurate technology-enabled approach to the product or service that information since startups listed there have received or are they provide to ensure scalability. These ventures may or may actively soliciting investment from angel investors or venture not be profitable at the current stage. capital (VC) firms. Other global startups repositories, such as Startup Genome,2 build on these databases and additional In order to capture the whole tech startup ecosystem, for self-reporting data from startups, and are therefore subject this report the definition of startups was expanded beyond to similar limitations. Finally, while LinkedIn can provide the phase in which these ventures are being newly emerged, more accurate data of startups through funders and encompassing also small and medium enterprises (SMEs) that employers, data access and use restrictions make its use for were once startups and have reached the scaling phase. This independent research purposes difficult. definition allowed us to collect data to describe the evolution of the tech startup ecosystem over time as these startups grow Moreover, since these global databases include little and succeed. information on startups in developing countries, they are of limited use in helping to build an overall picture of their tech startup ecosystems. For example, at the time of conducting Measuring the Tech this analysis, CrunchBase only held data on six startups, and Startup Ecosystem AngelList only included data on 30 startups, in the West Bank and Gaza. Measuring the tech startup ecosystem is a difficult task. Regional and local startup databases can be richer in data Relevant databases of startups are not readily available, and and more accurate, since they are often the result of an active the fast-paced and multi-dimensional dynamics of startup ecosystems – with new ventures constantly being created, effort to track the activity and life cycle of startups. Examples failing and being closed, and being bought or transformed of these databases are Digital NYC3 in New York or Tech Map4 (changing names and/or purpose) – makes accurate in London. However, these databases are not present in measurement over time inherently difficult. many ecosystems, particularly in developing countries and, given their localized methodologies, their data is difficult Some databases include limited information on startups. These to utilize for comparative analytics. Other datasets, such as databases are global, local (mostly at the level of metropolitan that of the Global Accelerator Learning Initiative,5 only have areas’ ecosystems) and, in some cases, domestic (countrywide). enough power to report data at a regional level. Measuring and Analyzing the Tech Startup Ecosystem in the West Bank and Gaza 5 While official government or NGO-managed databases in The dataset is not exhaustive and only represents a subset of developing countries can provide richer and more accurate the ecosystem’s startups. Moreover, it is subject to survivorship data from SMEs and larger companies, they also lack both data bias and does not contain startups that have not survived to breadth and depth when it comes to startups. The Palestinian the date of data collection, and historical data about startups Central Bureau of Statistics (PCBS), for example, does not was collected through existing founders available to be sur- compile data related to startup creation, and its statistics veyed at the time of surveying.9 However, this still represents a related to ICT usage in business were last updated in 2009.6 relevant subset since the startup data was collected by snow- balling from public data contained in existing databases, net- To combat this poor data availability, a survey was designed and works from key stakeholders (for example, accelerators, events, deployed by extending the standard questionnaire from the and so on), and recommendations from founders. Given the Global Entrepreneurship Research Network (GERN) Ecosystem lack of other datasets in the region and even though the survey Connection project (see Box 1.1). For a broader description was not able capture all relevant startups, the data provides and technical details of this survey, see the “Survey Questions” one of the richest samples collected to date of the most influ- section in the Methodology portion of the Appendix. We ential founders, startups, intermediaries, and other ecosystem surveyed 423 entrepreneurs in the West Bank and Gaza from stakeholders in the West Bank and Gaza. November 2016 to February 2017 using an online interactive survey distributed through local partners by email, phone, Survey research was combined with information from and in person.7 From these interviews, data was collected for interviews and focus groups with key stakeholders of the 241 relevant startups and 358 startup founders. This sample ecosystems, including three operational investment funds provides unique insights into the characteristics of founders, and four incubators/accelerators. This analysis was also startups, investors, and supporting infrastructure in the West corroborated with the most recent available data taken from the Bank and Gaza, as well as the relationships between them.8 Global Entrepreneurship Monitor (GEM) in the West Bank and Gaza, which examined environmental framework conditions as assessed by national experts including academics, policy BOX 1.1: GERN ECOSYSTEMS CONNECTIONS makers, and entrepreneurs. Although the latest GEM was MAPPING PROJECT conducted in 2012, its information sheds light on some of the trends highlighted in this new analysis (Palestine Economic Policy Research Institute 2013). The goal of the Ecosystem Connections This report assumes that, because of the fast-moving nature Mapping Project31 is to map startup of startup ecosystems, any attempt to accurately measure the ecosystems across the world by collecting data tech startup ecosystem is inherently flawed – any measurement on startup founders (for example, education, will be obsolete immediately after collection. The findings and work experience, serial entrepreneurship, recommendations provided in this report should be taken with and so on) and their connections among this limitation in mind. Less emphasis should be placed on themselves and other key stakeholders in their exact numbers, which are subject to change with the addition ecosystem (for example, mentors, investors, of more startups and which are sensitive to minor tweaks in accelerators, universities, and so on) to better methodology. Rather, the data collected enables analysis of understand and support entrepreneurs in general trends and the dynamics of the ecosystem that can local startup ecosystems. This data aims to inform specific policies. This analysis should not considered identify gaps in ecosystems and provide a in isolation, and policy makers are encouraged to confirm basis for policy action to address these gaps these findings with other available resources (for example, and support growth and sustainability of perspectives from practitioners and anecdotal evidence). For startup ecosystems. more details on the limitations of the study’s approach, see the “Limitations” section in the Analysis portion of the Appendix. The project has mapped over nine startup ecosystems in cities across the world, including Bogota, Cairo, London, New York, and Singapore among others). The survey Analyzing the Tech conducted for this report is also part of this Startup Ecosystem project, adding the West Bank and Gaza to the ecosystems mapped. Data from these nine The following analysis of the tech startup ecosystem in the ecosystems was used as a comparator for West Bank and Gaza was based on the data collected through the analysis of this report (see Methodology the survey methodology described in detail in the Appendix. section in Appendix). When reading this analysis, the caveats summarized above should be taken into account. This report analyzes four key elements of the tech startup ecosystem in the West Bank and Gaza: i) skills, ii) finance, iii) supporting infrastructure for entrepreneurship, and iv) community. The analysis first describes the status of each 6 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA of these elements based on the data collected, and then funding obtained by startups during their life cycle and the compares the results with those reported by both average general availability of such funds. Supporting infrastructure for and successful startup founders. When applicable, the report entrepreneurship seeks to understand the quantity and quality highlights findings with regard to female entrepreneurship. of support programs and resources for startups to succeed. Supporting infrastructure encompasses accelerators and For the purposes of this analysis, successful startups are incubators, mentors, events and other ecosystem and/or skills considered to be those that have been funded and those that building resources. Finally, community examines the maturity of employ people. “Short-term success” is defined as obtaining the ecosystem as a network of stakeholders that support each funding once; “long-term success” is defined as hiring other (directly or indirectly) for successful startup outcomes. employees continually (as a proxy for growth). This analysis is conducted under the premise that startups Comparing average founders and startups with successful ecosystems are communities of stakeholders and that the ones highlights which characteristics (in terms of education, success of such ecosystems is linked to the maturity, health, experience, connections, and so on) are more predominant and sustainability of these communities. Previous World Bank in successful startups in the West Bank and Gaza and whether research (Mulas, Minges, and Applebaum 2015) shows that they are consistent with those in other ecosystems or with global trends (when research is available). If comparable tech startup ecosystems act as communities and that centrality data was available from other ecosystems surveyed under (that is, the number of stakeholders in the ecosystem to which a the GERN Ecosystems Connections Project, local results were founder of a startup is connected to directly or indirectly) is critical benchmarked against the other ecosystems to understand if for startup success. This finding is also consistent with research there are gaps that could be addressed. from Endeavor Insight (2014) showing that access to mentors increase the probability of startup success. In this environment, The four elements that this report analyzes represent the key the supporting infrastructure acts both as a skills and network ingredients needed for tech startup ecosystems to grow and provider and is critical for ecosystem sustainability. The above be sustainable. Skills aims at understanding the educational mentioned research also found that these networking assets, and work experience that founders have and those that are using accelerators as a proxy, are critical to the sustainability more common for successful founders. Finance considers the and health of tech startup