Preparing for takeoff

Lebanon’s startup ecosystem has made big gains in recent years, yet questions remain about the future

This article is part of an Executive special report on entrepreneurship. Read more stories as they’re published here, or pick up November’s issue at newsstands in Lebanon.

 

The plan to create a tech cluster in Lebanon is on the table. A 2012 report by Lebanese International Financial Executives (LIFE) detailed the barriers to creating a tech hub in Lebanon and solutions to overcome them. The report states that while there is no specific formula that has worked elsewhere, there are a series of steps that could be taken to create a favorable environment for startups. Their action plan includes improving the legal and regulatory environment, boosting the number of startups and creating a sustainable venture capital (VC) industry. “The hope was that this would in turn start a virtuous cycle with more startups, more investors, and so forth,” says the report.

[pullquote]The idea of reproducing the successful model of the Silicon Valley technological cluster is not unique to the report nor to Lebanon[/pullquote]

The idea of reproducing the successful model of the Silicon Valley technological cluster is not unique to the report nor to Lebanon. Entrepreneurs and governments around the world have tried to replicate this, with varying degrees of success. Most involve American inspired trends such as creating a healthy VC industry, getting successful exits and creating a chain reaction of thriving entrepreneurs who invest back into the ecosystem as angels. The report even cites our southern neighbor as a raging success story in terms of jump starting an entrepreneurial hub of its own. In fact, if one is to look at a mapped out collection of all Israeli startups available online, the comparison to Lebanon is sad indeed.

Of course Israel had different resources at its disposal, and the successes of Silicon Valley come from several socioeconomic circumstances that took almost a century to mature, a number of government policies creating favorable regulations for the tech giants and a space program spurred on by Cold War rivalry which pumped money into research and development and made many of the discoveries on which modern day technology is based possible. Building a tech cluster in Lebanon, with all of its local specificities, would be a different beast altogether.

Like the LIFE report, regional tech platform Wamda, in its capacity as an accelerator, has proposed a seven tiered plan to stimulate the entrepreneurial elements of tech clusters across the region. The measures include raising awareness, community building, promoting investments, as well as market research.

Where we are now?

The Lebanese startup ecosystem has greatly advanced in the past four years. While some reforms are certainly more difficult to attain than others, such as legislative reform, other issues have seen somewhat more success. However, it is difficult to gauge the success of the ecosystem that is still very small and has not yet technically had a large exit or IPO. The local venture capital industry includes a handful of institutions between Berytech, Wamda, Middle East Venture Partners, Leap Ventures and SANED Partners.

Entrepreneurship support institutions — both focused on tech and non-tech — have boomed from a marginal amount in 2009 to over 70 partnering in the Global Entrepreneurship week in 2014. The startups (companies up to three years old) involved in the formal ecosystem, based on the best guesses of the main stakeholders, were set somewhere between 100 and 200 — though other estimates were that the total amount of startups in Lebanon outside of the formal ecosystem could be anywhere around 500 to 1,000.

[pullquote]“It’s not [only] a question of number … It’s really also a question of … who’s fundable at this stage, what kind of team, what kind of talent were they able to attract?”[/pullquote]

These are guesses at best, which seek to provide a general idea of the size of the ecosystem in lieu of any reliable data. But perhaps the best way to evaluate the growth of the scene is through the companies that have spawned from it. “There’s a big scene bubbling up and that scene, if you look at it from a macro perspective, you will not see it. Yet if you look at it from a bottom up perspective, you will see it,” says Habib Haddad, serial entrepreneur and CEO of Wamda. “There are companies that have been out there for only a few years and now they are really big companies employing hundreds of people, making tens of millions of dollars. Look at Nymgo, look at Diwanee, look at Anghami.” 

The quality of the companies can also be examined by looking at the type of funding they were able to raise. “It’s not [only] a question of number,” says Hala Fadel, chair of MIT Enterprise Forum for the Pan Arab Region, who is involved, along with entrepreneurs Henri Asseily and Herve Cuviliez, in raising a fund which they hope will target larger-ticket investments. “It’s really also a question of … who’s fundable at this stage, what kind of team, what kind of talent were they able to attract?”

Looking to the future, having a few exits under the ecosystem’s belt will likely be able to give a better gauge, at least numerically, of the maturity of the ecosystem. At this point, this seems like a realistic expectation for the coming years. “As a tangible outcome for the coming five years, I think if we have one, two, three successful exits in Lebanon, big IPOs, or companies sold that would be amazing,” adds Fadel.

Are we doomed?

Though there have been some serious bottom up developments in Lebanon, one cannot ignore the country’s geographical and political realities and, specifically, whether these developments will hinder Lebanon from developing a startup scene with a real macroeconomic impact. Many of the problems that have not been fixed and are perhaps unfixable raise question marks as to whether Lebanon is doomed from the outset in this regard.

“It’s the same story over and over again every year. We need regulation, we need better internet connections, we need incentives, and I think all the legislation has been drafted, but you know we need a functioning state and governments, and someone with a vision who has the interest of Lebanon at heart, rather than their personal interest,” says Allyson Jerab, program manager at the AMIDEAST Entrepreneur Institute in Lebanon.

There is also a lack of institutionally sponsored research and development, which has traditionally acted as a huge boon to global economies. Finland’s government policy, for instance, which includes both government funded research institutions and a subsidy policy for research and development, has benefited its local companies such as Nokia to develop the technologies necessary for it to compete globally.

The lack of research and development policies could hinder the sector. “We need research and development, we definitely need research and development,” says Tarek Sadi, managing director of Endeavor Lebanon, a non profit that supports entrepreneurs as part of the global Endeavor network. “The universities should have research and development, there should be a lot of innovation in the other sectors. Because that’s what’s going to differentiate you and make you successful, and that’s what’s going to make you stand out locally and regionally and internationally,” he says.

[pullquote]”Ecosystems always happen bottom up, they need nudges and they need top down hands, but they always happen bottom up”[/pullquote]

The ultimate impact of missing infrastructure and policy remains, however, unpredictable. “We can detect trends, but to be conclusive and firm about saying something is not going to happen, I think is a huge statement that very few should be allowed to make,” says Haddad. “It’s very hard to define the steps and to predict it based on top down and government support, based on things that may be on an institutional level. Ecosystems always happen bottom up, they need nudges and they need top down hands, but they always happen bottom up.”

The Lebanese entrepreneurship model is still in its testing phase, with the support institutions making changes year on year to better suit the needs of the entrepreneurs. Though initiatives for the moment have mostly focused on helping tech companies and fostering a technological cluster, committing to developing a sustainable tech ecosystem would be a real victory for the country — especially as many of the lessons and basic principles of developing such a system could be extracted and used as a model for other sectors.

Livia Murray

Livia covers business, finance and economic policy for Executive.

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