Can Palestine become a birthplace for impact-driven ventures?
Majd Zghyer is the strategy officer at uMake, an entrepreneurship support organisation (ESO) based in Ramallah, Palestine.
In a recent encounter with my friend Baker Bozeyeh, co-founder and CEO of Flowless Water Systems, the word that came up most often throughout the conversation was ‘impact’. Inspired by the need to provide a tech-enabled solution to the challenges of managing water usage, Baker and his colleagues have embarked on a grand ambition of building an ‘impact-driven’ business that seeks to address water scarcity challenges in Palestine and across the world. A graduate of Palestine’s Founder Institute pre-Seed accelerator programme, Flowless represents a genuine success story of determination, resilience and commitment to deliver positive impact. Since its establishment in 2019, Flowless has managed to provide its smart water management technology to a number of diverse beneficiaries across Palestine and Jordan. Currently, the startup is planning to scale its operations in some countries across sub-Saharan Africa to help in the global effort aimed at delivering sustainable access to safely managed water to 2.2 billion people.
Ultimately, achieving positive measurable social, economic and environmental impact has been gaining popularity from diverse business communities across the globe. The mantra of ‘Doing Well by Doing Good’ has infiltrated economic thinking and it has been used widely by top tier CEOs of large corporations such as Larry Fink, the CEO of BlackRock, the US-based investment management firm which manages more than $10 trillion in assets. In his latest annual letter to CEOs, Fink referred to the ‘power of stakeholder capitalism’ in providing sustainable solutions to the enormous challenges that face our societies in an interconnected globalised economy. Precisely, he advised business leaders to shift from solely focusing on maximising shareholder value into a long-term inclusive approach that takes into consideration the well-being of and impact on all stakeholders affected by the company’s activities, including its customers, employees, suppliers and the surrounding environment.
The impact investing revolution
The ideas in Larry Fink’s annual letter have been embraced by a wider segment of the global investment community and are now being echoed across various asset allocation categories including public markets, private equity and venture capital. Importantly, impact investing has emerged as a distinct field from the standard environmental, social, governance (ESG) investment practices adopted by an increasing number of companies across the world. While ESG investing is focusing on merely ‘reducing harm’ through managing risks, impact investing, on the other hand, goes one extra mile by ‘intentionally’ prioritising the creation of sustainable solutions to complex developmental challenges through investing in businesses that aim to deliver financial returns and simultaneously achieve a lasting real-world impact. According to official numbers by the Global Impact Investing Network (GIIN), the impact investing market has grown from $512 billion in 2018 to $715 billion in total assets under management by the end of 2020. Moreover, a 2022 survey by global asset managers Schroders, covering 770 institutional investors that manage more than $27 trillion worth of assets, found that 48 per cent of asset owners covered in the survey believe that impact has become a preferred investment approach to achieve sustainability goals while also delivering positive financial returns.
Indeed, investments made for the intention of achieving measurable impact alongside a robust financial return have also been deployed into impact-driven tech and tech-enabled startups that aim to solve critical development challenges that face emerging markets and developing economies. The United Nations Development Programme has been active in promoting impact investing as a path towards achieving the 17 globally recognised sustainable development goals. From fighting extreme poverty, ensuring quality education to providing clean water and sustainable energy sources, allocating capital to innovative tech-enabled businesses has become an effective tool to increase the private sector’s role in achieving the SDGs and help create a more prosperous, sustainable and inclusive world by 2030.
Across the Middle East and North Africa (Mena) region, a diverse geography that faces insurmountable development challenges, VC funding deployed in impact-driven ventures has seen a compound annual growth rate (CAGR) of 15 per cent between 2016 and Q3 2021 - totalling $444 million of capital invested across 403 VC transactions – based on findings of Magnitt’s 2021 MENA VC Impact Investment Report. Yet, the total invested amount represents only 7 per cent of all VC capital deployed and 16 per cent of all VC transactions across Mena. Despite the positive growth in recent years, it’s believed that Mena-based investors and startups have the key ingredients to promote and stimulate the impact investing industry even further and take it to the mainstream of VC investing in the region. Another pertinent consideration is the geographic concentration of VC impact investments across Mena. While Saudi Arabia registered the largest number of VC impact investment transactions (80 deals, representing around 20 per cent of the total 403 deals), impact-driven startups based in the UAE attracted the biggest impact VC funding volume with $164 million raised - representing 37 per cent of the total capital deployed in impact-driven ventures across Mena between 2016 and Q3 2021. The most-funded impact-driven startup was Dubai-based Yellow Door Energy which managed to close an investment round of $65 million in 2019 led by the International Finance Corporation (IFC) and Arab Petroleum Investments Corporation (APICORP).
While we should celebrate the rapid transformation happening in the region’s most advanced startup ecosystems (those in the UAE, KSA and Egypt), VC impact investing can also offer an alternative route for less developed ecosystems to flourish and scale in various sectors including edtech, healthtech, agritech and fintech. In other words, nascent startup ecosystems such as Palestine can be perfectly positioned to create a pipeline of impact-driven businesses capable of attracting the attention of impact investors from the region and beyond. Of course, similar conditions can be applied to other startup ecosystems across the region as well despite the focus here on Palestine given its unique context, challenges and untapped potential.
Profit and purpose are inseparable in Palestine
Palestine and its economy are facing huge challenges due to long years of political instability, military occupation and restrictions on movement of people, capital, goods and services. Despite the challenging situation, Palestinian business leaders and entrepreneurs have managed to navigate through the storms and build successful, viable and impactful businesses. Operating in a tough business environment can provide the seeds for innovation and sustainable impact where profit and purpose can merge to enable a plethora of opportunities to unlock the development potential of local communities. Within the Palestinian context, impact can naturally be embedded in the venture’s business model. Contrary to the conventional wisdom, challenges can now be seen as opportunities rather than threats. It is time to believe that Palestinian impact-driven ventures are capable of creating attractive and often overlooked investment opportunities for impact investors from the region and beyond who want to do well by doing good.
Palestinians themselves are leading remarkable efforts in moving impact investing into the mainstream and trying to find more efficient alternatives to the traditional ‘donor-recipient’ relationship that has prevailed for decades. For example, Palestine’s Sovereign Development Fund, PIF, plays a catalytic role in creating the foundations for a thriving impact investing industry in Palestine through its huge investments in strategic sectors such as clean energy, healthcare, agriculture, education and technology. PIF does not only invest directly in these critical sectors, it also plays an influential role in attracting regional and global partners to invest in Palestine’s future.
Within the Palestinian entrepreneurship ecosystem, the leading VC fund in Palestine, Ibtikar, is providing a similar role to PIF by offering much needed ‘smart’ capital (Seed and Series A) to high-potential early-stage startups founded by Palestinian entrepreneurs. Though not explicitly categorising itself as an impact investor, Ibtikar continues to fund tech and tech-enabled startups that respond to developmental challenges and can scale regionally and globally.
Hopefully soon, we will witness greater attention directed to Palestinian impact-driven ventures by regional and global impact investors. These Palestinian impact-driven ventures are addressing challenges in critical fields such as Sunbox in the clean energy industry, Hakini in mental health, Naviatx in insurance and Greeners in agriculture - to name a few. There is no doubt that like the passion and enthusiasm that drive the founders of Flowless to succeed, Palestinian impact-driven ventures are capable of providing robust financial returns while also delivering impact to the wider region and the world.