A fund manager’s dream

Lebanese state-backed MIC Ventures targets a huge neglected potential

Photo by: Greg Demarque/Executive

The MIC in MIC Ventures is not short for Mission Impossible, Cruise. But it could be. Khaled Zeidan, the managing director of MIC Ventures, could easily have a second career modeling cool shades, and the chosen mission of MIC Ventures, should it succeed, will bring life to a sector whose true potential in Lebanon has lain dormant for the past 15 years or more.

This sector is information and communications technology (ICT). MIC Ventures approaches mainly local ICT investment opportunities with a $48 million war chest. Over the next four years, it aims to deploy this money through investments into Lebanese companies with value-add potential, mainly in four verticals: fintech in all its varieties, gaming (including anything virtual reality), content, and logistics and delivery. Beyond ICT companies and value-creation opportunities related to these verticals, MIC Ventures (MICV) also looks at opportunities that have an internet of things angle—for example, in agriculture, Zeidan explains.   

According to him, MICV, as a venture capital fund company, has a projected lifecycle of seven years, during which it wants to add value to companies in the tech entrepreneurship sector, to the Lebanese economy, and to the two equal owners after which it is named: MIC 1 and MIC 2, better known in the market under their associated mobile communications brands, Alfa and touch.

These fine bureaucratic twins called MIC have carried superbly ironic—but not by design—names of Mobile Interim Company 1 and Mobile Interim Company 2 since they were reborn in the early 2000s to succeed the former Build-Operate-Transfer (BOT) companies FTML (operating under brand name Cellis) and Libancell. BOT, the period’s fashionable version of a public-private partnership, was the model the Lebanese state under the late Rafik Hariri had embarked on from 1993 to 1994, through a highly successful rollout of second-generation GSM cellular services.

A tangled past

With FTML and Libancell, the Lebanese telecommunications sector had been blooming and innovating at levels head and shoulders above all other Arab countries between 1994 and about 2002. But on this path of strong growth, the mobile communications duo—and de-facto duopoly—were also accused of being corrupt and characterized as illegitimate profit-reaping corporate monsters. The Lebanese Republic first unilaterally changed and then terminated their BOT agreements in mid-2001 and took ownership of the networks as state-owned enterprises (SOEs).

Costly rebranding and years of languishment and backsliding in mobile communications rankings were to follow. Soon, the only narratives of note to surround the political-economy animals MIC 1 and 2 and the entire Lebanese telecoms sector were, from about 2002 to 2016, anti-strategic stories of arbitration, temporary management contracts, failed privatization attempts or aborted auctions to sell off telecoms licences, general lack of innovation, and allegations of corruption, criminal activity, and shady deals by even shadier figures hiding behind certain desks at the Ministry of Telecommunications (MOT).

The new chapter in the narrative of Lebanese ICT—one that MICV is a key part of—began with a round-table meeting organized by Prime Minister Saad Hariri’s economic team about a year ago. A number of ideas and proposals for invigorating sectors in the Lebanese economy were discussed, and among the ones contributed by Zeidan was the idea of a fund under the ownership of the two mobile SOEs, MIC 1 and MIC 2.

Zeidan’s proposal was founded on the reasoning that telecom operators had missed many value-generation opportunities as they generally had “stopped innovating” in the rapidly changing ICT environment about a decade after mobile communication’s hyperactive growth years in the 90s and early 2000s, when cellular license auctions made top news and mobile companies were as hyped as today’s behemoths, Google, Apple, Facebook, and Amazon (GAFA).

Besides the rise of these online giants, a lot has changed in mobile communications in terms of technology, user experience, and user behavior—and mobile providers had to transform accordingly. Voice traffic is the opposite of a growth engine; data accounts for most activities in mobile communications. Regional operators such as Zain Group (formerly MTC) of Kuwait and Riyadh-based STC set up their own venture capital funds or comparable initiatives earlier this decade, seeking to compete with mobile-tech investments by other players such as large funds by conventional VCs or GAFA.

The bold idea

By Zeidan’s reasoning, the general logic of mobile operators’ need to invest in innovative companies applies to the Lebanese market, but with the twist that Lebanon is late to this particular game and that the ICT niche has not been covered in the rising entrepreneurship ecosystem. He explains that many companies in this specialty space already exist, have operational revenues, and could rise on steady growth trajectories over time with the help of capital injections. They face barriers on this path, however, because their service orientation or projected growth profiles do not make them top targets for funds organized under the central bank’s Circular 331, he claims.

“I made a recommendation to set up a fund that invests in those companies and builds a partnership between them and the two MICs,” Zeidan says, based on the notion that the two MIC entities could benefit substantially from having access to product and service offerings produced by companies funded with their investments.

