Iraq’s entrepreneurial ecosystem is gradually shaping up and evolving into a welcome landscape for innovation. 

While the Covid-19 pandemic and ensuing lockdown have adversely impacted the entrepreneurship ecosystem in Iraq, startups in the country have managed to go out of their way to remain operational and help meet the needs of the people during these dire times. Some have also managed to rack up funds from both local and international investors, reflecting the growing investor confidence in the country’s developing startup scene. These startups included Miswag, Lezzo and Alsaree3, among others.

In the recent Arab Youth Survey, one in five stated they were planning to start their own business within the next five years, while 90 per cent of the respondents said they frequently make purchases online. The growing interest in entrepreneurship and tech has been also reflected in the emergence of several incubators and accelerators that look to support startups with a potential to solve the pressing issues faced by the country. Among these organisations is Iraq-based incubator Five One Labs, which has recently unveiled an investment initiative, Five One Invest, which aims to ease access to capital and increase the number of deals in the country. 

It intends to educate Iraqi investors on angel investing and private equity funding while enabling entrepreneurs to maximise their chances to get funded by helping them refine their business model, make it market-ready and ultimately meet the expectations of investors. 

In celebration of the launch of the new initiative, Five One Labs hosted a panel discussion under the title of investments in Iraq: now and five years forward. The panelists included partner and chief operating officer at global investment firm MSA Capital, Walid Faza, newly-appointed venture manager at Hiwa Rauf Group, Rawaz Rauf and founder and CEO of Alsaree3 Group, Bassam Al-Ateia. The discussion has tackled the future of investment in Iraq, and the opportunities and challenges faced by the startups in this specific ecosystem.

What does the investment landscape need to evolve? 

During the discussion, Faza highlighted that the startup ecosystem in Iraq lacks strong venture capital (VC) presence. 

“We, at MSA Capital, are specifically looking at building partnerships with strategics that are already available in the country. Iraqi entrepreneurs are well educated, so we want leverage on that natural resource of education and awareness that the Iraqi entrepreneurs have, and help them get to where they need to go much faster by having a VC coming in to build partnerships and putting money behind their businesses,” he said.

Having role models and examples of startups that have succeeded in raising funding and exiting will help propel the ecosystem forward and attract more investors according to Faza. 

“If we look at the Jordanian ecosystem back in 1999, it was a company that had been working for 10 years called Maktoob that got bought out by Yahoo. Then the ecosystem there, all of a sudden flourished. Same thing happened with Uber’s acquisition of Careem in the UAE,” he said. “In VC lingo, it is a waterfall effect. At the end of the day, we put funds together, we promise people a return in money. And in order for that to happen, exits need to take place.”

Opportunities Vs. Challenges

Succeeding as a startup in Iraq requires operational excellence and grit and having a correct market fit, explains Rauf. “I remember a girl that came up to me saying that she wanted to make home-made beautiful products and sell them online. These ideas may not be found impressive somewhere else, but they are badly needed in a nascent ecosystem like Iraq.”

“I would encourage investors, entrepreneurs to not just look at what is out there, but what is actually useful for the people,”said Rauf.

According to the panelists, financial technology (fintech) is one sector that provides various opportunities for growth for startups and is likely to attract investment over the medium to long term.

“We have lately seen a major push by the Iraqi government and the Central Bank, to push salaries into banks, and no longer handle cash to salaried recipients. This allows for the emergence of new  business models cracking the banking and financial sector,” said Rauf. 

Aligning with Rauf, Faza thinks that the opportunities might also arise in the traditional oil and gas sector for startups looking to scale on a global level. Iraq has the world’s fifth largest proven oil reserves, and the 11th largest natural gas proven reserves.  

Meanwhile, outdated regulations and bureaucracy can act as key deterrents to the growth of the startup ecosystem in Iraq, said Al-Ateia.

“We need to work on changing the corporate laws in Iraq. We need new laws that make it easy for a startup to register and start their work as well as attract investors and not scare them off. I think that is the first crucial step towards a real change,” he said, stressing the need to quickly introduce laws that facilitate the work of the VCs and incubators inside the country.