Instagram, Angry Birds and Shazam were created by tech savvy developers. The brains behind these amusing mobile experiences had to build two types of codes to provide their app: one deployed on the mobile device for the functionality and user experience — dubbed the “front-end” code and the reason for our choice of one app over another — and one deployed on a server infrastructure for the database, security, social network integration, etcetera — dubbed the “back-end” code. While the front-end code is usually particular to each app, the back-end code is mostly identical among apps.
A startup to help startups
To simplify the “back end”, data centers started offering hosting, or space on a server, to app developers. Developers’ lives got even simpler in 2006 when Amazon introduced “utility computing”, allowing them to rent new machines on-demand and be charged by the hour like other utilities, such as electricity. There was no longer a need to buy hardware for capacity, as space could be rented online. That’s when Lebanese serial entrepreneur Rabih Nassar saw an opportunity. Writing the back-end code used to be the developer’s job, but sites like Amazon removed this burden. “The whole capacity issue is gone; it was a paradigm shift in software,” says Nassar.
Under the name Apstrata, Nassar pioneered and started offering “back-end as a service” (BaaS) in 2009 to developers who would be able to cut their development team by half and save anywhere from 15 to 90 percent of the total cost of implementing and supporting an app over its entire lifespan. This allowed developers to focus on the front-end code. A ‘freemium’ service, Apstrata does not charge developers until their user base exceeds 500 users, “making it extremely suitable for startups and young entrepreneurs testing new ideas,” says Nassar.
ElementN, the Lebanon-based company he founded in 2003, which until then was offering software for mobile operators, is now focusing on Apstrata. Making up just 4 percent of the $2 million in revenues generated by ElementN last year, Apstrata is expected to take on a larger share and generate 10 to 15 percent of revenues this year — with ElementN bringing in $3 million in the first six months of 2012 — and more than 30 percent next year.
Building on his experience in the tech sector in Silicon Valley and in Europe, Nassar built a solid team composed of 60 highly qualified employees, but starting in Lebanon is something he seems to regret. “I was a bit naïve to assume I can build technology out of Lebanon and attract United States investors; this proved to be a nightmare scenario,” he explains. While Nassar tried to approach investors in the Gulf, there was no interest in investing in the software space. “It will take the fund manager in the Gulf more effort to understand my company than a $200 million petrochemical investment. So why bother?” he says.
It wasn’t until 2010 that ElementN received its first round of financing, securing $1.2 million from Lebanon-based venture capital (VC) fund Berytech for an undisclosed stake. “That delayed us,” says Nassar. Other US-based companies did not take too long to follow in Nassar’s footsteps in providing BaaS, securing relatively large amounts of financing from VC firms. Stackmob and Parse, both American providers of BaaS, received $7.5 million and $5.5 million, respectively, in financing last year, which makes him edgy, since he pioneered BaaS, and he should be the one receiving the financing. Nassar is not too worried though, as his competitors are using the financing to invest in research and development; he has already built the R&D maturity by investing $5.5 million through self-financing between 2003 and 2010, as well as using Berytech funding.
To secure investments from US-specialized VCs, Nassar needs to move his team across the Atlantic, as “all the huge software companies are US-based; if you want to make it in software, you go there,” he says, adding that he is looking for financing to transplant his company to America. The immediate need is for $2 million with investors — read ‘high net worth individuals’ — already lined up. Once the company is in a better condition and of a bigger size, he will then go for another round of financing, up to $7 million, from VC firms.
For now, he is hoping that his mistake of starting off in Lebanon will not cost him too much, and that he will be among the successful software companies in the US giving a boost for tech companies back home.