It can be daunting to be an entrepreneur in Lebanon. A lack of solid infrastructure, slow Internet and a lack of proper legal structures put significant pressure on the already stressful event of launching a business. Add to that kidnappings by men in balaclavas, a tragic bomb in the heart of Beirut, travel warnings from regional countries drying up the tourism season and little prospect for economic growth, and the enthusiasm it takes to launch one’s own business might become hard to find.
However, a support system is growing, with an aim of helping entrepreneurs overcome these nerve-wracking challenges. A new incubator launched in 2012, a Beirut-based accelerator began investing in startups, and a handful of venture capital (VC) funds deployed a total of $14 million in equity capital into seven Lebanese startups (as of end of November 2012).
In the summer of 2012, AltCity, a space for entrepreneurs to work out of and receive mentorship, set up shop in Hamra. With several activities organized in the past couple of months from entrepreneurs’ breakfast get-togethers to creative evening workshops, AltCity has been making noise in the entrepreneurial world.
Just a few blocks from AltCity, another hive of entrepreneurial activity can be found at the offices of accelerator Seeqnce. Founded in 2010, Seeqnce made a lot of noise in 2012, and even featured in an Economist article, when it adopted the model of United States accelerators Y Combinator and TechStars — which landed success stories such as DropBox and AirBnB — and launched an “American Idol” type competition, which ended with the selection of eight startups, each receiving $76,500 in investment; half in cash, and the other half in the form of Seeqnce services, such as a six-month space rental, mentorship and workshops (as described in Executive’s October issue). In exchange for the capital deployment, the eight startups each gave up a hefty 30 percent stake in their newly formed venture.
Lebanon’s largest real estate developer, Solidere, also jumped on the accelerator/incubator bandwagon, launching a space dubbed “Cloud 5” for entrepreneurs to work out of in November 2012.
For more established entrepreneurs, Endeavor, a non-profit organization supporting entrepreneurs in emerging markets, increased its support to Lebanese entrepreneurs in 2012. Three companies were added to its network: Mosaic Marble, ElementN and At7addak. Established in Lebanon in 2011, Endeavor had already selected four companies in its first year of operation, and so now counts seven Lebanese companies in its network. These members benefit from Endeavor’s support, including access to a worldwide network of companies in emerging markets, investors, business leaders and trainees from Ivy league universities.
Another Lebanese company may be added by the end of 2012, when the Endeavor team in Lebanon fly off to Miami in December to face the international selection panel. Looking forward to 2013, Endeavor says it plans on adding another four to five Lebanese entrepreneurs.
There have been public sector attempts to support entrepreneurs as well, mainly through the central bank. An online platform for entrepreneurs was launched in 2011 by the central bank aiming at bringing together the different players of the entrepreneurial ecosystem, but it has thus far failed to gain traction in the buzzy entrepreneurial world. “It is not really gaining momentum,” says Saad Andary, the vice governor of Banque du Liban, Lebanon’s central bank, who is behind this initiative. On the website, there is a listing of various entrepreneurial opportunities for investors, funding options for entrepreneurs as well as investors’ information. The platform also offers a list of mentoring and training options for entrepreneurs in Lebanon.
Financing the idea
Family, friends and fools remain the main source of funding for entrepreneurs in Lebanon. “There are a lot of angel investors in Lebanon and it is hard to quantify them,” says Tarek Sadi, Endeavor’s country manager in Lebanon.
The Lebanese Business Angels (LBA), part of the Bader organization — a platform launched in 2008 aiming at bringing investors and entrepreneurs closer together — only managed to complete one deal prior to 2012 by helping Ovis Casing, a provider of natural casing for sausages, raise $100,000.
In 2012, LBA managed to help two companies raise funds: $42,000 for Fresh Natural Products (FNP), a producer of Labneh and Kaak (which featured in Executive’s top 20 entrepreneurs report in November) and $20,000 for an undisclosed mobile gaming company.
For startups looking for a loan, Kafalat — the government sponsored institution that guarantees private sector loans to small and medium enterprises (SMEs) — remains the main access to external debt, with $109 million deployed into Lebanese SMEs in the first nine months of 2012. Around 15 to 20 percent of these loans are provided to innovative startups according to Khater Abi Habib, chairman of Kafalat. Seven of the entrepreneurs featured in Executive’s ‘Top 20 Entrepreneurs’ received Kafalat loans, two of them in 2012: FNP secured a loan of $133,000 and East Line Marketing of $240,000. As for providing entrepreneurs with further support, Abi Habib told Executive in October that “it is a matter of demand; we are there for them and we have capacity to do it. Let them come”.
Kafalat is looking to move into equity, and is in advanced talks with the World Bank and the Lebanese government to launch a $30 million equity fund investing in Lebanese startups and complementing the debt support it already provides. The proposal is awaiting approval in Parliament and the fund should be up and running within a couple of months of that approval, according
The World Bank will be providing the capital in the form of a loan, which a holding company under Kafalat will be responsible for deploying in Lebanese startups, with a maximum ticket of $500,000. “We think it is original and exciting and if we succeed, it could be replicated in the region,” adds Andary.