ecosystems (see Table 1.1). TABLE 1.1: NETWORKING ASSETS Community-Building Skills Training Collaboration Collaboration Spaces / Networks of Events Events Spaces Networks of Mentors Mentors Collaboration and Bootcamps and community-building technology training Accelerators (network Angel investors Meetups spaces (e.g., coworking linked to community value) (network value) spaces, maker building spaces, fab labs) Rapid technical and Tech community Incubators Venture capital entrepreneurial skills events/conferences (network value) (network value) programs Networks of mentors and startup “alumni” networks (if different from accelerators, incubators, angel investors, and venture capital) Source: Mulas, Minges, and Applebaum 2015. Measuring and Analyzing the Tech Startup Ecosystem in the West Bank and Gaza 7 Based on these four elements, the analysis categorizes to form with increasing private sector investment in early ecosystems into three broad categories: a) nascent ecosystems, b) stage startups, but there are still gaps in the path to scale advancing ecosystems, and c) mature ecosystems (see Table 1.2). up and exit. c) Mature Ecosystem. These ecosystems have a large a) Nascent Ecosystem. There are a limited number of number of startups in all stages (for example, growing, startups, most of which are in very early or early stages. scaling up, exits) and the ecosystem is highly interconnected. The community of entrepreneurs is forming, and has a low The majority of entrepreneurs have business acumen and density of connections with few clusters, if any. In these previous relevant business experience. There are several ecosystems, founders lack business experience, mentors are generations of startups with multiple serial entrepreneurs scarce and inexperienced, and there are few generations and successful exits. Mentors are abundant, they have of entrepreneurs (most entrepreneurs are in their first or solid practical experience, and there is a solid base of angel second venture), there are few or no startup exits or, if there investors. The ecosystem is an international hub itself and are any, they are outliers. There are few or no international attracts international talent. The finance pipeline has no connections. The finance pipeline has multiple gaps and gaps and early stage funding is provided by sustainable private early stage finance is rare (if it exists). private funds. b) Advancing Ecosystem. These ecosystems have an These categories are broad and serve to provide a sense increased number of startups, with most in the early stages but with increasing numbers of scale-ups. The community of where ecosystems are in their lifecycle. As this research of entrepreneurs has several clusters and a high density, and continues and data can be accessed from a larger sample of there are a handful of success startup exits. There is still a lack ecosystems from the GERN Ecosystems Connection project, of business acumen among entrepreneurs but there are a more concrete metrics on these stages can be provided. growing number of serial entrepreneurs and the ecosystem This report focus on supply-side factors of startup ecosystems has more than three generations of startups. There are an and does not analyze extensively demand-side factors. increasing number of international connections and mentors Further analysis would need to be conducted to improve with local startup experience. The finance pipeline is starting understanding of the demand side. TABLE 1.2: CATEGORIES OF ECOSYSTEMS Stage Ecosystem Area Nascent Advancing Mature Limited number of Increased number of startups, startups, most in early Large number of startups in most in early stage with stage all stages increasing number of scale-ups Low density of Highly dense, hyper Several clusters connections connected clusters Community High density in clusters Low number of clusters Lack of business acumen Limited business acumen and experience Business acumen and Increasing number of serial practical experience Few serial entrepreneurs entrepreneurs and more than and limited generations Several generations of startups three generations of entrepreneurs Successful exits Skills Exits start to appear No substantial exits Mentors are scarce and Mentors are available and they Plenty of mentors with sound inexperienced have local practical experience practical experience No international Increasing number of International hub attracting Supporting Infrastructure connections international connections international talent Finance pipeline with some Gaps in finance pipeline No gaps in finance pipeline gaps Few private sector Private early stage finance Private early stage investment funding opportunities sustainable Investment exists 8 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA The Tech Startup Ecosystem in the West Bank and Gaza The tech startup ecosystem in the West Bank and Gaza is an provided employment data was one year old and hired three early stage ecosystem past its nascent growth phase but still people per year. This contrasts with Lebanon (a similar stage far from maturity. On average, each year, 19 more startups are ecosystem), where the median startup that hired was two created than in the previous year, resulting in a 34 percent years old and hired 10 people. In comparison, a less mature compounded growth rate in startup creation since 2009 (see ecosystem in the early nascent stage, such as Dar es Salaam Figure 2.1).10 (Tanzania), has similar tenure and hiring statistics. Compared to these two other ecosystems, processes such as obtaining About two thirds of the startups surveyed reported hiring at credit, renting an office, or hiring employees are significantly least one employee, with a median of three jobs per startup. quicker in the West Bank and Gaza (see Figure 2.2). A total of 1,247 jobs were created.11 The median startup that FIGURE 2.1: STARTUP GROWTH IN THE WEST BANK AND GAZA 140 120 100 Compound Annual Regional Growth Rate: 34% # of Startups 80 60 40 20 0 2009 2010 2011 2012 2013 2014 2015 YEAR Note: Data shows tech startup ventures as reported by founders of active startups at the date of the survey. Data of startups founded in 2016 were not included in this figure because the survey was started in 2016, which made this year not comparable with all previous data from complete years. The Tech Startup Ecosystem in the West Bank and Gaza 9 Startups have an average of 1.8 founders, and each founder education, including a two-year associate degree, are not has launched 1.2 startups. While founders are predominantly strongly represented in the formal private sector compared to male (see Figure 2.4), with over 20% of female entrepreneurs, skilled men. In 2013, only 2.9 percent of women were full-time the West Bank and Gaza has one of the largest participations of workers in medium-sized enterprises and six percent in small female founders of all ecosystems surveyed (see Figure 2.3).12 enterprises. In addition, owing to obstacles to entrepreneurship and significant social restrictions, only 1.7 percent of skilled Female founders have more prior experience in business, but women, as opposed to 5.7 percent of skilled men, indicated that they are less likely to have had managerial experience (see Figure 2.5 and Figure 2.6). This might be in part explained by they were employers, potentially reducing their opportunity the fact that skilled women, that is, those with postsecondary for managerial experience (World Bank 2017a). FIGURE 2.2: TIME TO COMPLETE PROCEDURAL TASKS IN LIFE CYCLE OF A STARTUP ACROSS REGIONS COUNTRY Set up Bank Dar es Salaam 4 COUNTRY Account West Bank & Gaza 3 Dar es Salaam West Bank & Gaza Beirut Beirut 5 Become Dar es Salaam 22 Incorporated West Bank & Gaza 30 Beirut 28 Rent an Dar es Salaam 30 o ce 15 West Bank & Gaza Beirut 30 Hire an Dar es Salaam 30 Employee West Bank & Gaza 15 Beirut 30 Obtain Dar es Salaam 90 Credit West Bank & Gaza 15 Beirut 30 Obtain Dar es Salaam 125 Funding West Bank & Gaza 33 Beirut 120 MEDIAN DAYS 0 10 20 30 40 50 60 70 80 90 100 110 120 130 Note: Measurements refer to Dar es Salaam (Tanzania), Beirut (Lebanon) and West Bank & Gaza start-up ecosystems FIGURE 2.3: PERCENTAGE OF FEMALE FOUNDERS ACROSS ANALYZED ECOSYSTEMS 25% 23% 20% 19% 15% 15% 14% 13% 12% 10% 10% 10% 5% 0% WEST BANK & BEIRUT DAR ES MEDELLIN BOGOTA NEW YORK CAIRO SINGAPORE GAZA SALAAM Note: Differences in data survey may be driven by multiple factors, including time of data collection and maturity of the ecosystem 10 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA FIGURE 2.4: GENDER DISTRIBUTION OF FIGURE 2.6: PREVIOUS ROLE TYPE OF FOUNDERS FOUNDERS IN THE WEST BANK AND GAZA BY GENDER IN THE WEST BANK AND GAZA GENDER Male 45% 77.35% Female GENDER Female Male 22.65% 40% 35% 30% Precentage of Founding Instances FIGURE 2.5: PREVIOUS FUNCTION OF FOUNDERS 25% BY GENDER IN THE WEST BANK AND GAZA 20% 18.09% 25.53% 15% GENDER 10.64% FEMALE 10% 5% 45.74% 0% Intern Freelanc. Analyst Manager Director C-Level Advisor Board VP 25.63% 34.18% Founders were on average 27.7 years old at the time of founding,13 which is slightly younger than founders in other mid-stage and mature ecosystems, where they are typically GENDER in their early 30s (see Figure 2.7).14 In the West Bank and 6.01% MALE Gaza, female entrepreneurs are also significantly younger at the time of founding (see Figure 2.8). This could be driven by the high level of youth unemployment in the West Bank and Gaza. In 2012 GEM found that high levels of unemployment in the West Bank and Gaza drive entrepreneurs to necessity entrepreneurship, which was even more prevalent among 34.18% female early-stage founders than their male counterparts (Palestine Economic Policy Research Institute 2013). This trend seems to have expanded to tech entrepreneurship as this JOB FUNCTION ecosystem grew in size and maturity, suggesting that tech Business startups could provide access to employment opportunities Technical (including self-employment) beyond the structural constraints Both (Business & Technical) of the West Bank and Gaza – by taking advantage of access to Other digitally connected markets. The Tech Startup Ecosystem in the West Bank and Gaza 11 FIGURE 2.7: AVERAGE AGE OF FOUNDERS Skills ACROSS VARIOUS ECOSYSTEMS Education is especially high among founders in the West Bank and Gaza, with over 55 percent having a 34 university degree, and over 19 percent with graduate 33 degrees (masters, professional, or doctorate). For funded founders, 61 percent had a university degree at the time 32 of founding, with 18 percent having a higher degree (see 31 30.6 Figure 2.9). 