Startup ecosystems in the United States continue to be major magnets for young Lebanese companies that want to benefit from valuations that the local market seems unlikely to generate. Executive learned of a new fund called Bireme Ventures from Elie Habib, the fund’s managing partner. In an interview during the central bank’s international startup conference BDL Accelerate 2015, Habib tells us that the fund has a target of $20 million and wants to achieve a first close of $5 to 10 million by the second quarter of 2016 to be deployed in facilitating the sojourns of Lebanese and Gulf-based startups across the Atlantic Ocean.
“We are seeing more and more companies maturing and facing the need to expand into the United States to accelerate their growth and acquire new customers. These companies need capital to reach the place from where they can reach the next level in their performance,” Habib tells Executive.
Habib, a Lebanese-American who spent most of his career in Silicon Valley and has been involved with funding efforts in the Lebanese startup scene since 2009, says that the move into the US is as challenging as it is necessary for those local startups that have potential to penetrate global markets. He argues that such companies will do best if they take advantage of the US market for raising funds and later on for realizing the fairytale returns that people associate with the American entrepreneurship ecosystem.
According to Habib, entrepreneurial communities of many countries are represented in the US market by funds that enable startups from nations such as India and China to enter the American scene but the Middle East is lacking such representation and this is the gap that Bireme wants to close.“The only region that does not have representation in the US [through] capital from or direct influence on startups coming from that region is the Middle East,” he claims.
He warns that it is very difficult for young companies to transplant themselves into the US because of the American market’s legal and organizational requirements and that being accepted by American venture capital (VC) and private equity (PE) firms is especially challenging for startups from the MENA region. “Many US VCs are very hesitant to deal with Middle Eastern startups and invest in Middle Eastern companies. The barriers are cultural, legal and perception based, and [about] intellectual property rights. [US VCs] are not going to invest into an intellectual property that is not correctly protected – that is where their assets are,” Habib explains.
Bireme aims to build relationships between Arab startups and US VCs in order to present the American funders with Middle Eastern companies that meet their investment criteria. According to Habib, this approach positions the fund outside of the realm covered by BDL Circular 331 by addressing the needs of Lebanese companies that seek international acceleration. Startup profiles that will be a good fit for Bireme will nonetheless include companies that received funding from a Lebanese VC under the 331 framework, or companies that have been nurtured by VCs in the United Arab Emirates.
In this context, Habib points to his ties with Middle East Venture Partners (MEVP), with whom he has been a venture partner for several years already. Within the now burgeoning environment, the possibilities for sailing startups to the US under Bireme’s participation are much improved, Habib enthuses. He says that the fund has a pipeline of “around nine companies that are at various stages of development but are generally post-A” in their funding stages and Bireme is ready to source companies from any VC in the region. While MEVP is a strategic partner, “this is not about [working with] any specific [VC] firm but about investing into breakthrough best-in-class Lebanese or Middle Eastern entrepreneurs that have the capacity, potential and product to go global,” Habib emphasizes.
Bireme Ventures will have a structure of limited partners (LP) and general partners (GP). The management team comprises three Lebanese-Americans under Habib’s leadership. In legal terms, it will be a US-based partnership with a management company in Delaware and a GP-LP fund in the Cayman Islands in order to facilitate participation by international investors. The fund will require no licensing from the Lebanese central bank, Habib says. He expects LP participations to comprise approximately 60 percent in investments from members of the global Lebanese diaspora and about 40 percent from individual and institutional investors in Lebanon.
Planning for a total life span of eight to 10 years, the fund’s strategy hinges on bringing in US-based VCs and motivating them to co-invest in the companies in Bireme’s portfolio. Beyond the envisioned US money, the fund at a later stage will also grant its LPs the right to co-invest directly into the companies. As Habib notes, the whole enterprise is based on a calculated expectation of high mortality among the invested startups with an aim of developing a group of winners that will provide high returns. He says, “What we are focused on is an [internal rate of return] of 25 percent and a return of 3 to 3.5 times money for the fund. We are going to play the role of the physical platform that is going to impact the three stakeholders (the fund’s participants, the startups and the US VCs), but we are ultimately going to look for creating exits — this is not a developmental fund; this is for profit.”