VC firms have also been more active in the past couple of years with 2012 seeing a small number of deals completed despite the dire economic conditions.
The $6 million Berytech fund — which in 2008 was the first VC fund to dip its toes in the Lebanese startup market — has extended by a year its four-year mandate to complete investments and plans to deploy the remaining 30 percent of the fund by the first quarter of 2013. With an average ticket size of $700,000, Berytech completed three investments in 2012: PayPlug, a mobile payment application based in France and launched by Lebanese Camille Tyan; Probueno, a crowd-sourcing platform based in the US with Lebanese Michel Rbeiz responsible of product and business development, and Lebanon-based Wixel Studios, a provider of mobile games for the Arab market, in which they co-invested along with Middle East Venture Partners (MEVP), a Lebanon-based VC run by Walid Hanna.
Berytech is in the process of raising capital for a second larger fund between $20 million and $30 million, which it expects to be up and running by the second quarter of 2013, and which will also be investing in the information and communication technology (ICT) sector “as well as creative companies” says Sami Beydoun, managing partner of Berytech.
Another Lebanese VC which sealed deals in 2012 was MEVP, with a total of nine rounds of investments throughout the year, of which five were for Lebanese entrepreneurs: Anghami, a provider of online music streaming for the Arab World; Box & Automation Solutions, a cash management, audit and treasury solutions provider; Falafel Games, a producer of online games for the Middle East; PinPay, a mobile banking services provider; Wixel Studios (co-invested with Berytech), and finally Shahiya, a website providing user-generated Arab food recipes. The average ticket per investment stood at $600,000.
Not all Lebanon-based VCs have been successful in securing deals. With an average ticket size of $500,000 — close to MEVP’s target profile — Cedrus Ventures’ $5 million fund launched in 2011 by Michel Nehme has not been successful. Nehme told Executive in October that he is struggling to find investment opportunities, with his chief concern being the caliber of the people he’s working with, as he is looking for “complete teams ready from the get-go”.
For larger-ticket investments, Riyada Enterprise Development (RED), part of Abraaj Capital, the largest private equity firm in the Middle East, has invested in two companies in Lebanon so far. After deploying approximately $3 million in Nymgo, a telecom provider of international voice-over-IP in August 2011, RED recently completed a second investment in Lebanon through its $50 million Lebanon Capital Growth Fund launched in 2011 in partnership with Cisco and the European Investment Bank. While refusing to disclose the name and size of the second deal, Elie Habib, RED’s Lebanon country manager, stated that it is in the hospitality business with operations in Lebanon and abroad and its size is “significantly larger” than the investment in Nymgo.
Finally, the fifth VC fund investing in Lebanese as well as MENA startups is Wamda Capital, led by Habib Haddad. Launched in 2011, the fund’s size remains undisclosed as “we are still raising capital” says Habib. With an average ticket size of $300,000, the fund completed 10 investments in 2012 of which two were for Lebanese entrepreneurs: Elie Khoury, founder of San Francisco-based Woopra, a provider of real-time customer analytics and Roy Zakka, founder of Dublin-based Ubanquity, a provider of banking and payment eChannels.
Schools are slacking
On the academic side, many say not enough is being done. “Universities started tinkering a little but it is more show and no go,” says Kafalat’s Abi Habib.
The American University of Beirut set up the Darwazah Center for Innovation Management and Entrepreneurship in 2010; Balamand University launched its second Youth Entrepreneurship competition in 2012; in 2011, Saint-Joseph University (USJ) teamed up with Berytech to launch the annual regional edition of the Global Social Venture Competition — an international competition in business planning that is partnered with France-based ESSEC Business School.
While this is a start, universities can do more. Labib Shalak, chief executive officer of Mobinets, a provider of software for telecom operators based in Tripoli, says he believes universities need to teach students more about entrepreneurship and innovation and become less service-oriented. “We have a big resource pool [of graduates in Lebanon] yet at Mobinets we hit a brick wall as we have to invest in [them] for a year,” says Labib.
More players are venturing into the entrepreneurial space looking to support and monetize Lebanese talent. While lots of activities are taking place and entrepreneurs are feeling the buzz, the space still lacks organization and the ongoing efforts, while encouraging, need to be better channeled and engage more players, from universities to banks to the public sector. For instance, local universities could increase their offering of courses helping would-be entrepreneurs develop business plans and providing startups with a hireable pool of graduates. The public sector has a big role to play by providing the appropriate infrastructure supporting entrepreneurship.
The Lebanese diaspora could also be encouraged to play a bigger role in supporting and financing local talent. For example, in 2011, Lebanese expat and former Google employee George Harik invested $250,000 in a 5 percent stake in Lebanese startup Dermandar.
As support continues to gain momentum locally and slowly starts attracting attention internationally, a better organizational framework to funnel this support and energy will need to coalesce, and thus allow Lebanese ideas better access to the tools they need to be realized.