30 29.7 29 FIGURE 2.9: HIGHEST DEGREE 28 27.7 EARNED BY FOUNDERS Avg. Age 27 26 3% 25 8% WEST BANK & GAZA 18% 24 23.7 8% 23 HIGHEST DEGREE Dar es Salaam New York City 22 7% EARNED BY 21 Beirut ALL FOUNDERS 20 (AT TIME OF FOUNDING) FIGURE 2.8: AGE AT FOUNDING BY GENDER 55% Dar es Salaam West Bank & Gaza Beirut New York City 34 33 13% 10% 32 31 30.7 8% 8% HIGHEST DEGREE 30.0 30.0 30 EARNED BY THOSE 29 FUNDERS WHO 28.5 RECEIVED FUNDED 28 28.0 (AT TIME OF FOUNDING) Avg. Age 27 26 25 61% 24.9 24 23.9 HIGHEST DEGREE 23 Doctorate 22.1 Professional 22 Master 21 Bachelor Associate 20 High school Female Male Female Male Female Male Female Male 12 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA While significant advancements have been made in closing successfully obtained funding in the West Bank and Gaza the gender gap in education through all levels of educational were slightly less likely to have specialized in STEM (see attainment, female entrepreneurs are still less likely to have Figure 2.11). postgraduate degrees (see Figure 2.10). The average founder in the West Bank and Gaza has six years The majority of founders (52 percent) have a degree in science, of work experience with 2.4 companies. This previous work technology, engineering or mathematics (STEM), 21 percent experience is similar to other emerging and middle stage had a degree in business, and 11 percent had both STEM and ecosystems. In a much more mature ecosystem, such as New business degrees (see Figure 2.11).15 Twenty six percent of York City, the experience of founders is higher, with 9.9 years STEM degrees were a master’s or higher. Founders that have in 3.25 companies. FIGURE 2.10: PREVIOUS EDUCATIONAL FIGURE 2.11: EDUCATIONAL EXPERIENCE BACKGROUND BY GENDER FOUNDERS 2% 11% PREVIOUS EDUCATIONAL 21% 32% EDUCATION EXPERIENCE OF ALL FOR FEMALE FOUNDERS (AT TIME ENTREPRENEURS 52% OF FOUNDING) 52% 8% 6% 16% 4% 8% 14% 10% 7% 9% EDUCATIONAL PREVIOUS EXPERIENCE OF EDUCATION THOSE FUNDERS 25% FOR MALE WHO RECEIVED ENTREPRENEURS FUNDED (AT TIME OF FOUNDING) 48% 56% 19% HIGHEST DEGREE Doctorate MAJOR Professional Both (Stem & Business) Master Business Bachelor Associate Other High school Stem The Tech Startup Ecosystem in the West Bank and Gaza 13 The largest category of previous experience is analyst, with one area which is perceived to most impede entrepreneurial 46 percent of founders with such experience.16 However, 27 activity in the West Bank and Gaza is the level of education percent of founders have experience in a managerial role, nine and training, which is regarded as being too traditional and percent of founders have had roles as a director, and three not fostering creativity or entrepreneurial thinking (Palestine percent have previous C-Level experience (see Figure 2.12).17 Economic Policy Research Institute 2013). One plausible reason Twenty nine percent of founders have had some type of for this perception may be limited professional experience, business experience (see Figure 2.13). This higher professional which can play an important role in bridging the gap between experience matters for success. Startups with at least one school and work as well as developing talent and skillsets. founder with previous management experience were on average 1.45 times more likely to be funded compared with startups without any founders with managerial backgrounds.18 Supporting Infrastructure for Entrepreneurship Despite the high levels of educational attainment of founders, the skillsets of founders and teams are still perceived as being Consistent with the ecosystem’s maturity, the supporting infrastructure for startups in the West Bank and Gaza’s problematic for investors. Based on interviews with existing ecosystem is still maturing. The two main elements of the financiers, the experience and balance of teams in the West supporting infrastructure analyzed are accelerators and Bank and Gaza is an area requiring improvement as is the ability incubators, terms that are used interchangeably in this report to meet due diligence requirements to qualify for financing. (see Box 2.1), and mentors. This is consistent with GEM’s findings, which pointed out that Accelerators and Incubators FIGURE 2.12: PREVIOUS FUNCTIONS OF Accelerators support startup growth by providing skills and FOUNDERS AT TIME OF FOUNDING networks of connections. Previous research from the World Bank shows that accelerators have a key role in supporting the community of startups that generate the ecosystem, providing 50% the necessary social connectivity among entrepreneurs and 46% other ecosystem stakeholders (Mulas, Minges, and Applebaum 2015). Research from the Aspen Institute also suggests that 45% accelerators have a positive impact in supporting early stage ventures by providing access to a network of mentors and capacity building, particularly regarding business skills and 40% acumen (I-DEV International 2014; Baird, Bowles, and Lall 2013; and Roberts, Lall, and Baird. 2016). 35% FIGURE 2.13: PREVIOUS ROLE TYPE OF FOUNDERS Precentage of Founding Instances 30% REGION 27% Both Business 25% Other Technical 20% 13% 8% 15% 10% 10% 9% 9% 47% 29% 5% 5% 3% 3% 1% 0% VP Intern Freelanc. Analyst Manager Director C-Level Advisor Board 12% 14 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA There are about 20 accelerator programs that BOX 2.2: SELECTED DOMESTIC ACCELERATORS AND accelerated domestic startups in the West Bank and INCUBATORS IN THE WEST BANK AND GAZA Gaza. This is a large number of accelerator programs for the size and maturity of the ecosystem (see Box 2.2). There are two drivers for this. First, most of the domestic accelerators are supported by donor and Bader – ICT incubator providing seed capital that supports public funding, which do not always follow market technology and ICT-related startups. Badar focuses on growth rules of demand and supply. Second, the ecosystem and expansion of companies through funding, business has a large involvement of international accelerators, resources, and mentors. including Startup 500, MassChallenge, Techstars, Bethlehem Business Incubator (BBI) – offers training and Oasis 500 (see Figure 2.14). The involvement services and workshops, internships, mentorships and network of these international accelerators denotes the opportunities to early-stage start-ups with a focus on women connection of the West Bank and Gaza’s ecosystem and youth who are interested in the non-ICT sector. to external resources in other ecosystems (see Business Startup Incubator Support (BSIS) Program – Part of Community section). the Leaders Network which was one of the first organizations focused on digital entrepreneurship in Ramallah. With funding from the European Union, BSIS focuses on startup incubators BOX 2.1 ACCELERATORS AND in Nablus, Ramallah, Bethlehem, Hebron, East Jerusalem, and INCUBATORS Gaza and provides entrepreneurs with shared office space and resources, business advice, training, and coaching. Business Technology Incubator (BTI) – BTI aims to design, develop, implement and promote initiatives supporting young Although the dataset and analysis does not and marginalized Palestinian entrepreneurs with creative differentiate between incubators and accelerators, and unique ideas towards transforming their concepts into there is a difference in their definition: profitable Small and Medium Enterprises (SMEs). Birzeit University Najjad Zeenni IT Center of Excellence – Accelerators support entrepreneurs and Runs a preincubation program and business plan competition startups in early stages of development and event focused on IT startups. The center provides seed funding they often comprise the following features: to qualified entrepreneurs as well as entrepreneur-investor (i) a highly competitive and open application matchmaking services. process for entrepreneurs, (ii) provision of small CEWAS – Launched the Middle East Start-up Program in amounts of seed investment, (iii) focus on small Palestine in 2015. The program has incubated 10 innovative teams rather than individual founders, (iv) startups through training modules, individualized coaching, intensive support for a limited period of time mentoring, and networking activities. CEWAS focuses on (usually 3-6 months), with active mentorship environmental issues including water, sanitation, and waste and networking, and (v) collaborative work management and runs a yearly competition event. among startups through cohort or classes of startups. FastForward Accelerator – Part of the Leaders Network and one of the first startup accelerators in Palestine. FastForward was started in 2013 and provides seed funding (up to $20,000) along Incubators are spaces that support startups with office space and technology, access to mentors, training by providing office space and administrative courses among other services over a period of four months. support services. The most typical services are legal, recruitment, IT, accounting, public Gaza Sky Geeks – The first startup accelerator in Gaza relations, and pooled buying programs. In providing coworking space, startup accelerator, and technology addition, incubators may also provide coaching, education for Gazan startups. Gaza Sky Geeks was launched in mentorship, and help with access to funding 2011 in partnership with Google and Mercy Corps. on an ad hoc basis. Startups pay rent (which Ibdaa – Seed fund which provides university services, is usually below the market rate) for the office networking, mentoring, and capacity building. The fund holds space and there is normally no time limit set for competition events in which five to 10 startups are selected for startups staying in the incubator (the average seed funding from incubators. Ibdaa is mainly focused on the stay ranges widely from 18 months to five ICT sector and holds partnerships with Palestinian universities. years). Some incubator providers may ask for a Palestine’s Information and Communications Technology profit share in the future or require a minority Incubator (PICTI) – Non-profit ICT incubator which was founded stake in the startup as a prerequisite to access in 2004 as a technology-based physical incubator facility and the incubator. grew to offer business services to Palestinian entrepreneurs. TYO – Based in Nablus and focuses on female empowerment and enterprises that are micro, small, or medium-sized, with the goal of scaling-up 15 women through incubation and/or Source: Mulas, Minges, and Applebaum 2015. investment. The Tech Startup Ecosystem in the West Bank and Gaza 15 Domestic accelerators have accelerated a total of 61 startups accelerated (18). Moreover, half of the accelerated startups (see Box 2.2). Thirty percent of accelerated startups were received funding in the same year they participated in the funded, while 35 percent of unaccelerated startups were acceleration program, suggesting that accelerators may be funded. This means that the acceleration multiplier for playing more of a short-term than a long-term role in the funding probability, that is the likelihood of funding for funding success of startups. accelerated startups compared to unaccelerated ones, is 0.84 (see Figure 2.15). This suggests that accelerators are These results indicate that accelerators in the West Bank producing limited numbers of startups for the ecosystem. and Gaza do not seem to be able to support the ecosystem This is unusual for less mature ecosystems, where in a meaningful way. On the one hand, accelerators are not accelerators are usually the main tool for generating startups producing the quantity of startups that might be expected, a with ratios above one and even