Growing pains

Supporting a new generation of Lebanese entrepreneurs is a complex business

In a country where businesses often operate along familial lines, with new investments coming from family and friends, Lebanon’s nascent entrepreneurial scene is experiencing some understandable teething problems when it comes to vital external funding and support.

Growth hits a ceiling constrained by one’s inner circle, and opportunities are limited for entrepreneurs with ideas and drive who may not have access to financing and technical support. Calls for more support institutions for entrepreneurs have been made among those interested in enlarging the sphere in Lebanon. “We need many accelerators, we need many incubators, we need many [venture capitals] VCs,” says Tarek Sadi, managing director at Endeavor Lebanon, an NGO working to support entrepreneurs internationally. “We need to have that healthy competitive tension between these people so that the entrepreneur becomes the party that has the most leverage, to get the best deals, to get the most support.”

Increasing the deal flow

Many of the players in the industry say increasing the deal flow — the amount of new ideas and new entrepreneurs that pass through the ecosystem — is key to increasing the number of successful entrepreneurs. For that to happen, institutional guidance and support is vital.

Having the right support out in the open could increase the number of entrepreneurs considerably. Companies in their earliest stages are particularly at risk, and have a large chance of failure. “A lot of entrepreneurs tend to get lost very easily in the early stages of building their startups,” says Samer Karam, CEO of rebranded start-up accelerator Seeqnce. “There’s just too much to do and it’s not very clear where they should start.”

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Given the likelihood of failure in the early stages, more startups means more likelihood of success. Fadi Bizri, managing director at Bader Lebanon, which provides support to young entrepreneurs, talks of the need for a “factory of startups,” and reports that venture capital firms believe the country needs at least five accelerators.

Venture capital firms have obvious interest in increasing the size and quality of the deal flow, so they have more deals to choose from when they invest. They have taken some initiatives towards this end. Walid Hanna, managing partner at Beirut-based venture capital firm Middle East Venture Partners gives help to Bader, and says his firm spends around $20 to $30 thousand a year on promoting deal flows.

The country also has some help in this regard from Beirut’s sole incubator, Berytech, which is trying to guide a flow of entrepreneurs into its services. Berytech has a partnership with Bader where they host entrepreneurs once they have been coached by Bader. Their locations in Mathaf, Mkalles, and their most recent branch that opened this year in Beirut’s Digital District, are filled at 90 percent capacity.

The End-to-End Process

Despite some initiatives, Lebanon’s support institutions do not yet facilitate the end-to-end process. Lebanon’s startup ecosystem offers some support to early-stage startups, namely business plan and startup competitions that give entrepreneurs with ideas access to training and coaching. These initiatives haven’t succeeded in taking startups up to the level that investors would like to see to grant investments, particularly among the risk-averse investors in Lebanon.

“You know the quality of the companies that are participating in those business plan competitions are less than average, says Hanna, “We can barely look at the top three out of hundreds and thousands. We’ve seen many winners of business plan competitions that got some funding and then they closed down shop a year later. So we need a lot more mentorship at the startup level.”

Support for these smaller fish is currently meager at best. There is more support for more developed startups, who have a minimum viable product, as venture capital firms offer mentorship and guidance to the companies they have invested in. Lacking from the picture is a proper accelerator, which would give institutionalized support to burgeoning entrepreneurs before they reach the stage where they can qualify for venture capital. One attempt, Seeqnce, produced a batch of startups in 2012, but the team then decided to go their separate ways.  Currently Samer Karam, Seeqnce’s CEO, is leading the development of a virtual accelerator named Alice by Seeqnce, intended to serve as a global platform for startup acceleration.

Demand for early-stage guidance is becoming apparent at the grassroots level. Coworking spaces are starting to creep up around Beirut to satiate the need for startups to learn from peers and coaches. The latest addition is Coworking +961, which launched in July in the grassy hideout of Sursock Gardens. Coworking spaces create a cluster of entrepreneurs who benefit from working in the same environment. “They learn from each other in terms of experiences and expertise,” says Jad Hilal, community organizer at Coworking +961. The demand for such spaces hints at a broader desire within the entrepreneurial communiy for structured early-stage insitutions. “We keep getting people who want to be part of our space, but we’re full.” says Hilal.

Coming together

The support system for startups is beginning to coalesce. The ecosystem for startups has ballooned over the past couple of years, and there are efforts to promote collaboration. The Global Entrepreneurship Week, scheduled for the third week of November, includes activities at the local, regional, and global level that will bring together entrepreneurs and stakeholders who work to support them. This year more than 50 partners are participating in Lebanon, up from 35 in 2012. In preparation for the event various players in the ecosystem have been meeting in recent months. 

The sophistication of the scene has in many regards come a long way, but they do not yet constitute a coherent system that facilitates the startup-creating process from A to Z, and have some ways to go in terms of their overall effectiveness. “In some ways there are more supports building up than actual startups,” says David Munir Nabti, Mayor of co-working space AltCity. The system has potential through their resources, but the various actors need to come together to ensure its smooth operation. There is also an increased awareness among players in the field of the need for open communication and collaboration, although this is yet to solidify. “It is in the minds of the various actors, there are talks around it, but there is nothing yet concrete,” Bizri says.

A further announcement has people thinking about collaboration. At the end of August the central bank passed Circular 331 guaranteeing 75 percent of commercial banks’ equity funding in SMEs for up to $400 million. The decision encourages investment both in startups and in start-up infrastructure, and could potentially lead to a spur of investments come 2014. However, the central bank has yet to develop implementation mechanisms, and will only start to consult with players of the ecosystem this coming month. Too much reliance on this initiative for bringing the different players together could have adverse consequences if it does not live up to the high expectations that are being placed in it.

Livia Murray

Livia covers business, finance and economic policy for Executive.