In the next few years, the work of a few Jordanian agents of change, investing millions of dollars in small companies, could matter more for Jordan’s economic future than the tens of billions of dollars spent on developing real estate in the last decade.
By Bilal Hijjawi. This article first appeared in Venture magazine.
Here’s a dichotomy of approaches to reshaping Jordan’s future economic scenarios. First scenario: Continue to build mansions, towers and malls of stone, fill them up with imports and still expect great economic progress. Second scenario: Improve schools and curriculums, support knowledge communities, invest in many promising ideas and promote a culture of can-do entrepreneurs.
The second scenario has more potential to forge an ecosystem for economic independence based on wealth creation.
The first scenario merely creates a pretend-culture of riches dependent on foreign philanthropy. The second scenario is economically viable while the first is what will continue to deepen Jordan’s trade deficit.
Here’s a case of what a few young Jordanian minds are accomplishing when the second scenario works efficiently. Desertification is an ongoing global issue that can be tackled. “[Jordan] won’t have any farmland by 2050,” said Yousef Wadi, if Jordan itself, doesn’t pay attention to this issue.
Wadi is one of the four young graduates from Jordanian universities that set up OaSys, an experimental project that can deliver a nationwide wireless system for monitoring and reporting the encroachment of desertification in real time. The team includes himself, Hani Abu Huwaij and Alexandar Viktorov of the German-Jordanian University, and Monir Abu Hilal of Princess Sumaya University for Technology, with Mohammad Saleh providing the team with mentorship.
“What’s currently available in Jordan is an ineffective manual system for collecting such data,” Wadi said last month in his presentation at Meydan, a seed capital fund set up by Maher Kaddoura. OaSys offers artificial intelligence software that senses the factors of desertification, analyzes desertification levels and then calculates trend lines to monitor changes and forecast the future state of the land. The project has been pre-selected to compete internationally for the Imagine Cup, an international student technology competition hosted and supported by Microsoft.
The power of ideas
Imagine if a Jordanian entrepreneur creates a new wizardry in online search engine algorithms; or one that revolutionizes fuel efficiency in locomotives, or another that invents a new battery formula that becomes the most efficient in the world. Google’s or Yahoo!’s unique search engines rewarded the US economy with hundreds of billions of dollars in wealth creation and created countless companies that feed on their inventions, employing hundreds of thousands of Americans.
Inventions are also never bound by one nationality or another but are a direct result of people believing in their potential within an innovative environment that encourages disrupting thoughts. “You don’t need to raise huge amounts of capital to do this,” said Usama Fayyad, former Yahoo! executive, and serial entrepreneur who is now heading the Oasis 500 initiative. Oasis 500 was adopted and seeded by the King Abdullah II Fund for Development (KAFD) to create effective steps towards creating an ecosystem for entrepreneurship.
Oxygenating entrepreneurship by nurturing a responsive ecosystem requires small capital, as Fayyad believes, but it also needs commitment and hard work to turn Jordan’s inherently cynical culture into one of believers and can-doers.
In an interview with Fareed Zakaria during Davos 2010, the King himself succinctly vocalized how cultural attitudes can pose a big challenge for change in Jordan. The King openly criticized the common “tsuk” sound by “members of” Jordanian society whenever bold initiatives were proposed.
“That has been the major challenge that I’ve had over the past 10 years; and [that is] not to be intimidated by the ‘tsuk’ I get from society,” His Majesty told Zakaria. “We move forward, sometimes we get knocked down; you have to dust yourself off and just keep trying,” he explained.
Capital is abundant in the Arab world but it is also marked by cowardice. Most investment today gravitates to growth-stage companies, according to Fayyad. These companies have products, clients and proven income and margins and as such offer less risk. Some Arab investors once forayed into early stage funding but “Quickly migrated to later stage funding because they wanted to do fewer deals that are lower risk,” Fayyad added.