reaching 2 or 3 (for example, typical function in maturing ecosystems in need of increasing Cairo). Preliminary analysis in more mature ecosystems, such the pool of startups that can advance to the next stages of as New York City or Santiago, shows that this ratio grows as development. On the other hand, while accelerators may be the funding ecosystem matures, resulting in accelerators no producing some quality startups, these do not seem to be longer being the gatekeepers to investment networks. sufficient for investors (see Investment section). The reasons for this may include low-quality services, capacity building, Of the startups that were funded, accelerated startups or network connections provided by domestic accelerators. received an average of 1.37 investments, while unaccelerated This is a common characteristic of domestic accelerators in startups received an average of 1.15 investments. This makes ecosystems that are nascent or in transition towards maturity, the ratio of investments obtained by accelerated startups that lack the talent and expertise to produce high-quality, compared to unaccelerated startups, or the acceleration internationally competitive services with a recognizable multiplier of investment, 1.19 (see Figure 2.16). If the brand that holds its value after the end of the program. number of investments a startup receives is interpreted as a signal of its quality, this suggests that accelerators attended The fact that the strong presence of high-quality international by startups in the West Bank and Gaza are having some accelerators (for example, global programs such as 500 impact in increasing quality. However, these results are Startups or Techstars) does not result in higher quality of not conclusive because of the small sample of accelerated the overall support infrastructure also suggests that the startups that received funding. In fact, of the 79 startups ecosystem is not yet leveraging and absorbing the potential that were funded, more (61) were unaccelerated than of these international connections. FIGURE 2.14: ACCELERATOR PROGRAMS ATTENDED BY STARTUPS IN THE WEST BANK AND GAZA 45 ACCELERATOR BTI INCUBATOR PICTI 40 GAZA SKY GEEKS UCAS TECHNOLOGY INCUBATOR LEADERS ORGANIZATION 35 500 STARTUPS AL NAYZAK BETHLEHEM BUSINESS INCUBATOER 30 ARABRENEUR MASSCHALLENGE COCACOLA THE BRIDGE 25 JEST HUB # of Startups OASIS 500 PCNC INCUBATOR 20 SEC SMARTX 15 SPARK SYNERGOS TECHSTARS 10 TOWARD LEADERSHIP 5 Sum of Count of Startup Id for each Year of Year Year. Color shows details about Accelerator. Details are shown for Accelerator. The view 0 is ltered on Accelerator, which 2009 2010 2011 2012 2013 2014 2015 2016 keeps 20 of 29 members. 16 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA FIGURE 2.15: ACCELERATION MULTIPLIER FOR Mentors FUNDING PROBABILITY (QUANTITY) Mentorship is a knowledge transfer mechanism for entrepreneurs to acquire business acumen, understand 3.50 the unspoken rules of startup challenges, and access networks of talent, knowledge, and resources. Mentors 3.06 need to be knowledgeable and experienced. A study 3.00 for the U.K. government found that the most important characteristic of a mentor is proven business success in the area of work and network of contacts (BMG Research and 3.50 Galli 2013). Mentorship relationships were found to often develop informally through a preexisting relationship. 2.16 For example, acceleration and incubation programs 2.02 typically assign startups formal mentors to assist them 2.00 for a designated period of time. Research from Endeavor Insight shows that top performing startups have much higher support from mentors (Endeavor Insight 2014). 1.50 1.21 In the West Bank and Gaza, 38 percent (139) of founders 1.07 received mentorship from a total of 348 mentors. 0.93 1.00 0.84 Founders typically have a median of two mentors with the relationship lasting, on median, one year. One mentor guided 13 founders, which was twice as many as any West Bank & Gaza 0.49 other mentor. Four founders reported having 10 or more New York City New York City 0.50 mentors. Of these mentors, only 26 are known founders Singapore Santiago within the dataset and only three are known investors.19 Bogotá Beirut Cairo 0.00 Mentors, however, do not seem to be very effective in supporting startups (see Long-Term Success Factors), not having a relevant impact on sustainability or access FIGURE 2.16: ACCELERATION MULTIPLIER OF to funding from startups. This suggests a lack of quality INVESTMENT (QUALITY) of mentors in the West Bank and Gaza since mentors are generally one of the most relevant factors for success of startups in other more mature ecosystems (for example, 3.50 New York, Santiago). 3.00 Investment The value of investors extends beyond the money they provide. Early stage investors are often valued both 3.50 for their networks and for their experience and subject area expertise, hence the phrase “smart money.” For the purposes of this report, all organizations that invest in 2.00 high-growth startups venture capital firms and all people who invest in high-growth startups angel investors were considered. 1.50 1.34 Fifty one investors in the West Bank and Gaza were 1.25 1.19 1.19 recorded, of which about three quarters were angel 1.18 1.05 investors and one quarter were venture capital firms. They 0.94 0.94 1.00 made a total of 62 investments in 47 startups, and close to 60 percent of investments were identified as equity financing. The median number of startups invested per West Bank & Gaza 0.49 investor was one, but with several notable outliers. Two New York City 0.50 individuals invested in five and four startups respectively. Singapore Santiago Medellín Relatively small investment amounts are readily available Bogotá Beirut Cairo while availability of larger amounts seem to be more 0.00 limited (Figure 2.17). There is a nascent but active VC The Tech Startup Ecosystem in the West Bank and Gaza 17 ecosystem in the West Bank and Gaza, mostly supported by the quality and size of the ecosystem. While the West Bank and foreign aid and local angels and investors. Some notable VC Gaza’s small market may place limitations on the opportunities firms (see Box 2.3) that appeared in the dataset include Sadara within the territory, tech is one of the main sectors in the Ventures, which describes itself as “the first venture capital firm West Bank and Gaza with the potential to thrive. Policy efforts targeting the Palestinian tech sector,” Ibtikar Fund, another need to provide a path for most ventures to scale regionally, Palestinian firm backed by the IFC, Oasis500 from Jordan, which increasing opportunities for young entrepreneurs to increase describes itself as “the leading company in seed investment their experience and knowledge of how to tap into global and startup acceleration in MENA,” Raed Ventures, a Saudi markets. corporate venture capital firm, and 500 Startups. Oasis500 and 500 Startups operate as both accelerators and VC funds. Recognizing the constraints of the political and institutional context, the entrepreneurship ecosystem has a significant VCs are among the major financiers in the ecosystem. From presence of donor and publicly financed initiatives, which interviews, VCs report almost $150 million in investments tends to promote a supply-driven rather than market-driven in over 40 companies over the past six years (with a pipeline approach to entrepreneurship development. As reported by of additional investments in progress).20 VCs are highly some VCs, the presence of donor-financed and university- competitive with a small percentage of applicants meeting led schemes has consequences for the preparedness of the eligibility criteria and moving on to receive financing entrepreneurs during the early growth stages. For example, (anywhere between two to six percent of firms from a subset some graduates of incubator programs lack the appropriate of firms that already meet basic eligibility criteria). Eighty one skillsets to endure the rigors of a market-driven entrepreneurial percent of startups that received investment had only male process. Donor financing also has an impact on the priorities of founder(s) (see Figure 2.18). the organizations receiving funding, which has downstream consequences for the kinds of enterprises that are supported One distinguishing factor of the West Bank and Gaza (whether it is enterprises that are likely to create jobs, advance ecosystem is the political and institutional context, which technological innovation, or promote economic growth, and limits investment and growth. Political instability alongside so on). While donor and public financing has been critical to restrictions, put in place as a result of the Israeli closure policy, launching the number of seed capital and investment vehicles have consequences for expected rates of return and scalability in place, a transition to private-sector led, demand-driven of investments. Discussions with ecosystem actors confirm that entrepreneurial development would promote greater long- restrictions governing movement and trade have an impact on term sustainability. FIGURE 2.17: MEDIAN INVESTMENT AMOUNT BY YEAR OF EXISTENCE 60 55 50 45 40 #of startups receiving funding 35 30 25 20 15 10 5 0 $12k $21k $10k $60k $100k $898k $250k Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Startup year of existence when receiving funding 18 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA While none of the VCs indicated that they had difficulty BOX 2.3: VENTURE CAPITAL FIRMS IN THE meeting their targets in terms of closing deals, some reported WEST BANK AND GAZA that the quality of the startup pipeline needed improvement, particularly at the early-growth stages. Market saturation is a concern as the West Bank and Gaza ecosystem is relatively small and the number of investible opportunities has shrunk Ibtikar – First postaccelerator investor with an as pent-up demand is met. Furthermore, pipeline quality, $11 million fund that focuses on investments in including the experience and balance of skills in teams early stage innovative ventures (especially ICT) as well as the ability to meet due diligence requirements that have impact on employment opportunities seems to be a major hurdle (see Skills section). Several VCs in the West Bank and Gaza. Deal sizes range from reported having to spend extra time with companies to $40,000 for direct and accelerator services and obtain documents, such as basic financial documents and $100,000-800,000 for postacceleration services. information for term sheets. Sadara Ventures – First venture capital fund Entrepreneurial support organizations cite that early-stage which was launched in 2011 with investments financing is a factor constraining entrepreneurship in the ranging from seed stage to post series A. The West Bank and Gaza. Indeed, Ibtikar is one of the only funds $30 million fund is currently invested in six bridging the gap between early and middle stage growth companies in the tech sector. for startups with few other funds willing to take on the risks required for early-stage investment. One investor, for example, Sharakat – A window under the Palestinian indicated that they are likely to exclude startup financing for Investment Fund that focuses on SMEs in its second round of funding because of the risk involved. productive and services sectors. Sharakat invests in enterprises with high growth FIGURE 2.18: FUNDING BREAKDOWN BY potential as well as startups in sectors such as agriculture, textiles, plastics/chemicals, ICT, GENDER OF FOUNDER(S) tourism and health. Total investments as of 2015 were $19.2 million (targeting $35 million Gender 240 total in investment) in a total of 10 companies. Sharakat’s investment portfolio includes other FUNDING smaller investors and lenders such as Ibtikar. 