This summer, Israel and UAE announced a historic peace deal aimed at ending tense relations between them. There are certainly political and cultural ramifications from the agreement, of which I am no expert in and have no intention of exploring here. More important to me is the new situation’s economic benefits and what this could mean for venture capital and startups in the two countries and the broader region.
Israel’s technology hub is one of the fastest-growing globally, home to top talent and resources, particularly in the AI field. Known as “Silicon Wadi” after, well…you know, many top startups in the region have seen breakout success, such as Fiverr, Waze (acquired by Google), and Moovit (acquired by Intel). Beyond the companies themselves, the country is a top performer for VC, raising USD 5B in the first half of this year alone (and during a pandemic).
On the other side of the table, UAE is home to Dubai and Abu Dhabi, well-known financial centers and technology hubs in their own right. Abu Dhabi’s startup community focuses on many different sectors, such as FinTech, AI, aerospace, education, healthcare, and mobility. Government-backed Hub71 has also played a large part in the ecosystem’s growth and establishing Abu Dhabi as an innovation center. The initiative has partnerships with many global accelerators such as Techstars and financial partners such as Softbank’s Vision Fund and Mubadala Investment Company.
With these two countries being home to the top capital, talent, and startup ecosystems in the Middle Eastern region, many benefits can come from potential financial deals. Isreal’s top outside investors remain the US and China, so diversification and access to more funding will help the ecosystem grow faster than it already has. On the other hand, UAE will be looking to expand its role in technology investments, move away from oil, and establish itself as a global startup hub. There may also be more incentive to increase funding as COVID-19 has decimated the tourism and real estate industry for UAE this year.
As is the case with so many of these negotiations, this was years in the making. As more information pours out, it seems like the beginning benefits were, in fact, economical in nature, providing a foundation for potential venture capital investment deals in the future. There are plenty of hurdles for this, however. Israel now has relations with three Arab nations (the other two being Jordan and Egypt). If venture capital firms in the UAE have LPs from other countries without specific agreements with Isreal, they may not receive the necessary permission to invest there. Also, just because a deal was signed doesn’t mean years of animosity between the two nations have just disappeared. There is much potential for startup funding from this agreement, but only time will tell if these remain positive trends.