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Investing in local startups

Marwan Kheireddine talks Al-Mawarid Bank’s investment in Presella

by Livia Murray

Marwan Kheireddine is the chair and general manager of Al-Mawarid Bank, one of the shareholders in the Virgin Megastore franchises in Lebanon and Saudi Arabia, and a former minister in the previous Lebanese government. He was involved in pushing Circular 331 in coordination with former Minister of Telecommunications Nicolas Sehnaoui. Executive sat with him to talk about Mawarid’s recent investment in local startup Presella.


So are you Presella’s number one fan?

Does it really matter? I don’t think so. What is important is that they get to work, and prove that their business plan is achievable, and that they can create jobs and make returns.


[pullquote]I think that at most we will be financing semi-crazy ideas.[/pullquote]

You actually have some entrepreneurial and investment experience. Are you nervous that other banks who are directly investing into startups don’t have this kind of knowledge?

No, I think that the challenge banks will have, which we will also have as a bank, is changing their mentality from lenders to investors. Because the two things are totally different. When you lend someone money, you’re lending them with the intention and you’re taking all the required precautions to ensure that they will pay you back the principal amount that they borrowed plus all interest and charges and what have you. Now if you are investing, you’re taking a totally different approach, you’re looking at the business model, you’re looking at the management capabilities, you’re looking at the opportunity of success. But then you may lose money. And bankers are not designed — their DNA does not really work well with losing money. So there is a culture shift that needs to take place in banks in order to move them from great lenders and knowing exactly how to lend, to great investors and thinking how to invest.


But even with a culture shift, isn’t this a very risky venture for banks who have no past experience in investing, and who are notoriously conservative?

I honestly think that not all banks are going to take this opportunity. It was very wise by the central bank to force banks to provide 25 percent [of any investment]. Because had this not been there, the market would have probably seen a lot of lousy investments. But the fact that banks have to put up 25 percent of any investment from their own money, means basically that there is not going to be an investment that is not well analyzed and not well looked at. So that will protect the system, basically.


Do you thinks banks will look into these ventures as genuine profit making opportunities or do you think it’s going to start more as a corporate social responsibility (CSR) policy by banks who want to show that they’re dynamic players in the ecosystem?

I think a few banks will use that as a CSR initiative. And you know what? That’s fine. Big deal. At the end of the day, they are taking a risk in investing in companies. They are going to lose 25 percent of their investment if they choose badly, and if they don’t do enough investments as a policy, the chances of them losing all their investment is huge.


Isn’t it also risky for the central bank?

When the central bank [decided] this, we assumed 1 out of 10, or 1 out of 15 [startups] would make it.


Aren’t these figures a global rule of thumb? How do we know if it will apply to Lebanon?

We don’t know. But I think we will perform slightly better than the average international performance, mostly because the investment decision will be taken by banks that are conservative in nature. So in my mind, we’re not going to be financing crazy ideas. I think that at most we will be financing semi-crazy ideas.

But if you end up investing in a few thousand companies, by sheer application of the statistics, the central bank should be benefiting. I think Armageddon for all of us is if we only invest in a few companies, and then don’t find anything else. Then the chances are we are losing all of our investments — but then it’s not the 400 million, it’s a very small amount. So statistically speaking, the probability of success should be higher than what we have seen internationally, only because banks are more conservative in their decisionmaking. Irrespective of how entrepreneurial you are going to push them to be, they will still be conservative.


Correction: A previous version of this article described Marwan Kheireddine as the chair and CEO of Al-Mawarid Bank. He is the general manager, not the CEO. Apologies.

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Livia Murray

Livia covers business, finance and economic policy for Executive.

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1 comment

Entrepreneur June 17, 2014 - 2:05 PM

Banks have no business investing in startups or companies. This circular is ridiculous !

It gives banks the power to invest in companies they fail to provide loans to.

Banks don’t understand startups, they don’t understand the dynamics behind them. They fail to provide startups with the crucial loans they need even if their projects are approved and guaranteed by Kafalat. Why would this initiative be any different than Kafalat ? The same idiots (Credit committees) which do not understand anything other than “GUARANTEES” will be judging the same projects without any knowledge of the startup world, markets, trends and what it takes to nurture an entire ecosystem for it to grow harmoniously !

They should not be given the right to invest at all and even less a 75% guarantee on their investment. As investors, they are UNFAIRLY competing with the private sector which do not enjoy the same amounts of resources or guarantees.

Banks should stick to their role of lending money to businesses (NOT GOVERNMENT) and investors should be provided with guarantees instead.

Its simply a disgrace to provide banks with such guarantees when they fail to understand what it takes for ecosystems to emerge and grow.

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