220 Funded Not Funded Siraj Fund Management Company – First 200 private equity fund established in the West 79 Bank and Gaza, which was launched with 180 an initial investment of $90 million aimed at startup, distressed SMEs, and relatively large 160 enterprises across different sectors. The second fund is expected to be $120 million, focusing on financial, healthcare, and industrial sectors, # of Startups 140 59 which will target 15-20 investments. Siraj invests 120 in both publicly traded and privately held SMEs. 100 80 153 60 101 40 13 7 20 28 24 0 Both Female Male All Note: *232 out of 241 startups provided gender data. **79 out of 84 startups that received investment provided gender data. The Tech Startup Ecosystem in the West Bank and Gaza 19 Community Startup ecosystems operate as communities, where knowledge The key connectors of the West Bank and Gaza ecosystem spillovers and access to resources flows through a network of are Gaza Sky Geeks, Birzeit University, and Startup Weekend, embedded connections. The tighter and more connected an with each of them creating three main incipient clusters (see ecosystem, the more efficient is the flow of knowledge and Figure 2.20. A unique distinction of the West Bank and Gaza access to resources. The less connected it is, the less effective is the clear separation of clusters between Gaza Sky Geeks the ecosystem is to spot talent and nurture potential ventures (presumably the Gaza cluster) and the West Bank clusters, into successful startups. which is consistent with the physical separation of these two territories. Additionally, the ecosystem is highly connected Connectivity matters because success of startups is impacted by to international actors, connecting to extensive networks of their connectivity and access to other ecosystem stakeholders knowledge from clusters outside of the West Bank and Gaza. and their networks (Mulas, Minges, and Applebaum 2015). These international actors are both regional (MENA region) and Networking assets (see Supporting Infrastructure for international (primarily U.S. actors), including many university Entrepreneurship section above), and accelerators in particular, networks, such as New York University, University of California act as key connectors of ecosystem stakeholders, creating Berkeley, University of Chicago, or London School of Economics events and networks among stakeholders and creating and Political Science (see Figure 2.20, which suggest that there clusters that strengthen the ecosystem. As the West Bank and is a large proportion of the startup ecosystem with foreign Gaza ecosystem has expanded, connections have grown and experience or float between the West Bank and Gaza and become more diversified (see Figure 2.19). another international residence. FIGURE 2.19: GROWTH OF FOUNDERS AND CONNECTIONS Year 1600 1400 Edges Label Acquired Partnered with Accelerated/incubated Invested in 1200 Mentored Founded 1000 # of Startups 800 600 400 200 0 2009 2010 2011 2012 2013 2014 2015 2016 20 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA FIGURE 2.20: CONNECTIONS IN THE WEST BANK AND GAZA ECOSYSTEM UNIVERSITY OF PENNSYLVANIA BDL ACCELERATE 2015 TEL AVIV UNIVERSITY BIRZEIT UNIVERSITY NYU ABU DHABI 500 STARTUPS GAZA STARTUP SKY WEEKEND GEEKS Note: In this complete map of the tech ecosystem in the West Bank and Gaza, several important actors are highlighted: 500 Startups; University of Pennsylvania; NYU Abu Dhabi; Gaza Sky Geeks; Startup Weekend; Tel Aviv University; BDL Accelerate 2015; Birzeit University. Connections in purple are those that were made in Palestinian cities. The Tech Startup Ecosystem in the West Bank and Gaza 21 FIGURE 2.21: VISUALIZATION ECOSYSTEM CONNECTIVITY MEDELLIN Advancing WEST BANK AND GAZA DAR ES SALAAM Nascent Note: Network graphs were created by taking all the people in the ecosystem and creating edges to all other people they were directly or indirectly connected to in order to exaggerate the effects of clusters for illustration purposes. Because this treatment visualizes the influence of edges seen in Figure 2.24 by counting them more than once, the density of the clusters and the overall graph will appear different from Figure 2.22, where each edge is represented only once, even though the underlying data is the same. 22 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA The community in the West Bank and Gaza is consistent with a from an outside investor, and “long-term success” to when a nascent ecosystem evolving to maturity, where there is more than venture hires employees consistently (this assumes continuous one cluster evolving towards more connectivity. Higher density growth as the talent-knowledge assets of the startup grow). and more clusters allow entrepreneurs to connect to knowledge and resources through other actors in the ecosystem. The less Factors for Short-Term Success dense the ecosystem is, the more difficult it is for a founder to The most significant factor for raising funding in the West Bank find their way to mentors, investors, or other relevant knowledge and Gaza is to be highly connected to other stakeholders. The or resources required for their venture. The additional separation West Bank and Gaza community is maturing and has developed of clusters in the West Bank and Gaza increases this difficulty. several clusters that are interconnected with each other. Clusters serve as multipliers of density, helping founders leapfrog This facilitates the process of accessing useful resources and orders of connection (for example, connections that in other knowledge for startups. Those startups that are in the more cases are fifth or seventh order connections, that is, the founder densely populated clusters will have more chances for receiving is connected through five or seven connections to the target first-time investment. person, become a second or third order connection, where the founder is connected through two or three people to the Factors for Long-Term Success target connection). The most significant factors for long-term success (that is, hiring When comparing the density and clusters of the community with employees over time and continuing to do so) are: a) having a those of less and more advanced ecosystems (see Figure 2.24), foreign funder or investor, and b) having a more formal education. the West Bank and Gaza features several clusters in formation but An investor from outside of the West Bank and Gaza doubles not yet developed. As a more nascent ecosystem, Dar es Salaam the likelihood of hiring, and an additional bachelors, masters, only features one cluster. In comparison, Medellin has already professional, or doctorate degree increases the likelihood of evolved into highly connected clusters driving connectivity in hiring by 34 percent. These results suggest that connections the ecosystem. The expansion and maturity of these clusters outside of the West Bank and Gaza matter for success and that is important for the West Bank and Gaza ecosystem success. having the knowledge and networks provided by foreign or Connectivity is the most significant factor for obtaining funding diaspora founders and investment help long-term survival of for startups in the West Bank and Gaza (see Factors of Short-Term startups. Additional formal education also provides links with Success). The more this connectivity expands, the more access to foreign networks and adds technical knowledge. funding, talent, and resources startups will have. Currently, participation in acceleration programs and mentorship relationships have no significant effect on long-term hiring Startup Success Factors probabilities, which may be because of low quality of mentorship or because of widespread availability, resulting in no competitive Startup success is difficult to determine as tech ventures advantage in the ecosystem (see Mentorship section). The operate in a fast-paced environment under continuous change. study also found that serial entrepreneurs are less likely to hire To analyze factors that have determined startup success, this consistently, suggesting an opportunity to increase the overall analysis identifies two moments in the growth of startups. quality of the startup ecosystem as a learning mechanism “Short-term success” refers to when a venture obtains funding for founders. Hiring employees over time FIGURE 2.22: SUCCESS FACTORS SHORT TERM LONG TERM SUCCESS SUCCESS BE HIGHLY CONNECTED HAVING A FOREIGN FUNDER TO OTHER STAKEHOLDERS OR INVESTOR HAVING A MORE FORMAL EDUCATION RAISING FUNDING HIRING EMPLOYEES OVER TIME The Tech Startup Ecosystem in the West Bank and Gaza 23 Gap Analysis and Policy Recommendations Summary of Gap Analysis and Stage of Ecosystem The evidence from our analysis points to the conclusion that the startup ecosystem in the West Bank and Gaza is an early ecosystem that is just beginning to advance (see Table 3.1). TABLE 3.1: DEVELOPMENT STAGE OF ECOSYSTEM Stage Ecosystem Area Nascent Advancing Mature Community Skills Supporting Infrastructure Investment Constraints OVERALL 24 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA Policy Recommendations Table 3.2 summarizes the key high-level policy recommendations for policymakers to support the West Bank and Gaza ecosystem based on the key gaps and constraints identified and other ecosystem’s emerging practices. These high-level recommendations are intended to provide a set of examples of policies that can be applied to support the ecosystems gaps and constrains identified. They are not intended for direct application. More detailed analysis will be needed for specific targeted policy recommendations. TABLE 3.2: POLICY RECOMMENDATIONS Ecosystem Area High-Level Policy Recommendation Objective Strengthen coordination among multiple Expand clusters’ connectivity, coordinate stakeholders to support the ecosystem’s private and public action, and promote growth. connections among all stakeholders. Build the capacity of intermediaries and networking assets to increase community Expand clusters of intermediaries and and clusters, particularly between Gaza and establish stronger links with regional and Community West Bank. Linkages could also be made with international networks of talent. Jordan, proximate Arab communities, and the MENA region more broadly. Address gaps in practical business acumen Expand practical education in universities and technical training, train pipeline of and through rapid