Beyond Oil: Bahrain, Houston Can Find Common Ground on Innovation

Houston—A delegation led by the Bahraini oil minister was in town recently meeting with business and government leaders. It makes sense considering Houston is the birthplace of the fracking technology the Gulf country’s leaders are seeking.

A year ago, Bahrain discovered its largest trove of oil and gas—at least 80 million barrels of “tight oil”—since 1932, off its west coast. Extracting that crude, which is in shale formations deep below the earth’s surface, requires hydraulic fracturing with deep horizontal wells—a Houston specialty.

But one delegation member, Simon Galpin, also saw in this trip a chance to engage with Houston on innovations yet to be. As managing director of the Bahrain Economic Development Board, a key part of his job is helping efforts to build up Bahrain’s startup ecosystem. In addition to the oil and gas heritage the island nation shares with Houston, Galpin believes the two can help each other’s startups. “We could help them test their products or services [and] give them access to potential investors or major customers,” he told me in an interview last week.

Like Houston, Bahrain and its Gulf-state neighbors are all trying to diversify their economies, and early-stage startups are a big part of that effort. As Galpin told me about Bahraini efforts to build a startup ecosystem there, I was struck by the similarities with what’s been happening in Houston in recent years.

Increasing the amount of capital available for startup investment: In Houston, the HX Venture Fund debuted in October 2017 as a $40 million fund of funds with limited partners such as multinational oil and gas companies Chevron and Shell, among others. (HX made it first investment, $5 million in LiveOak Venture Partners, this week.) Similarly, last June, the Bahrain Development Bank announced the close of its $100 million Al Waha fund of funds, which it says is the first of its kind in Persian Gulf region. About $35 million has been disbursed to limited partners, which include Bahrain’s sovereign wealth fund, Mumtalakat; the National Bank of Bahrain; and telecom company Batelco. (500 Startups is also a limited partner in the fund of funds.)

Accelerator programs, both homegrown and imported: American Express Middle East, which is based in the Bahraini capital, Manama, launched an accelerator called Accelerate ME along with Nest, a Hong Kong-based startup program. Nest aims to provide funding for seven local startups, from seed stage to Series B, during the seven-week program. Flat6Labs, a Cairo-based accelerator with branches across the Middle East/North Africa region, has opened a Manama outpost as well. The program houses eight startups in edtech, e-commerce, gaming, hospitality, and healthcare; each company gets $30,000 in cash to participate in the 16-week program.

These startups Bahrain hopes to cultivate are not necessarily all in oil and gas. The island has a prominent banking sector—one of the oldest in the region—so leaders there want to create a fintech ecosystem that could leverage the existing industry. The kingdom created Bahrain FinTech Bay, a state-backed organization offering startups office space, networking events, accelerator programs, and other support similar to the Station Houston program, which was founded three years ago. “We were an innovator in the banking sector,” Galpin says. “We want to show we are an innovator again.”

(Bahrain has also set up a FinTech Bay in Detroit, and plans to soon open a location in Silicon Valley.)

Houston, too, is banking on leveraging its established areas of expertise to create innovation communities. The Texas Medical Center, which has attracted patients from around the world, including those from the Gulf, launched an accelerator focused on medical device and health IT startups five years ago. At the same time, the TMC recruited other health-related innovation entities, such as JLabs and AT&T’s Foundry, to set up branches at the TMC Innovation Institute.

To help boost startups in energy, industrial IoT, and other sectors, Houston is now home regional outposts of national programs such as Mass Challenge and Founder Institute, which both recently opened Houston-based accelerators.

Policies that encourage early-stage companies or innovation generally to flourish: Galpin says Bahrain has in recent years put into place new regulations to allow crowdfunding, a bankruptcy law that has a restructuring component, and policies that impose no minimum capital requirements. Bahrain allows expatriate entrepreneurs to wholly own their own companies without the need for a local partner. It also allows companies to locate outside of restricted free zones, which is not typical in the region.

“If we don’t allow our startups to fail and reinvent themselves, it’s going to be difficult to have an innovation community,” he says.

Galpin adds that Bahrain is especially attractive as a Gulf base for companies, including cash-strapped early-stage firms, because it has a 13-year-old Free Trade Agreement with the United States.

While Houston hasn’t had to pass new regulations like those in Bahrain, the city’s political leaders have been more active in trying to boost the city’s innovation bona fides. Houston Mayor Sylvester Turner is a prominent member of Houston Exponential, the business-backed innovation organization started in 2017 to catalyze what had been more ad hoc efforts around the city. Additionally, city leaders offered $268 million in cash and incentives in a (failed) attempt to lure Amazon into bringing its HQ2 to Houston.

During the Bahraini delegation visit, Galpin says he’s gotten a glimpse of Houston’s growing startup scene, noting the connections between the two that he believes can be a blueprint for further cooperation. “We want to explore developing the relationship with Houston as a startup hub,” he says.

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