What the Israel-UAE peace deal means for startups
February 12, 2021
A historic rapprochement between Israel and the UAE will involve more than just a flow capital to Tel Aviv. The exchange of ideas, in fields ranging from agtech to AI, promises to be a two-way street.
When Harvard graduate Shai-Lee Spigelman quit her career with Microsoft in 2013 to join Israel’s civil service, she probably didn’t foresee being on board her country’s first official flight to the UAE less than a decade later.
Having taken a seat among delegates including Jared Kushner, Donald Trump’s son-in-law and senior advisor, Spigelman describes El Al flight 971’s journey to Abu Dhabi on August 31 as an emotional experience.
“It was very exciting,” a beaming Spigelman tells WIRED from her home in Savyon, where she’s been working since Israel imposed a renewed lockdown to limit the spread of Covid-19.
As director-general of Israel’s Ministry of Science and Technology, Spigelman led several hours of in-person discussions in Abu Dhabi on how the burgeoning friendship between the two former foes could lead to even greater cooperation. Those talks have now switched to Zoom chats and emails.
“The UAE has a lot of research, investment, and technology. It’s not about who helps who, it’s how you do it together.”
The so-called Abraham Accords—signed in Washington on September 15 by Israel, the UAE, and Bahrain—include two paragraphs on scientific collaboration. “We’re working very closely with them since that meeting in Abu Dhabi to promote that,” says Spigelman.
Her ministry specializes in advanced research and has invested heavily in quantum computing, artificial intelligence, space, and health care. It has funded more than 100 researchers to study the coronavirus, for example; the Israel Space Agency is also part of Spigelman’s remit, and she met with “extremely senior people” from the UAE’s space program when in Abu Dhabi.
She predicts these talks could lead to joint space research and other missions, although emphasized that her ministry was only involved in civilian projects, not military applications. “We haven’t gone into the specifics yet. It was just an initial meeting, but what we usually do with other countries with bilateral or trilateral agreements is that we sign a framework agreement between the countries saying we want to cooperate on space,” says Spigelman.
Israel’s space industry began in earnest in the early 1980s as both a military and civilian operation, and the country became the eighth worldwide to launch and position satellites in space. Specializing in miniature satellites, the Israel Space Agency has since diversified into civilian space uses. The UAE Space Agency, in contrast, was founded in 2014, although hefty funding has enabled it to advance swiftly, and in July launched (with the Mohammed Bin Rashid Space Centre) a probe to Mars that’s due to reach the Red Planet’s atmosphere in 2021.
Despite Israel’s relative technological advantages in space, Spigelman stressed cooperating with the UAE space agency would be more than just helping out a junior ally. “They have a lot of research and investment and technology, so definitely I think we can partner—it’s not who helps who, it’s how you do it together,” says Spigelman.
“Most of our missions are global missions because it’s very expensive. You see a lot of cross-country cooperation in space. So, the same as we’ve done with Brazil or France, or with NASA or the European Space Agency, we can do with the Emiratis.
“Hopefully we can issue during 2021 some kind of a mutual fund to sponsor research that promotes Israeli researchers together with Emirati or Gulf researchers.”
“We’re not starting from ground zero. It will surprise a lot of people just how much familiarity there was before this diplomatic deal.”
Aside from space, Spigelman’s Abu Dhabi meetings also involved other scientific areas such as agriculture, water development, desert tech, renewable energy, and artificial intelligence. “These are areas [in which] they’re interested in investing and have put a lot of resources. Israel is very advanced in AI and quantum [computing], so there’s a few areas where we can partner,” she says.
Abu Dhabi is betting big on greening the desert, a long-held ambition that once seemed fanciful but is now more plausible thanks to tech advancements. In April, the emirate invested $100 million into four agtech firms so that they could set up research and production facilities in Abu Dhabi, and in September announced a further $30 million in incentives for other agtech firms to establish operations locally.
Israeli firms seem keen, with some participating in an Abu Dhabi Investment Office webinar in September on agricultural innovation, while Erel Margalit—founder and chairman of Jerusalem Venture Partners (JVP)—was one of several Israelis who named agtech as one of the biggest opportunities for collaboration with the UAE. “This is something that our companies are very interested in,” says Margalit, whose firm has invested in over 150 businesses in Israel, the US, and Europe.
While the Abraham Accords mark the official start of diplomatic relations between Israel and the Arab nations of Bahrain and the UAE, clandestine links with the Gulf Cooperation Council (GCC) countries have long existed.
