What Dubai and GCC needs to make it a startup hub. It’s not more startups

I just spent a fantastic week in Dubai for Gitex (the big trade show) and Expand North Star (the massive startup and investor gathering). I was part of a large group of investors from all over the world that landed up in Dubai for a week.??

Dubai has grown a lot

I was visiting Dubai after almost a decade.?The last time was in 2013, while I was with GreyOrange, and Samay and I were pitching to a large global logistics company to POC with us.?

The city (and region) has grown so much since then!

It has become a major capital allocator. And seen the rise and successful acquisitions of companies in the region like Careem, Souk, Talabat.?And the infrastructure has kept pace. And all over the city, there's talk of Dubai being the next tech hub.

Come to Dubai to Build

Dubai and the larger Middle East region definitely wants to become the next startup and trade hub. A big part of this is driven by the depleting oil reserves in the region. Most of the countries in the region have anywhere between 50-90 years of oil reserves left given current production outputs.?

And so there is a call for people to come here, contribute to the economy and build their base in the region.?

This is manifested in different ways: high salaries, an attractive tax policy, pushing to become a major finance hub, capital allocators increasingly looking for strategies that give back to the region, an innumerable number of launchpads and accelerators and technology parks, conferences of gigantic scale. And some incredible infrastructure to support all this.

This is happening all over the Middle East.???

To me, there is however one piece missing in all this on which all of this rests and that is the crux of this post.?

Exit options for talent?

In my naive opinion, this is the biggest challenge facing the region today. And I don't hear too many people talk about this openly.

Talent that is considering moving to the region from elsewhere today, don’t know what their exit options are.?

Very few people just wake up one day and decide to launch a startup. And when they do, they understand the risks and there’s always an alternative that is less risky. Hence you hear things like, “Hey, if it doesn’t work out, I can still join company XYZ”.?

I’ve yet to come across a hub that is driven only by startups and capital.?

As Paul Graham writes in his essay How to be silicon valley

I think you only need two kinds of people to create a technology hub: rich people and nerds. They're the limiting reagents in the reaction that produces startups, because they're the only ones present when startups get started. Everyone else will move.

But where do these nerds (aka engineers) come from?

Often from universities or other big companies. This also attracts people from other parts of the world.?It’s not a coincidence that each of these cities also have a large number of universities.??Stanford, Berkeley, Technion, IITs.

But coming back to big companies:

For Bangalore, it started historically with the IT services companies like Wipro and Infosys, and later the early wave of global R&D centres, specifically Yahoo, whose alumnis then landed at the newly formed Amazon IDC. And now it’s companies like Flipkart, Ola, Freshworks.?Infact now there's companies like ANSR that specifically pitch setting up an Indian R&D centre to global companies and have done it for majors like Target, JC Penney, Saks and more.

For Tel Aviv - it’s the endless supply from the Israeli Defence Force.?

For the Bay Area - it’s companies like Mag 7 or the startups that have become large and produce the next generation of founders.?

What is that for Dubai? Or Riyadh? Or Doha? I don’t know. There is no big tech here. Relatively fewer startups have crossed Series A.

On top of that, the Middle East work experience doesn’t seem to be valued much elsewhere. The general perception seems to be that Middle East is great for making money, but not the best for onward global mobility or career progression. Not in technology, not in consulting. Maybe Finance in some pockets and perhaps in real estate or construction.?

Case in point (no pun intended): Management Consulting. Middle East attracts a large number of really smart people every year that come to work in some of the top consulting firms based here (think MBB, Kearney, Big 4). 5 years in these places and it’s hard for them to find another job in London or New York. That’s because the work they’re doing here isn’t often valued in places like New York, London or other major consulting hubs. The exit option for most of them is either switching to finance in the region or to make an exit back to the country they came from and try to work their way a few levels below.?

So what is the solution?

My bet is that a more plausible way to make the Middle East into a global tech hub is to actually target the large companies and get them set up a (small but growing) office here focused on core technology. A base that is directly connected to the HQ with a well defined charter.?

Eventually you will need high quality technical universities too. Today Middle East has started having a lot of management and business school satellite campus of some great globa universities, but little in terms of technical schools. But that can take longer, and that’s ok.?

The first wave is going to be driven by ambitious immigrants.

With me so far? Okay good.

So you need big companies for talent, and the talent needs big companies to already be present....

Is this a cold start problem?

Not necessarily. Middle East has capital. And that is extremely valuable if used correctly.?

Here’s a potential initiative

To start off, get 50 of the most important technology companies to open a new office in Dubai. And staff each of them with 100 of the brightest minds from the HQ. Make sure these people are in direct contact with HQ. And allow these people to build their teams. Have a charter within these companies that these people will work on crucial projects that are important to HQ and not just on regional go to market (which currently appears to be the case, hence few to no engineers).?

The people that come will have the peace of mind that incase this “experiment” doesn’t work out, they can always go back to HQ.?

Is this offshoring??

Typically offshoring has connotations of cost arbitrage. I urge the government and the companies looking at this idea to not think in terms of that.?

The reason is that for a lot of geographies, setting up a base in the Middle East might not necessarily work out to be cheaper. Especially Europe. For Europe, Middle East would serve as an optionality against the uncertain immigration policies of governments that are trying to appease their own populist agendas (especially in regards to highly skilled technical talent).??

Instead the GCC governments can come up with creative short term solutions, where they can work out pay bands with different companies around what their maximum CTC is for each of the roles, and they can subsidise the rest. This is going to be particularly useful for offshoring some of the work from Europe to GCC.

Talent will be happy because they’re making more money and are being pitched a better quality of life (healthcare, schooling, savings rate, household help etc) and in some ways more ownership. Big Tech companies will be happy because they aren’t spending more than what they budgeted for and have an collaborative government that is thinking long term and showing true skin in the game. The GCC government is ofcourse happy because they now have a true technical hub growing.??

What will this result in?

Some kinds of companies will get more excited by this than others. And their motivations might span from political to commercial to maybe just a driven founder/CEO who's able to see the upside.

The low hanging targets would absolutely be stuff like crypto, fintech, gaming, consumer, energy, data centers to name a few. But I do think, other companies should also warm up to the idea.

The talent that grows from here will decide to startup.

Some of these startups will also get acquired because they already have a good rapport with the big tech companies.

But most importantly, the talent will also feel at ease knowing that incase it doesn’t work out, they still have a safe landing in one of these big tech companies without having to change locations and knowing the work they’re doing is globally relevant.?

Yes, one hears there’s a lack of growth capital in the region, but that is lesser of an issue. I can’t think of another ecosystem where founders follow the capital. It’s always the other way round. If there’s enough companies that cross Series A, there will be enough growth funds that will pop up (along with the investment team) to fund the Series B and so on. It is anyways the the land of the capital allocators (a lot of major SWFs, family offices).?

In addition to this, over time, the Middle East must lay the groundwork for technical universities to set up base and grow. This has started happening for business and management programs, but not for technical schools.? But that isn’t the place to start.?

I think the place to start is “exit options for talent”.?

This might allow the Middle East to build a true technology hub, which in turn also allows a thriving startup ecosystem, but most importantly a region that people are coming to for long term opportunities and not just a 4-5 year sojourn to make a quick buck.?

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