Fayyad further explained that fewer deals means investors can dedicate more money and effort in the hope of realizing higher returns on their investment by existing at higher future valuations. But he warns that the MENA region’s SME deal-flow has been suffering because the chain is broken at the bottom and so it isn’t feeding the market with interesting new SMEs.
“Most Jordanian ideas can’t go anywhere for seed or early stage funding,” said Fayyad, calling this vital stage of entrepreneurship a “desert.” A few entrepreneurs do raise a tiny sum of capital personally or from their families but beyond that stage, Fayyad said, they enter this desert.
Fayyad believes opportunity is much bigger in that desert of early-stage funding, hence the name Oasis 500. His fund is set up to mobilize ideas from concept to design and implementation. Fayyad wants to bridge this desert with Oasis 500’s $10,000, earmarked for seeding startup models that prove to be sound. Once this is done, the next stage is where startups become structured ventures and owners of a product prototype. This is where angel investors enter the scene with funding commitments that range from $50,000 to $250,000 to take the company to a growth stage or SME stage.
But with an angel investor class virtually non-existent in the region, Oasis 500 is developing its own network and cooperating with other networks, such as Meydan. Fayyad’s optimism is in overdrive, hoping the fund’s strategy will see 500 ventures brought to life within the next decade or so in spite of the sticky global economic downturn. His optimism feeds on the probability in numbers and patience.
“When you look at 500 companies striving for success; out of those you’d get between 10 and 25 companies that could become big successes and two to three becoming huge successes,” he argued. “So it’s more or less just a numbers game.”
Oasis 500 is a long-term play, with a 10 to 15-year horizon for making success out of the ideas they finance. And even if the results do not meet the expectations of the fund’s investors, “You’ve trained hundreds of entrepreneurs and you’ve given them a taste of what it’s like to start their venture versus doing nothing.” Fayyad continued, “Just like any company, ventures fail and a few succeed. This applies across the board to any business that you can think of and in any sector.”
To lower risks, Oasis 500 will apply rigorous screening that matches entrepreneur character with the commercial viability of ideas. “You look for people who are committed and who are going to show you signs that they’re willing to quit their jobs and dedicate their time… it’s about the fire in their eyes.
Many people might have a lot of passion but not the good idea to start with, or a good idea but no passion to make it work,” he adds. After the idea passes through a selection process to enter the Oasis 500, the entrepreneur goes through training to understand the various components for building a business. “He or she either evolves the idea correctly or they start to realize that this is the wrong idea. This helps them produce the second and third ideas. We’re not here because of funding only but we hope the benefit is that in the process of selecting those 10 percent that would go through this program, we’re actually creating trained resources.” Ultimately, Fayyad and others seek effective ways to spread the bug of entrepreneurship.
“We believe Jordan is the strongest place to start [the fund] simply because of the dynamics of it all… in terms of the availability of talent in IT and digital media,” added Fayyad. The lack of many opportunities for investment in Jordan also plays a positive role in motivating creative thinking, according to Fayyad. He pointed out the availability of many trained engineers in Jordan and the presence of successful exits for companies like Maktoob.com, which was sold to Yahoo.
“Maktoob is an outstanding example. One of the things that also opened my eyes is that I’m personally invested in six successful companies in Jordan; one of which (MenaITech) was sold to Optimiza.” MenaITech was the first to develop enterprise-wide software solutions specialized in the development and distribution of Human Capital in the MENA region market. Fayyad entered the venture in 2006 and exited early 2008 when it was acquired by Optimiza, a leading IT fund that was one of the first in Jordan to engage in aggressive vertical and horizontal mergers and acquisitions, as well as the first to float IT stocks at the Amman Financial Exchange.
“When I saw that kind of activity happening and that level of interest present I started to think that we’d need more of these companies. Unlike real estate and other sectors, ICT and cyber ventures are real growth sectors and once you have one success you’re creating a whole new ecosystem for others.”
“Ultimately” Fayyad added, “the plan of Oasis 500 is simply to create an opportunity for Jordanians.”