skills training programs talent for startup scale up, and encourage and accelerators connected with public participation of lower income/educated Skills education programs. population. Increase capacity building of mentors and foster the creation of angel networks. Aim towards professionalization of accelerators Address shortage of quality mentors and and facilitate entry of international talent (e.g. strengthen support services. mentors, entrepreneurs or capacity builders) into the ecosystem. Support Infrastructure Expand support infrastructure to support Connect ecosystem with domestic traditional tech verticals and connect startups with sectors and create tech verticals. market needs. Enable startups to scale up and Catalyze early stage financing and increase increase capacity of investors to quality of pipeline investment. strengthen pipelines and get startups investment-ready. Investment Address processes constraints (e.g. access to Reduce constraints for startups’ loans and funding). incorporation and operations. Constraints Gap Analysis and Policy Recommendations 25 1. Community Public policy programs can also help community spaces, and accelerators can also be supported to enhance their capacity 1.a. Strengthen coordination among multiple stakeholders to provide higher quality mentorship and training to startup to support the growth of the ecosystem. Ecosystem ventures with potential through their programs (in the case of coordination increases the effectiveness of community-building accelerators) of related activities. events and connectivity among clusters. Successful ecosystems, such as Buenos Aires, Tel Aviv or Boston, havcreated different Additionally, public policies can catalyze the introduction types of coordination mechanisms among stakeholders led of practical education programs for university students and by public policy actors (for example, municipal or government address part of the gap in business acumen. Initiatives, such as innovation agencies). This varies from stakeholder roundtables Demola in Tampere,22 Finland, and Cornell-Technion Campus23 to continuous consultation processes and support programs in New York were catalyzed to address this specific gap in their for public-private partnerships (PPPs). 21 In Boston, for instance, ecosystems. In both cases, a practical project-based education District Hall was founded through a cross-sector partnership is added for students to learn-by-doing with businesses. between the city and private actors to create a physical space and public resources to connect, support, and strengthen innovators while expanding the reach, visibility, and benefits of Greater Boston’s innovation economy. BOX 3.1: WHAT ARE CODING BOOTCAMPS? 1.b. Build the capacity of intermediaries and networking assets to increase community and clusters. Networking assets, and accelerators in particular, create clusters of Coding bootcamps are intensive short-term connections, increasing the community and helping to expand programs designed to train participants in it (Mulas, Minges, and Applebaum 2015). These intermediaries programming skills to make them immediately also serve to attract and train new talent to the ecosystem, employable in entry-level tech positions. expanding its community and the potential pipeline of In essence, they combine characteristics of indigenous startups. New York City created a network of traditional vocational training programs with the intensity of military bootcamps for new recruits, incubators/accelerators with a clear focus on community intermingling soft and tech skills learning in building and skills training, resulting in expansion of tech an intense manner, in what could be referred startup clusters and diversification of the ecosystem across the to as “skills accelerators.” Coding bootcamps city (Mulas and Gastelu-Iturri 2016). Promotion and support follow a structured process with three main of ecosystem events also help by expanding the community. characteristic features: 1) intense rapid-skills Riseup in Cairo or BDL in Lebanon are examples of the impact of training, 2) an experiential learning approach, ecosystem-wide events to expand and grow the community of and 3) curricula based on, and continuously entrepreneurs beyond their initial stages, attract international adapting to, industry’s demand. attention and a networks of partners, and connect with nontraditional partners (for example, traditional industries). Although the bootcamp methodology has primarily focused on coding skills, it has been also adapted for business and entrepreneurial 2. Skills skills as well as other technical skills. Usually, bootcamp programs embed “life skills” in 2.a. Expand practical education in universities and through their curriculum, enabling their graduates to rapid skills training programs and accelerators as well as be competitive irrespective of the industry in public education programs. Public policies can catalyze and which they choose to work, for example, the support both practical educational programs to address the ability to master new knowledge quickly and skills gaps in ecosystems. Coding bootcamps (see Box 3.1) efficiently, effectively work in a team, meet tight are nascent in the West Bank and Gaza, but they have proven deadlines, and so on. Evidently, these “life skills” successful at rapidly assessing market gaps and demands belong to the subset of future-proof soft skills in tech startup ecosystems. Moreover, these programs can (World Bank 2017b). serve to include the low-educated population into the ecosystem by providing a basic set of skills connected to the ecosystem demand. For instance, in New York City, the city’s initiative to support rapid skills training programs resulted in General Assembly, one of the largest providers of bootcamps worldwide, which serves to address skills gaps ranging from entrepreneurship and business skills to specific coding and technical skills through rapid skills training programs (Mulas and Gastelu-Iturri 2016). In Medellin, the city innovation agency catalyzed coding bootcamp programs in the city to provide technical skills for young people and support the growth of the tech ecosystem in the city (World Bank 2017b). 26 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA 3. Support Infrastructure success, which resulted in specialized startups with in-depth knowledge of industry niches and increased competitiveness of 3.a. Increase the capacity of managers and mentors in traditional sectors in the city, such as finance, media, advertising accelerators and facilitate entry of international talent and fashion (Mulas and Gastelu-Iturri 2016). Policy actions can (as mentors, entrepreneurs or capacity builders) into the be applied to catalyze industry-startup innovation through open ecosystem. Support can also be provided to increase the innovation and service codevelopment processes. For instance, capacity of managers and mentors (for example, through training Paris municipality has supported the corporate-startup service and capacity-building programs) of accelerators and outside codevelopment process through initiatives such as Data City mentors. Neither accelerators nor mentors currently have a Paris.27 In New York, the city catalyzed through a PPP mechanism support effect in the ecosystem. Enhancing the management, sector-specific accelerators for media and fashion, among others operations, and practical training of these actors is key for the (Mulas and Gastelu-Iturri 2016). maturity of the ecosystem. Support for accelerators should be focus on quality. Currently, there is an abundance of funding to accelerators, but this has not resulted in successful outcomes. 4. Investment 4.a. Catalyze early stage financing to enable startups to Focusing on managerial support and attraction of mentors with scale up and increase quality of pipeline investment. The startup and practical entrepreneurship and business experience West Bank and Gaza presents sufficient funding options for will be key to increasing quality of this support infrastructure. very early stage seed funding, with availability of small amounts In Kenya, the government, jointly with the World Bank, is (that is, $10,000-60,000) for startups in their first four years of designing a policy program to provide support to accelerators operation). However, it presents less availability of funding for through self-improvement plans that focus on quality. In other startups to grow and scale. Current efforts should be oriented ecosystems, support for accelerators has focused on attracting towards enhancing the quality of pipeline investment. This is international high quality accelerators to the ecosystem (for particularly important as VCs report that there are insufficient example, Barcelona)24. This type of policy support may be more investment-ready startups for their existing funding. Further difficult to implement in the context of the West Bank and support to address financial access and capacity-related Gaza, but the connection to international accelerator programs challenges by focusing on building the investment pipeline should be supported. The ecosystem already has ties with is needed. The World Bank is currently piloting an instrument leading accelerators in the United States, such as 500 Startups (the Entrepreneurship Ecosystem Matching Grant) that deploys and Techstars. grants that finance business development support services and capacity building to entrepreneurs. It supports the development A way to address this lack of experience and knowledge of of a pipeline of investible projects in the West Bank and Gaza by mentors is to attract international talent with such practical enhancing the capacity of enterprises to absorb funding from acumen. There are several support programs that can achieve the investment vehicles already in place. this goal, ranging from events that gather international talent and connect it to the ecosystem to more structural programs. Santiago, Chile, followed a more structured approach, creating a program (Startup Chile)25 to attract international talent to 5. Constraints the ecosystem. The program is in essence an acceleration- 5.a. Address process constraints. Policies related to conducting funded program for high-skilled international talent to conduct business are regarded as constraints insofar as they are perceived their ventures’ initial stage in Chile. The program introduced to lack central coordination and/or do not facilitate the growth specific activities to ensure knowledge spillovers between the of entrepreneurship. The overall rank for Doing Business in the international talent and domestic entrepreneurs. For instance, West Bank and Gaza (140 out of 189 economies) confirms the international entrepreneurs share coworking space with need to improve time, cost and procedures for startup and domestic entrepreneurs and they have to provide capacity entrepreneurial activity. Some entrepreneurs reported legal building and workshops on entrepreneurship and technical constraints that hindered startup creation. For example, one skills for domestic entrepreneurs. This mechanism