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Lebanon’s entrepreneurship ecosystem

Invest in the building blocks

by Nicolas Rouhanna

Lebanon’s entrepreneurship landscape has “leapfrogged” since August 2013, when Banque du Liban (BDL), Lebanon’s central bank, released Circular 331 that authorized Lebanese banks to invest in new startups in the knowledge economy. This policy has spurred the development of new growth capital funds and the entry of commercial banks into the equity market, unleashing (theoretically) more than half a billion dollars into the Lebanese economy. This sudden abundant supply obviously generated demand and buzz around startup creation, from entrepreneurs lining up with business ideas, to support platforms such as accelerators and business support organizations, and facilitators such as entrepreneurial networks and universities that promote entrepreneurship. Though some of these organizations and resources are at a nascent stage of development, the primary elements of a complete entrepreneurial ecosystem are present, as can be seen in the diagram below.

Many of the above building blocks also come from non-Circular 331 initiatives, contributing even more funds to the ecosystem. (Disclaimer: The diagram is a recent snapshot representing major funding and active support actors—some may have disappeared, and others may have appeared since this diagram was created in 2018).

A few striking observations can be made by reflecting on the below diagram.

First, all are private sector-driven initiatives, with a complete absence of government involvement so far—despite the latter being one of the main pillars in the MIT Regional Entrepreneurship Acceleration Program (REAP) framework. This framework describes the five main interconnected elements for an innovation ecosystem stakeholder model: entrepreneur, risk capital, corporates, universities, and government. Obviously, the role of the government in this context is, at a minimum, to provide basic infrastructure. This includes physical infrastructure like the internet, communications, and electricity, and other support such as an adequate legal framework and a conducive business environment.

Second, there is almost a 10-fold difference in the availability of startup funding in the later downstream stage versus the early upstream stage, where funding is needed more. For a startup to receive substantial funding in Lebanon, it is required to initially thrive on a shoestring budget, in order to reach the later-stage, “jackpot.” An entrepreneur once said: “I feel like I am on a lifeboat in the middle of the sea with no water to drink.”

Third, there is currently more of a landscape than an ecosystem, but the building blocks are being put together slowly but surely. However, an overarching strategy needs to be put in place so that new initiatives complement each other, rather than compete in the same space. One example of overcrowding might be the numerous similar seed accelerator programs that have emerged over the last couple of years—the likes of Speed@BDD, TheNucleus, Flat6Labs, BootCamp by AltCity, SmartEsa, and HultPrize. All of these entities accelerate the creation of startups typically over a three-month period before graduating them at a Demo Day ceremony. However, most of these graduating startups are not yet investor-ready after the three-month period and require further guidance and assistance to develop their project or business model. Thus, the majority of these startups unfortunately disappear, indicating that perhaps more investment is needed in developing post-accelerator programs to fill this funding and equity gap to maximize the chances of increasing “graduated” startups. Such a program would offer them the opportunity to receive subsequent seed funding, keeping them on some kind of “life-support” system.

In other mature ecosystems, downstream VCs, which usually have the big bucks, consider themselves as having a mandate to contribute to the ecosystem in ways that transcend simple monetary investments. For example, Real Ventures, based in Montreal, contributes to their ecosystem in ways that can benefit others as much as they benefit themselves. In addition to their funds under management, they also run the Orbit seed fund, the FounderFuel accelerator, the Notman House co-working space, the Element AI network, Front Row Ventures for students, among other initiatives. This collaborative mindset allows them to lay, or build upon, the foundations of rapidly growing tech hubs in Canada.

Similarly, SOSV is a multi-stage venture capital investor that runs multiple world-class vertical accelerator programs, and provides seed, venture, and growth stage follow-on investment to superstar companies. SOSV has operations based in the US, Europe, and China’s Shenzhen, and runs intensive flexible three-, six-, and eight-month programs. They provide startups with seed capital, a specialized global staff of engineers, designers, scientists to accelerate product development, mentors with deep market and technical expertise, and a state-of-the-art infrastructure of fully outfitted laboratories and maker spaces.

In Lebanon, IM Capital, part of the Berytech group, is a program funded under the USAID MENA Investment Initiative and has had a mandate since 2015 to facilitate access to early-stage funding. As such, it has provided matching capital and equity guarantees for investors and has also contributed in launching several new initiatives (including the Speed@BDD accelerator), managing and building the capacity of four business angel groups (Seeders & LWAF), and creating and running a mentorship platform based on the MIT Venture Mentor Service model (Confideo), and a coaching program based on Stanford Seed methodology—contributing to filling gaps in the developing Lebanese ecosystem. Imagine the ripple effect if the local “big” VCs start engaging in further ecosystem building blocks. They could create more thematic funds and scale-up programs, tap into the diaspora, structure maker spaces into hardware accelerators, and more.

Ecosystems take years to build. We Lebanese are known for our resilience, but our impatience as well. Some fear that Circular 331 money might dry up— fine, we will find other solutions. I am optimistic. We are all here because we decided to apply the famous quote by the late American President John F. Kennedy, perhaps inspired by our own Gibran Khalil Gibran: “Ask not what your country can do for you, ask what you can do for your country.”

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Nicolas Rouhanna

Nicolas Rouhana is General Manager at IM Capital

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Simon tadros December 21, 2018 - 1:45 PM

What about 24 m usd evaporated in keeward is that khalil jebran doing also ?

Peter December 25, 2018 - 4:03 AM

A startup ecosystem is only as good as what it produces in terms of successful startups. Perhaps focus on that in your next article. I am very curious about that.

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