How to make cleantech start-ups a success in MENA

Strengthening the Middle East and North Africa’s environmental and economic security must involve building more robust cleantech entrepreneurship ecosystems throughout the region. Doing so will hinge heavily on expanding the current funding base to support start-ups in this industry, and shining a light on those entrepreneurs who are leading this nascent, yet growing community in the region. A recent report from the Wamda Research Lab, in partnership with General Electric, examines the trends, challenges and leading entrepreneurs shaping the region’s innovations in cleantech.

COP22 in Marrakech Morocco magnified the long road ahead as MENA seeks to address its current and impending environmental challenges. The region faces myriad daunting environmental and energy related concerns, which require more institutional support from both the public and private sectors. Just as new policies, consumption patterns, and infrastructure will help the region navigate these hurdles, strengthening the region’s resilience should also involve building more robust cleantech entrepreneurship ecosystems throughout the region.

The Wamda Research Lab (WRL) and General Electric Corporation (GE) conducted a regional assessment of cleantech entrepreneurship in MENA to identify the challenges, successes and future opportunities for cleantech start-ups in the region. The report, based on 92 interviews with entrepreneurs, investors and thought leaders in MENA’s cleantech industry, shines light on how this young movement has the potential to grow into a vital component of the region's clean energy and environmental sustainability agenda. MENA is still in its fledgling stages of supporting cleantech start-ups, with numerous policy and institutional changes needed to enhance this ecosystem.

The two most critical barriers to scale in the region are minimal resources for conducting R&D and a small pool of cleantech-focused investment sources. Even in the face of critical barriers limiting scale for cleantech startups, an increasing number of the region’s entrepreneurs are entering the industry. The WRL’s data shows that more cleantech companies were launched in MENA during the last two years (24) than in the six years between 2007-2012 (20). One promising cleantech start-up in MENA is NOMADD, created by Georg Eitelhuber and his team at Saudi Arabia’s King Abdullah University for Science and Technology (KAUST). The company has built a robot for cleaning solar panels in the desert. NOMADD’s success to date is due in large part to accessing technical and financial resources at KAUST. Eitelhuber’s ambitions include catalyzing “a big change in energy consumption levels, and maybe even important policy shifts to support the changes.”

However, many cleantech entrepreneurs in MENA struggle to obtain financing to launch, let alone scale their companies. In fact, 43% of the entrepreneurs interviewed in the study are self-funded, and less than one-third obtained venture capital financing. Moreover, investors offering patient capital to launch and grow cleantech innovations in MENA are rare. At the time of conducting our study, WRL found only three specialized cleantech start-up investment firms operating in the region.

A lack of targeted investment resources means a longer and more arduous journey to reach scale for MENA’s cleantech start-ups. Antoine Saab, founder and CEO of Energy24, a specialized energy storage start-up in Lebanon, knows first hand the challenges posed by funding gaps in the region’s entrepreneurship ecosystems. After launching the company with his own money, he “went to market on a project by project basis”, and finally reached commercial viability after a customer agreed to help fund further R&D efforts. Building the company was difficult in the early days in part because “investors, especially banks in the region can be risk averse and need collateral.”

Specifically, the lack of funding also has implications for prototype development. Cleantech entrepreneurs are prevented from inventing, prototyping and testing their ideas due to insufficient R&D resources in MENA. This in turn prevents launching, sustaining, and ultimately scaling cleantech start-up solutions in the region. In fact, WRL and GE found that 62% of the cleantech start-ups interviewed were unable to complete a prototype due to limited resources for conducting R&D.

Saphon Energy in Tunisia, is one example of a start-up that had to go to extraordinary lengths to complete the research necessary to develop a working prototype. Anis Aouini and Hassine Labaied launched Saphon Energy to serve African and Middle Eastern markets with renewable wind-energy technology. Inspired by the sailboat’s ability to turn wind into transportation power, the two co-founders offer a wind energy technology called the Saphonian Zero-Blade, designed to convert the kinetic force of the wind into electrical power. The Saphonian’s technological advantage is in its high aerodynamic drag coefficient resulting from a curved shaped design.

Accessing R&D facilities to build a new, patented technology in Tunisia was not easy for Saphon Energy. At the time of developing their first generation model, only one wind tunnel existed in the whole country and was not available to the Saphon team. The company has since built its own wind tunnel and tested five generations of the Saphonian. After establishing a corporate partnership with Microsoft, the company entered the commercial manufacturing stage of its development with a patent pending in over 70 countries.

Despite notable successes, the cleantech entrepreneurship ecosystem in MENA is in its infancy. In turn, the few entrepreneurs who enter this field have minimal institutional support and face critical barriers to scale. NOMADD, Energy24, and Saphon Energy, are outliers yet many additional start-ups are waiting in the wings.

Though many of the region’s successful cleantech start-ups are still young, these entrepreneurs have begun to build a foundation for innovative cleantech solutions in MENA. Any efforts to understand and improve conditions for developing this field should begin by working with this cohort of entrepreneurs.

Moving forward, policymakers, institutions and thought leaders seeking to improve conditions for cleantech start-ups in MENA can use the insights in our report to guide decision-making processes. These companies offer policymakers an additional tool that they can wield as they seek to stem the tide of ever-increasing environmental challenges in the region. A mixture of R&D spending, as well as general support and recognition for those entrepreneurs who are already engaged in this sector are critical to ensuring that new solutions come to the fore as MENA leverages innovation to build its resilience against a changing environmental landscape.