The plan for this fund was discussed by stakeholders and simmered for several months while its progenitors, including Zeidan, went looking for a person to assume full mental ownership as fund manager. “I was not supposed to manage this fund. I worked on this fund with the intention of having somebody else manage it,” he says.

After leaving his job as head of BankMed Group’s investment banking firm Medsecurities in the middle of 2017, Zeidan shelved plans for a personal sabbatical and instead engaged more deeply with the fund project plan starting in around September. In the following months, he gained stakeholders’ trust, he says, including people at the two mobile networks’ operators, Alpha and touch, but still could not find a person willing to run the fund. “I pitched a lot of managers to take on this fund, but nobody accepted the job because they thought it was a pipedream,” he tells Executive.

A decision to set up the fund was taken with the support of political stakeholders around last October. In November, the fund project presumably passed through a patch of deepest political darkness along with the whole of Lebanon. Then came the miraculous resuscitation of the Hariri government, and toward the end of last year, the dawn of MIC Ventures’ creation was realized through the establishment of a holding company.

As Zeidan describes it, the minister of telecommunications and the two MICs asked him, as the idea’s parent, if he could take on the management responsibility for getting the fund off the ground. He accepted the mantle of steering this new financial vehicle toward the goals of creating new jobs and initiating a conversation between the private and public sectors.

According to him, MICV has a three-tiered process of operations. The management team sources prospective deals that are assessed at periodic meetings by an investment team comprised of seasoned experts from the relevant fields. “I wanted to make sure that there is somebody who is an expert in every concerned vertical, so that, if a proposed deal is on the table, I have someone who understands the related sector from the inside out—for example, cloud technology, or payments and transfers,” Zeidan says. He adds that the investment committee’s size could be expanded from the current five to six members to assure that a sufficient number of experts are available to attend the meetings, which are intended to be held every other month in the initial phase of operations and less frequently later on.

Investments that are endorsed by this committee are then presented to the board of MICV for a final decision. The board, which represents MIC 1 and MIC 2 as the equal owners of the fund company, presently has five members, one of whom is independent, Zeidan says. He concedes that MIC owner MOT—and thus the current holder of the ministerial post—by default plays a decisive role in the equation. He claims that the ministry has recently become conversant in financial and entrepreneurship language that was never heard in MOT offices just a year or six months ago, and confirms that the current Minister of Telecommunications Jamal Jarrah has given full support to the fund project.

Total buy-in

The minister, his main advisors, and the top management of the two MICs have fully bought into the MICV project, claims Zeidan. “They and I see the fund as a very good thing for the MOT, for the two MICs, the Lebanese entrepreneurship sector, and hopefully for the country as a whole,” he enthuses. He acknowledges the possibility of political change affecting the ministry and notes that he often heard such concerns in discussions with people in Lebanon, however, he argues in response that the decision to set up MICV was carried by the full range of stakeholders and would not have happened otherwise. Moreover, the possibility of shifts in the political landscape, as far as it might affect his role, does not deter him. “In the event that there is any [political] change and if this change results in a change in the manager, so be it. I will have no grievances whatsoever in this respect,” he declares.

Sitting in his corporate office in a Beirut downtown quarter that has found favor as the base of operations for local financial players and law firms as well as international actors up to the World Bank Group, Zeidan makes a strong personal impression of being situated in a very safe distance from any economic precariat status or existential dependency on a government-related job. Concerns over partisan communal interests and individual corruptibility are not screaming from the walls of this office. 

However, in the wider context of national economic development prospects, the ghouls of Lebanese politics have darkened the pages of the country’s ICT narrative for so many years that many questions beg to be answered in any scenario that includes the terms MOT and ICT. How to defuse worries about monopolistic structures, and dependencies on political deciders and oft-changed ministers in charge of the telecommunications portfolio? How to restore confidence among local ICT firms and international partners whose memories of Lebanese mobile telephony have been tainted by experiences of a sovereign who chose to abandon contracts and break promises? How to assure a sector that it would not again be treated as welcome cash cow and milked to excess, just because it succeeded at a time when the state faced cash flow problems and other political economy issues? Such questions, or issues such as the proper accountability and reporting of monies that might flow from successful investments back into public channels, are not among Zeidan’s declared priorities. 

He explains that what happens between the MIC shareholders in MICV—up the line to the MOT and beyond in terms of reporting—is not under his purview, and prefers to emphasize the potential he sees on the level of the new fund and further opportunities for improving public sector partnerships with private sector actors. He says, “The reason why I am managing this particular venture is because I was the person that initiated the process to establish it. My intention is to make this fund happen and getting it to work, and I feel that we can make this work. Transfer of private sector culture and language has happened now at the MOT and I see the potential for the same to happen at other ministries, such as the Ministry of Economy. My belief is that you will see other, similar initiatives from other ministries. I think this will be fantastic.”

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.

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