Israeli exports to the GCC are worth around $1 billion annually, according to a 2018 report by the Tony Blair Institute for Global Change. These goods mostly reach the Gulf via European and non-Arab countries, plus Turkey and Jordan to a lesser extent, states the report, noting that they are officially recorded as exports to the transit country. Israel imports about $500 million of goods from the GCC, the report estimates, half of which are registered as imports from Jordan.
“There has been a readiness for a long time for this opportunity,” says Josh Wolff, chief operating officer at Jerusalem’s OurCrowd, an equity crowdfunding platform with over $1.5 billion of funding commitments to around 220 companies and 22 funds worldwide.
“This accord doesn’t represent a bridge that was simply dropped in and everyone starts from ground zero—there has been a lot of cooperation along the way and sometimes it will surprise a lot of people to reveal just how much familiarity there was with one another from well before this diplomatic deal.”
Similarly, UAE and Israeli investors are already co-shareholders in companies such as Virgin Hyperloop, which aims to build high-speed all-electric transport systems that could reduce, for example, the travel time between Riyadh to Jeddah to 73 minutes. Other companies with both Emirati and Israeli investors include medical data firm Spry Health and flame-retardant plastics manufacturer FRX Polymers.
OurCrowd already has Gulf investors and Wolff hopes to attract many more. “Our platform draws its strength from building the broadest and most powerful network, and the scale of the community we can now build across the Gulf is unlike anything we could have imagined before,” he says.
“The power of the network extends well beyond leveraging the wisdom of the crowd, but knowing how to cultivate meaningful connections… that’s why we don’t just want a few hundred investors from the Gulf, as we have today—we need tens of thousands from across the region, that’s what fuels our model and that’s clearly where things are headed.”
Margalit, of JVP, seems equally enthused, and he too had been involved with Emirati investors prior to the accords. “Over the last six, seven years or so, we’ve been working quietly and many times under the radar with our portfolio companies, with our investments, who have been making significant deals for cybersecurity with civilian usages, in fintech, in insurtech, and lately we had growing interest in food tech and health-care IT,” says Margalit.
“We found a group of companies and people that were very much understanding technology at the highest level, and its new usages and the changing world. So, for us, it’s not a beginning, it’s a continuation.”
His firm has raised $1.4 billion across eight funds and completed 36 exits including 12 Nasdaq IPOs, while it has also created Margalit Startup City Jerusalem, as well as similar entities in New York and Be’er Sheva, Israel’s tech hub. In the Margalit Startup City model, JVP’s early stage companies receive office space, mentoring, management support, and access to its global network. Now, Margalit wants to create a Startup City in the UAE.
“I’ve been meeting dynamic, smart Arab entrepreneurs throughout the region. It’s about an exchange of ideas, not just money.”
“It’s a hotbed not only for entrepreneurs from the UAE, but from the Arab world at large,” says Margalit. “There’s also a startup vibe—part of the biggest awakening in the Arab world over the last ten years has been around technology. There are about four or five big themes the UAE and Israel are embarking on that we could really collaborate.” These include cybersecurity for civilian organizations, fintech and insurtech, food tech, and agtech.
“I’ve been meeting young, dynamic, smart Arab entrepreneurs throughout the region. It’s time that people understand that there’s inventiveness, there’s new ideas. These guys are not just customers,” says Margalit. “This is something of great interest to some Israeli investors, because it creates a broader dialogue and a broader exchange of ideas, not just money.”
OurCrowd’s Wolff told a company webinar in September how he had made dozens of trips to the UAE since his first visit in 2008. “We’ve learned that it’s a culture which on the one hand is cautious, but also very creative. It’s an ecosystem of early adopters, which is just one of many cultural similarities that Israel and the UAE have,” he says, detailing how he has daily virtual meetings with executives and officials based in the UAE—both Emiratis and expats.
“It’s such a spectrum of smart money that has been amassed in the UAE from the East and West,” says Wolff. “That has triangulated beautifully over the first few weeks of the relationship and brought to the surface years and years of experience of working together in more roundabout ways that are now going to bear fruit in the immediate future.”
He can count on Israeli government assistance to smooth the deal flow in areas like renewable energy, health care, education, and fintech.
“We will promote and, as much we can, help and facilitate, and provide all the infrastructure, the financial infrastructure that’s needed,” says the science ministry’s Spigelman. “It was widely discussed during the meeting in Abu Dhabi… you need to have a financial infrastructure—tax treaties and other things to be able to invest in a country. From the Israeli side, we’ll do as much as we can to support that process and enable Gulf companies and investors to invest in Israel. I know there’s interest already.”
