GCC countries are investing heavily in building knowledge-based economies, and he UAE has even declared 2015 the “Year of Innovation”. The region’s top companies are investing corporate funds (Corporate Venture Capital - CVC)  in tech or digital startups.

Many prominent technology companies, particularly Google, Intel, Salesforce, and Qualcomm, are investing in external high-growth companies. The investment motivation is usually driven by the strategic desire to explore synergies between the investing corporate and the startup. Some describe CVC as outsourced R&D.

So what are the region’s top companies doing in CVC to stay or become internationally competitive? To answer this question, let us look at the leading 50 companies in Forbes' “Top Companies in the Arab World” list.

Telecom and Digital Media Companies Lead the Way

As in other parts of the world, it makes sense for telecos to diversify away from basic phone and network services and to build out operations that can better capitalize on their capital assets, particularly on mobile, as some of the regional countries are world leaders in smartphone penetration and usage.

Etisalat, the number three on Forbes’ list and the largest telecom company in the region, has no venture operations apart from an investment in the iMENA venture capital fund. It is notable though that the UAE’s major carrier is also a major shareholder of Mobily, the number two telco in Saudi Arabia, which operates Mobily Ventures. To date, Mobily Ventures has invested in 4 regional companies in the e-commerce and web space, with visible synergies to the mother company, Mobily.

On the Forbes list, Etisalat is followed by Saudi Arabia's STC.The number one Saudi telecom provider funds STC Ventures, a Dubai-based operation that executes investments in the IT, telecom, and digital media/entertainment sectors in the region. To date their portfolio includes 7 fast-growing regional technology companies that will likely also support the future growth of STC’s business in Saudi Arabia.

At rank 17, Qatar’s Ooredoo has partnered with Germany’s Rocket Internet to create Asia Internet Holding, aimed at investing into e-commerce startups with mobile angles. Some of the target countries identified are Pakistan, Myanmar, Thailand, Malaysia, Singapore, Indonesia, Vietnam, the Philippines, and Australia. It hence remains to be seen what investments will be executed in the GCC region.

Spot number 46 is taken by ZAIN Telecom, and while the company does not have a CVC, it is supporting innovation by operating ZINC, the Zain Innovation Campus in Jordan - an incubation center for early stage startups on the tech space.

The UAE-based satellite-television company mbc group runs mbc Ventures, which focuses on supporting TMT startups in the region and has made a number of early stage investments. Their portfolio currently holds 9 investments, two of which are co-investments with telco CVCs listed above.

Untapped Potential Across Sectors in the Region

Regional Corporate Venture Capital is well and alive in some of the major telecommunication providers, but lags behind in other sectors. Major corporates need to be engaged in supporting and funding young innovative start-ups if the region is serious about a transition to knowledge based economies, job creation, and innovation.

True, in the Top 50 Arab companies no less than 32 are banks or financial institutions, which tells a lot about Middle Eastern business. However, innovation can also happen in banks and especially in such a challenging payment environment as the Middle East. Yet little innovation investment by these institutions is done.

SABIC, the top Arab company according to Forbes, is a diversified manufacturing company, active in chemicals and intermediates, industrial polymers, fertilizers, and metals. It created SABIC Ventures, which has so far invested in two Cleantech companies. However, both are based in the US and the actual headquarters for SABIC Ventures is located in the Netherlands, which indicates that SABIC is not really committed to supporting regional innovation.

One might expect some major regional technology corporations to run strategic CVC operations. Companies such as Emirates Airlines and du (number 59 on the Forbes list) could benefit from corporate venturing. Emirates Airlines, arguably one of the largest technology companies in the region is operating in a booming global travel industry and is competing internationally for leadership. Innovative technologies in the security, transport, hospitality, and service sectors should also be of interest to the airline.

du, as a telecommunication company, is facing the same challenges as the other national and international telcos, and needs to stay competitive in a market of very high smartphone penetration.

*Philip Biogner is Vice President of Technology Investment and member of the executive management team at Dubai Silicon Oasis Authority. Previously, he held senior positions at European investment banks, private equity funds, and a big-four accounting and auditing firm. He holds two doctoral degrees and master's degrees in Business Administration, Science, and Law and Economics. He is a Certified Islamic Finance Executive and Chairman of the MENA Private Equity Association VC Taskforce. He has published in several peer-reviewed journals and is a frequent speaker at prestigious industry events.

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