Dialing Ramallah for Seed Capital

Calling people in the venture world generally involves dialing the same six area codes, most located within an hours’ drive of Palo Alto, Calif.

Last week, however, I got a break from area code repetition, when for the first time I contacted a VC from his home base in the West Bank.

Granted, Middle East Venture Capital Fund (MEVCF) co-founder Saed Nashef was due back in Silicon Valley in the next couple of weeks. And true, he had just orchestrated a long stint of fundraising that included some of the Valley’s most prominent tech companies.

Still, it’s clear from talking to Nashef, a Palestinian native-turned- U.S. software entrepreneur, that he’ll be spending a lot more time in his the West Bank and Gaza going forward. The fund will be attempting to grow the startup ecosystem in a place that graduates a fair number of engineers but, as Michael Greeley of Flybridge Capital Partners noted after a recent trip to the region, has to date offered them few job opportunities.

Following are some of his insights on how to jumpstart entrepreneurial activity through the fund, which has secured nearly $29 million toward its $50 million goal from such LPs as Cisco, Google, The Soros Economic Development Fund, Skoll Foundation and the European Investment Bank in a period when funds in neighboring Israel have not reported any closings.

Q: How did the concept for the fund come together?

A: The idea originally was started by Yadin Kaufmann (of Veritas Venture Patners), an experienced VC in the U.S. and Israel. His vision was to find a way to take some of what he learned and apply it to pockets of entrepreneurship in the region to establish new ecosystems. We met about three years ago and decided to match up together. We’re the two general partners in the fund, and we’re looking to hire a third general partner.

The plan is that the fund will actually be based in Ramallah, and that will be main office of operations. But we will have another office in Israel, where Yadin will be based, and which will help when needed and when portfolio companies want to leverage expertise in Israel’s high tech industry.

Q: Is this what they call a double-bottom-line fund?

A: The fund indeed has a dual purpose. It has both a for-profit purpose and a social purpose. We’re going to be investing purely based on business criteria, but we’ll also work to leave an impact on the Palestinian economy by creating high value added jobs and hopefully increasing the level of connectedness that the IT community has to local markets.

Q: How would you characterize the local IT talent pool?

A: Where we saw the opportunity in Palestine is the fact there is a significant pool of talented and skilled engineers both in telecommunications and in the software industry that is not being fully utilized. In addition, there are high-caliber educational institutions graduating 2,000 to 2,500 annually in computer-related fields who don’t have a lot of opportunities in finding a job. We would like to reverse the brain drain.

Q: Who are the main tech employers now?

A: Today we don’t have the presence of multinationals. You wouldn’t find Microsoft or Cisco or HP with offices here. But many of these big names have in the past two to three years done serious outsourcing to Palestinian companies. Cisco, for instance, has three to four projects ongoing for the past three years with Palestinian companies, providing 60 to 70 jobs. This trend is probably the first step of building to capacity.

Q: What will be your focus areas for investment?

A: We will probably make an investment in potentially one outsourcing company, but really our focus is going to be more on the areas that are going to be very relevant to Palestine and the region. We will look at Internet and mobile in the Arab world, looking at online gaming, online ads, social networks, cloud computing and ecommerce as well as content-oriented companies. The idea is probably to invest in two to three companies per year for the next five years.