has been entrepreneur stated, “The problem is not with registering the emulated by other ecosystems, including the K-Startup Grand startup or not. Palestinian law does not support most of the terms Challenge in Korea.26 in terms sheets, so we had to create a new entity outside Palestine to fulfil and complete the process.” Improving intellectual Even if this program cannot be applied fully under the property rights, tax incentives, and reducing the minimum constraints of the West Bank and Gaza ecosystem, the practical capital required to open a company are some of the areas that lessons of collocation and learning-by-doing between domestic have been identified where addressing process constraints could and international entrepreneurs can be applied by attracting potentially play a role in facilitating proentrepreneurship policies. temporary programs and competitions for international or regional talent to work with domestic entrepreneurs and the These policy recommendations only address the short-term built out links with high-quality mentor networks. actions to support the West Bank and Gaza ecosystem. Policy makers should constantly monitor the ecosystem (which can be 3.b. Connect ecosystem with domestic traditional sectors done through the coordination mechanism once in place) and and create tech verticals. The West Bank and Gaza ecosystem iterate the policy approach as needed and address new gaps could also expand beyond the tech sector, including traditional or growth hurdles as they arise. As the ecosystem grows and industries, such as agriculture or craft and related trades. This was, evolves into more maturity, new needs will emerge and other for instance, one of the key features of the New York ecosystem’s specific policies would be more applicable. Gap Analysis and Policy Recommendations 27 Appendix: Survey Methodology and Analysis Methodology Outreach Strategy Entrepreneurs filled in an online survey available at Survey Questions http://survey.techecosystems.org/. Agility Management For the survey of startup founders, the standard questionnaire & Financial Consulting were hired to partner with local developed under the Global Entrepreneurship Research organizations in order to disseminate the survey. These Network (GERN) was used, with some additional questions to partners played a crucial role in not only identifying startups, understand specific constraints that startups face. The GERN- but also connecting and introducing the survey and the study developed standard questionnaire includes the following: team to startups. 1. Educational history (including vocational, bootcamps, Partners included including Leaders Organization/Fast and certificate programs) Forward, Bethlehem Business Incubator, Ibtikar Fund, Sadara 2. Employment history Ventures, the Business Startup Incubator Support Program 3. Founding history (serial entrepreneurship) (BSIS), and Palestine Information and Communications 4. Support programs (for example, acceleration, incubation, Technology Incubator (PICTI). and so on) history 5. Connections with mentors and mentees Data was collected through (1) face to face sessions; (2) phone 6. Connections with investors (angel and institutional) interviews; (3) networking events and workshops at accelerators and incubators; (4) and finally online communication (that is, In addition to this questionnaire, the geographic location of Skype, Facebook, Email, and so on). startups and intermediaries were collected (for the geographic Data Pipeline analysis) and included the following standard questions: Survey data used in this report originated with the custom 1. Incorporation: On average, how many days did it or survey and was initially retrieved in raw JavaScript Object would it take you to incorporate a new startup? Notation (JSON) format. Data was converted to comma- 2. Funding: On average, how many days did it or would it separated values (CSV) and then combined with raw data take you to set up a bank account for your startup? from additional sources, then cleaned of outliers and testing 3. Credit: On average, how many days did it or would it take data. Nodes without location data, and locations without you to get a line of credit for your startup? geocodes, were passed to the Google Maps API in order to 4. Funding: On average, how many days did it or would it obtain standardized location data wherever possible. This take you to raise a round of equity funding? new dataset was deduplicated using a process that marked 5. Hiring: On average, how many days did it or would it take similarities between names, email addresses, URLs, and dates. you to hire an employee, from job posting to employee Entities that were determined to be likely duplicates were then start? merged, maintaining all existing data and privileging more 6. Office space: On average, how many days did it or would recent data in the event of conflict. Duplicate edges resulting it take you to obtain office space for your startup? from this process were removed. Finally, college majors and 7. Exit: On average, how many days did it or would it take company industries were categorized using a machine learning you to exit your startup? approach that used a set of manually categorized responses to predict category based on word similarity. From this cleaned and augmented dataset, panel and graph data were then generated for analysis. 28 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA Limitations founder) was privileged. In addition, respondents were relied on to accurately select names of entities already in our database It is difficult to determine how representative the sample through an autofill mechanism in order to properly attribute new is. The collection of the data was heavily dependent upon information to existing entries. Although a machine learning the participation of existing networks of individuals, and as driven data deduplication process was employed before analysis, such the networks of the study team’s partners are likely to be this cannot guarantee to have resolved every duplicated entry, overrepresented. To a certain extent, this bias is not problematic, and such fuzziness can affect exact numbers in the social as it means that the data and analysis document those individuals network analysis. and nodes that are actively and currently engaged in developing the ecosystem – this suggests that they are also more likely to The sample is highly influenced by survivorship bias. participate in and respond to policies designed to develop the entrepreneurs that are so successful that they leave the ecosystem. However, since there are few other databases with ecosystem were not captured. For example, a weak signal for serial which to compare the data, it is difficult to determine exactly how entrepreneurs may suggest not that people do not repeatedly representative the sample truly is. start businesses, but that once they have had one startup, they pursue subsequent startups in other more developed ecosystems. The sample is small and influenced by outliers. To address Currently, there is no way of capturing data on those individuals this, where possible medians were used rather than means that leave, or a way of identifying them in the dataset. In addition, as descriptive statistics. Some analyses (for example, that of the survey only captures entrepreneurs who were active during “successful” startups, rely on small portions of that dataset, and the period of the survey, and as such it does not capture failed thus give relatively weak information on unobserved, population- entrepreneurs who have dropped out of the ecosystem. level characteristics. Comparative Data from Other Ecosystems Data cleanliness is difficult to evaluate. Missing data can Through the GERN Ecosystem Connection Project, data was represent a true lack of connection in the ecosystem, or it is potentially the result of survey dropoff or lack of interest on collected on nine startup ecosystems. When available, this the part of the respondent. Sometimes conflicting dates or data was used to compare West bank and Gaza’s ecosystem’s meta information was recorded from multiple sources, in which performance in comparative indicators. Details of the data case privileged the source closest to the entity (that is, the collected are specified in Table A.1 TABLE A.1: DATA COLLECTED IN SURVEYED ECOSYSTEMS Region Survey Start Survey End Survey Owner Number of Responses New York Cityc May 2013 November 2014 Endeavor Insight 643 Cairod December 2014 March 2015 Endeavor Insight 227 Medellíne February 2015 September 2015 Endeavor Insight 1228a Bogotáf February 2015 September 2015 Endeavor Insight 1228a Singaporeg March 2015 June 2015 Endeavor Insight 246 Santiagoh April 2015 June 2015 Endeavor Insight 147b Lebanoni February 2016 August 2016 World Bank 218 Dar es Salaamj July 2016 September 2016 World Bank 221 West Bank and Gaza November 2016 February 2017 World Bank 423 Note: Surveys followed a mixed distribution strategy that included telephone, email, and in-person surveys. In some regions, data sources such as CrunchBase, AngelList, Mattermark, and LinkedIn were used to accumulate initial lists of founders and companies for outreach. Before analysis, duplicate entities and relationships were then merged using a combination of machine learning and manual methods. Educational degrees and job titles provided by respondents were also categorized using machine learning methods. a. 1,228 responses were collected from the entirety of Colombia. For the purpose of this report, only relevant data from Medellín and Bogotá was used. b. The sample size is somewhat low given the size of the Santiago startup sector. c. See http://www.nyctechmap.com/. d. See http://www.cairotechmap. com/. e. See http://www.medellintechmap.com/. f. See http://www.colombiatechmap.com/. g. See http://www.mapeosantiago.com/. h. See http://www.singaporetechmap.com/. i. See Mulas, Qian, and Henry 2017a. j. See Mulas, Qian, and Henry 2017b. Appendix: Survey Methodology and Analysis 29 Analysis FIGURE A.1: CUMULATIVE SUMMARY OF NODES The stakeholders in the West Bank and Gaza startup ecosystem 4000 NODE TYPE can be represented using a social network comprised of nodes Event (people, organizations, groups, and events), and edges, which 3500 Organization are the relationships between them. For the social network Person analysis, an edge was considered as a part of an ecosystem if either of its endpoints were in the region. From these edges, 3000 the relevant nodes for the network were extracted. Technically, the network is multipartite. However, given that individual investors can function similarly to institutional investors, Count Cumulative 2500 founders of small startups are practically synonymous with their companies, and events and groups are often startups themselves, the network is treated as if it only contains one 2000 type of entity in order to simplify exploration. Nodes are never removed from the dataset, even if the 1500 represented entity no longer exists. In other words, once a startup appeared in the dataset, they were kept in the dataset for all subsequent years. There were two reasons for this 1000 decision. First, accurate end dates for startups were difficult to gather. Second, the primary interest was in mapping the social dimensions of the startup network, not creating a year-by-year 500 catalogue of startups. Although startups may close, socially they still function as nodes within the urban innovation ecosystem 0 that can introduce other nodes to second-order connections. 