The Global Startup Ecosystem Report 2021

Startup Culture on the Rise in Palestine

Thanks to the market’s small size and surrounding geopolitical tension, Palestinian entrepreneurs face more than their fair share of challenges. But despite these obstacles (or perhaps even because of them), a new wave of interest in entrepreneurship is currently cresting in the ecosystem.

Palestine has never lacked for talent, but previously that talent was often largely cut off from mentoring and collaboration. That is starting to change. Startup Genome’s 2021 analysis of the ecosystem revealed a strong sense of community — higher than the global average — as measured by hours of help founders receive. In addition, a wide array of organizations support startup founders, including Palestine’s Information and Communications Technology Incubator (PICTI) and Gaza Sky Geeks. In addition to business development support, many offer co-working spaces and access to mentors such as Flow Accelerator, UMake, and Al-Jabal. Intersect Innovation Hub accelerates social, fintech, and cybersecurity entrepreneurs, Jerusalem’s Station J offers young entrepreneurs to connect with resources and knowledge exchange, and Fikra Innovation Hub, a subsidiary of telecommunications company PalTel group, runs hackathons, a co-working space, incubator, and investment fund.

With the increasing use of technology, Palestinian entrepreneurs can also now more easily tap into meet-ups in global ecosystems. Even more importantly, the emergence of virtual mentorship networks opens up new possibilities of accessing high quality mentorship expertise regardless of location.

The pool of talent receiving help is also broadening. While in previous years interest in entrepreneurship was mostly confined to a small group of like-minded enthusiasts, now increasing numbers of women, young people, and those without international entrepreneurial experience are participating. Local universities report increased interest in STEM and other fields that prepare students to build tech startups, and professors with expertise in these fields are increasingly engaged in supporting local entrepreneurship.

All of this adds up to an increasing buzz about startups on the ground. “In the past few years, we've started hearing entrepreneurs and investors talk about convertible notes. We've even started seeing established companies looking for ways to engage with the startup ecosystem, which was not the case before,” reports Khaled Abu Alkheir, Early Stage Financing Program Manager for the World Bank’s Innovative Private Sector Development Project (IPSD) in Palestine, a $22 million program that helps link local founders to regional markets and offers matching grants for early-stage investors.

The ambitions of Palestinian entrepreneurs have long been limited by a gap in funding, and early-stage funding continues to remain a key problem in Palestine, with very few seed and no recent Series A rounds reported in the ecosystem. Reduced investor presence and activity in the ecosystem has further exacerbated this problem in recent years. The launch of the ISPD’s government-backed effort to bridge that gap is both good news for cash-starved startups and a sign that Palestinian leadership is increasingly committed to leveraging entrepreneurship to drive economic development.

A World Bank report looking at the region between December 2016 and February 2017 counted 51 investors in the West Bank and Gaza, of which about three quarters were angel investors. The ISPD has since driven awareness of the needs and opportunities of Palestinian startups, resulting in a growing number of local angel investors and greater interest among large companies to make partnerships with startups.

Recent success stories to come out of Palestine’s growing ecosystem include Hakini, an app that improves access to mental health professionals, Shadana Yoga’s online yoga and meditation classes, and Flowless, which uses IoT to improve water management and detect leaks.

With IPSD providing essential funding and angel activity picking up, there is ample opportunity to address seed-stage funding gaps. Forming professional angel groups, reducing the risk for angel investors by public-private funding partnerships, and better connecting funding sources and startup support organizations to create high quality deal flow are just a few examples of initiatives that could further catalyze the growth of Palestinian startups. .

The Palestinian government has further demonstrated its commitment to boosting the ecosystem through regulatory changes to enable the growth of local Fintech startups. In 2021, the Palestine Monetary Authority (PMA) launched an electronic payments gateway to develop necessary infrastructure and accelerate the adoption of digital payments across the economy. A new companies law will streamline the registration of Palestinian companies, while a second law specifically targeted at supporting the startup ecosystem is currently being drafted.

A burst of Palestinian e-wallet and e-payment startups that have their eyes set on the wider MENA market is the result of these reforms. As was the case worldwide, COVID-19 drove local innovation in the Edtech and Healthtech sub-sectors as well. The influx of people and energy into these startups is pushing the government towards further action, leading to a positive feedback loop between reform and talent activation.

Further, traditional pillars of the Palestinian economy including Agriculture, Construction, Energy and Tourism, are yet to see an influx of tech talent and new business solutions. As that starts to change, the local economy is likely to benefit from increased competitiveness and growth in these hugely important sectors.

Challenges remain for Palestinian entrepreneurs. The funding gap is far from fully solved, entrepreneurs still often struggle to expand into regional and international markets, and the nascent ecosystem is yet to see huge exits or investment rounds. But the essential seeds of a thriving ecosystem — including talent, enthusiasm, community, and government support — have been planted. If tended carefully, they may bear fruit for the entire Palestinian economy.