Israel’s OurCrowd is looking at several potential startup investment targets in the UAE, and in October signed an initial agreement with UAE businessman Abdullah Saeed Al-Naboodah to help boost business ties between the two countries.
“It’s not simply a scientific formula in which one can take any startup and run it through the machine,” says Wolff. “It’s about trust in the co-investors. Of course, they need to fulfill rigorous criteria on a financial level, in the strength of business model, the degree of product market fit, etcetera, but the number-one factor is always about the ‘who.’ Who do you believe in, who has what it takes to take a startup all the way to the finish line? Thanks to our many years of relationship-building in the region, we already have a solid cohort of potential UAE startups we can now zone in on.”
Wolff is evangelical about Israel’s embrace of startup culture, where business failures are seen as a necessary step toward success. He contrasted that with a more cautious approach in the UAE, although this wariness is changing with a younger generation of Emiratis, he says.
“That’s going to have a very positive influence on startups, accelerators, and incubators, and this shift is going to become more dramatic when Israeli and UAE entrepreneurs begin working side-by-side, quite literally,” adds Wolff. “With the pandemic travel limitations it’ll take a bit more time, but it will happen in the long term.”
Yet the tech fit between Israel and the UAE is not so obvious, according to Walid Hanna, founder and chief executive of Middle East Venture Partners (MEVP), a Dubai-based venture capital firm whose portfolio spans over 50 companies. “Israeli tech is dominated by frontier technologies and product innovation. Tech in the Middle East and North Africa (MENA) is dominated by consumer internet so far,” says Hanna. “Therefore, there may not be many mergers and acquisitions opportunities to begin with. As networks expand and [the] exchange of knowledge becomes dynamic, relationships will deepen and possibly UAE startups will indeed attract Israeli investors.”
“Israeli investment into the UAE venture capital industry may be a sensitive issue for specific nationalities residing in the Emirates.”
Startups in the UAE received estimated funding worth $418 million in 2019, a number Hanna considers low relative to global peers. “We therefore think there is an opportunity for Israeli investors that are open to investing in UAE-based funds looking at UAE based startups targeting underserved MENA markets,” he says.
Yet Hanna also warns that “migration of capital into the UAE venture capital industry by Israeli investors may face sensitivities with specific nationalities residing in UAE,” citing the large communities of nationals from Iran, Palestine, and Lebanon—countries with significant enmity toward Israel.
Nevertheless, Hanna cited Israeli startups’ global focus, which is due to their relatively small local market and the country’s political isolation in the Middle East, as a trait UAE startups can emulate. “While regional markets in the Gulf and MENA are already sizable, it will be great to see more companies launching locally and targeting global markets,” he adds.
Although the UAE is also a small market, Spigelman says many Israeli companies have approached her ministry about partnering with counterparts in the Emirates.
“There’s tremendous interest within the high-tech industry in Israel toward this new market in the Gulf that just opened for them. Some of them started some relationships before, but it wasn’t official and it wasn’t organized, but now it’s official, it’s booming,” she adds.
“But it’s only two or three months since we started, and with corona and then the lockdowns, we will need a year to see what’s going on. It’s too early to say how much and to what capacity, but definitely there is a lot of interest and a lot of initial contacts and discussions.”
One such contact happened just a day after the Abraham Accords were signed, when a UAE medical clinic approached Israeli sleep app Dayzz to suggest conducting a clinic trial or focus group testing together.
“In digital health everything is on the cloud, so the world is very small. If this trial goes well, it’s another market we can penetrate and sell our product. If the pilot goes even better, they can find it interesting to invest and we could have a co-investment,” says Dayzz co-founder Amir Inditzky.
“My conversation with the guy from the UAE clinic was so much easier for us to do than from any other market because we’re so familiar with this culture. It’s the same backyard so when I’m talking to a guy from the UAE I feel closer to him and communication with him is much easier than with someone in the US.”
To validate digital health products and convince both investors and clients, startups must perform trials and tests in differing cultures and geographies, in a process that can be prohibitively expensive, as localization can be a major cost.
“On the one hand you want to do trials in a wide variety of communities but on the other it takes a lot of effort and financial infrastructure in order to localize your product,” adds Inditzky. “The UAE is really close to us in terms of time zone and culturally; the level of English is high, and therefore you don’t need to localize your product… So the UAE, for Israel, can be a really amazing sandbox.”