2009 2010 2011 2012 2013 2014 2015 2016 FIGURE A.2: CUMULATIVE SUMMARY OF EDGES 5500 EDGES LABEL Acquired 5000 Partnered with Knows Accelerated/incubated 4500 Inspired Invested in 4000 Hosted Count Cumulative of Edges Member of 3500 Mentored Founded 3000 Attended Worked at 2500 Studied at 2000 1500 1000 500 0 2009 2010 2011 2012 2013 2014 2015 2016 30 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA BOX A.1 WHAT IS CENTRALITY? By calculating centrality measures of stakeholders in the dataset, the key Degree centrality players in the community can be identified. The diagrams below, while not specific to our dataset, help illustrate the definition and interpretation of each type of centrality. Red indicates higher centrality values. Blue indicates lower centrality values. Closeness centrality Degree centrality measures the number of other nodes within the ecosystem to which each node is directly connected. It does not take into account any second-order connections. Closeness centrality measures a node’s social distance to other nodes. It is expressed as the inverse of the average distance from each node to every other node in the network. A low closeness centrality indicates that the firm Eigenvector centrality is on the edge of the network. Eigenvector centrality augments degree centrality by taking into account the connectivity of the nodes to which a node is connected. Highly connected nodes within highly interconnected clusters have high eigenvector centrality. Betweenness centrality Betweenness centrality measures how many times a node acts as a gateway in the network. The higher the betweenness centrality of a firm, the more paths run through that firm to connect two other firms. High betweenness centrality means that a node is a key bridge or facilitator between different clusters. Source: Diagrams are from https://en.wikipedia.org/wiki/Centrality. Calculating centrality measures on different subnetworks Bank and Gaza, the analysis reveals that investors are the most in the data builds understanding of which players in the directly connected players and accelerators and incubators are ecosystem are the most important. In the case of the West the gateways in the ecosystem. TABLE A.2: CENTRALITY OF KEY PLAYERS IN THE NETWORK Degree Betweenness Eigenvector Closeness Accelerator 5.12903 95.3763 1.41507E-05 7.2721E-07 Founder 6.78771 37.221 5.15927E-05 6.28573E-08 Investor 8.70213 29.5071 0.000180018 6.28371E-08 School 2.71605 11.1578 0.000156803 6.26501E-08 Startup 3.41909 5.65007 1.61144E-05 6.26615E-08 Appendix: Survey Methodology and Analysis 31 Short-Term Success Long-Term Success A fixed effects logit model was used where the dependent Long-term success is measured by a startup’s ability to create variable is the probability of the startup raising funding in jobs for the ecosystem. As such, a logit model was used where a given year of existence28 and the explanatory variables the dependent variable is hiring occurrence weighted by years are lagged in order to gauge the effect of centrality in the of existence, such that the percentage of years that the firm hires employees was captured.29 For simplicity, this number investment network on a startup’s short-term success. Only can also be interpreted as the average probability a firm will the degree centrality is a direct measure of the number of hire in a given year. investors a startup has. Eigenvector and closeness centrality capture the effects of second-order and beyond connections Startups with foreign investors and founders with more formal to investors. education are more likely to consistently hire. An investor from an additional region doubles the likelihood of hiring, and The greater a startup’s eigenvector centrality (the more an additional bachelors, masters, professional, or doctorate connected it is within a cluster of accelerators, investors, and degree increases the likelihood of hiring by 34 percent. funded startups), the more likely it is to raise funding in the Participation in acceleration programs and mentorship next year. However, these effects are offset by the finding that relationships have no significant effect on long-term hiring the more direct investment connections the startup has, the probabilities. Also, serial entrepreneurs are less likely to hire consistently, suggesting an opportunity to increase the overall less likely it is to get funding in the next year. The negative quality of the startup ecosystem as a learning mechanism for effects are likely due to the fact that once a startup has received founders. No significant impact of mentorship on job creation funding once, it is less likely to need it in future periods. was found. TABLE A.3: EFFECT OF CENTRALITY IN INVESTMENT NETWORK ON SHORT-TERM FUNDING SUCCESS30 Estimate Std. error t-value Pr(> t) startup_prev_degree_all_investment -9.115e-01 4.993e-01 -1.826e+00 0.0704 . startup_prev_eigenvector_all_investment 1.345e+17 1.261e+09 1.067e+08 <2e-16 *** startup_prev_closeness_all_investment -1.435e+04 1.427e+04 -1.006e+00 0.3165 year_existence -2.141e-01 1.722e-01 -1.244e+00 0.2161 --- Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1 TABLE A.4: EFFECT OF STARTUP CHARACTERISTICS ON LONG-TERM HIRING SUCCESS Estimate Std. Error z value Pr(>|z|) sum_acceleration_occurrence 9.851e-02 1.909e-01 0.516 0.6059 sum_funding_amount 8.498e-07 5.235e-07 1.623 0.1045 num_distinct_investors -2.392e-01 2.459e-01 -0.973 0.3307 num_distinct_investor_regions 7.766e-01 4.432e-01 1.752 0.0797 . num_distinct_mentors 2.531e-03 4.112e-02 0.062 0.9509 num_distinct_founders -9.791e-02 8.828e-02 -1.109 0.2674 sum_founder_previous_startups_founded -3.273e-01 1.286e-01 -2.544 0.0109 * sum_founder_previous_jobs -6.189e-03 6.553e-02 -0.094 0.9248 sum_bachelor_master_professional_doctorate_degrees 2.938e-01 1.532e-01 1.917 0.0552 . sum_associate_bootcamp_certificate_degrees -1.717e-01 2.723e-01 -0.631 0.5283 (Intercept) 1.296e-02 2.017e-01 0.064 0.9488 --- Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1 32 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA Notes 1. As a reference for the sample size, the Investment Development 17. C-Level is an informal term used to collectively refer to a corporation’s Authority in Lebanon (IDAL) reported 800 companies in the IT sector, most important senior executives. with 200 companies focused on software development, in Lebanon in 2005. See IDAL 2016. 18. In almost all regions, startups with at least one founder with previous management experience were more likely to be funded than startups 2. https://startupgenome.com/. without any founders with managerial backgrounds, and this multiplier ranged ~1.0-1.5. 3. http://www.digital.nyc/. 19. Additional demographic or employment data about mentors was 4. http://www.techmap.london/. not requested. 5. https://www.galidata.org/. 20. Survey data does not represent aggregates of total investment in the ecosystem; analysis is focused on trends. Reported investment figures 6. PCBS conducts an enterprise census, but it does not cover by VC describe their total investment on the ecosystem as reported preincorporation activities and startups in the detail required for an in the interviews. analysis similar to the one presented in this report. 21. See, for example, Learning from Leading Startup Ecosystems, event 7. See “Outreach Strategy” in Appendix A for full list of partners. organized by the Information Technology and Innovation Foundation, Washington DC, 2 May 2017. https://itif.org/events/2017/05/02/ 8. See “Limitations” in Methodology section of Appendix A for more learning-worlds-leading-startup-ecosystems. information on the limitations to the study approach. 22. https://tampere.demola.net/. 9. See “Limitations” in Methodology section of Appendix A for more information on the limitations to the study approach. 23. https://tech.cornell.edu/jacobs-technion-cornell-institute/ overview. 10. The data collected for this analysis suffers from an inherent survivorship bias, the precise impact of which is difficult to quantify 24. http://mobileworldcapital.com/numa-barcelona-primer- (see “Limitations” in Methodology section of Appendix A for more programa-europeo-dirigido-startups-fase-crecimiento/. details). 25. http://www.startupchile.org/. 11. Two outliers found in the survey, which are not tech startups, were excluded from this number: the Palestine Food Industries Union 26. http://www.k-startupgc.org/. (2,000) and Nashaz TV Studio. These organizations are linked to only three founders and have extremely low centrality within the 27. http://www.datacity.paris/. ecosystem. 28. The amount of funding raised was not taken into account, since this 12. Female founder participation in the West Bank and Gaza ecosystem is heavily influenced by the type of business and prone to outliers. is also above the 17 percent global average reported by CrunchBase (Teare 2017). 29. The number of employees hired was not taken into account, since this is heavily influenced by the type of business and prone to outliers. 13. Of 415 instances of founding, only 62 percent (261) of those instances have the age of founders available. 30. For this regression, startups were restricted to those founded after 2008 in order to avoid confounding influences from the global 14. http://nyctechmap.com/. financial crisis. 15. Of 415 instances of founding, only 53 percent (224) of those instances 31. http://gern.co/gern/ecosystem-connections-mapping. have the major of founders available. 16. Of 636 instances of work history at the time of founding, only 52 percent (336) have the job level of founders listed. Notes 33 References 1. Baird, Ross, Lily Bowles, and Saurabh Lall. 2013. Bridging the “Pioneer 9. Mulas, Victor, and Mikel Gastelu-Iturri. 2016. New York City: Gap”: The Role of Accelerators in Launching High-Impact Enterprises. 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DC: World Bank. https://openknowledge.worldbank.org/ handle/10986/23029. 34 TECH START-UP ECOSYSTEM IN WEST BANK AND GAZA References 35 This work is available under the Creative Commons Attribution Non-Commercial 3.0 IGO license (CC BY NC 3.0 IGO). Under the Creative Commons Attribution Non- Commercial license, you are free to copy, distribute, transmit, and adapt this work for non-commercial purposes, under the following conditions: Attribution— Please cite this work as follows: World Ban k. 2018. Tech Startup Ecosystem in West Bank and Gaza.; and Henry, Scott. 2017. Tech Start-up Ecosystem in West Bank and Gaza. Findings and Recommendations. License—Creative Commons Attribution Non-Commercial CC 3.0 IGO Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. 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