The entrepreneurship ecosystem is evolving and becoming more ‘startup friendly’, hosting networking events every other week and improving the access youthful entrepreneurs have to information. Little by little, startups are crawling into the spotlight and are being given opportunities, access to capital and resources that weren’t readily available five years ago. The second Banque du Liban (BDL) international conference was held in December 2015. For some Lebanese startups, however, the exposure and prizes of up to $10,000 won through competitions was second to none.
BDL Accelerate is a good example of how the entrepreneurial landscape is changing – the event simply didn’t exist three years ago. There are further examples of showcasing talent to local and international investors, and events which provide young entrepreneurs with real-world experiences of startup success and failure. Fuckup Nights, the Mexican-born event where high-profile entrepreneurs share with the community stories about their past failures, had its third round in AltCity on January 14; their mission is to create solidarity by sharing experiences of failure and lessons learned. Bootcamp by AltCity and [email protected], two of the accelerators Executive profiled in our special report in November 2015, have both finished their rounds of startup acceleration, and hosted their Demo Days – events which showcase accelerated startups in an attempt to generate funding from investors who are invited to attend.
Demo day: first cycle
Both Demo Days were positive, according to Theo Khoury and Sami Abou Saab, managers of Bootcamp and Speed respectively. “People weren’t expecting a lot [from Bootcamp’s first Demo Day] but were very impressed by what was available,” explains Khoury, who notes that present venture capital representatives gave very positive responses to the relatively inexperienced teams that were presenting to a packed room. Khoury admits that AltCity was reluctant to reach out to foreign investors to attend their Demo Day, as the organization lacks enough long-standing and regional credibility to warrant a one-day visit. Aside from contact from the managers of the 500 Falcons, a $30 million regional micro-fund that is an offshoot of seed-funding powerhouse 500 Startups, foreign interest has been quiet. Their plan is for future Demo Days to attract foreign investors based on the credibility that Bootcamp builds at home and abroad. However, the ecosystem’s current pipeline of funding does not help startups at a very early stage, as the money is more readily available at later stages of development. Both Middle East Venture Partners and LEAP, two venture capital powerhouses, only offer ticket sizes to large entities, and often to the tune of hundreds of thousands of dollars, if not millions. Whilst successive Demo Days and rounds of acceleration will tell whether AltCity can build enough reputation and credibility to gain international traction, the startups themselves will only flourish if more money is made available at every stage of the developmental journey.
One Cinderella story from the current Bootcamp, however, is ReAble, a startup featured in Executive’s “Top 20 for 2015” that has created an online mobile wallet app for people with autism to help with cashflow and money management. The company has received external investment of $25,000 from a private Canadian backer, on top of the $10,000 first prize in the Early Stage Startup Competition at BDL Accelerate 2015, and exhibited at the Arab Health Exhibition in Dubai, the second largest health expo in the world. Emile Sawaya, ReAble’s CEO and co-founder, credits AltCity with key development processes at the early stage and helping them transform from idea only to startup. He does, however, credit some of his company’s success to networking through the wider community rather than exposure at Demo Day – the private investment was made through personal contacts.
Accelerators have also begun to evolve, much like the entire entrepreneurial ecosystem. Originally, AltCity’s Bootcamp gave a $25,000 investment to startup teams after a three month acceleration course which took ideas to fully-fledged startups. AltCity shifted their entire acceleration business model from the beginning of the current and fourth Bootcamp cycle; they are no longer giving $25,000 in exchange for a 6 percent equity slice, but are splitting the accelerator into two phases. Phase one will be online, and allow Bootcamp to analyze the teams remotely, thus maximizing the number of participants due to less strain on physical resources. Roughly five teams that complete phase one will be selected to proceed to phase two, thereby halving the number of teams which was in the previous Bootcamp at the physical stage and therefore concentrating its resources on fewer teams. Khoury explains that these changes were made due to time commitments and restraint on resources, which resulted in Bootcamp’s inability to dedicate as much time as was needed for individual startups. “Before Demo Day we decided we had too many teams, and we couldn’t spend enough time with teams individually,” explains Khoury, who notes that the new model will allow for more efficient time expenditure. The original $25,000 per team investment was made through a partnership with AL-MAWARID Bank, which sits on the board of Bootcamp, as AltCity and Bootcamp were only mandated by BDL to take an equity slice (without investment) in order to sustain Bootcamp. They will therefore revert to this mandate, and take 2 percent in equity from teams in phase two only, though the bank would still be able to offer an investment independently of Bootcamp.
Speed’s Abou Saab was also keen to point out how his accelerator has evolved. Part of the culture of Speed is to incorporate feedback mechanisms which allow the accelerator to improve and best serve its startups. One key example of this was the overhaul of how startups receive advice and mentorship during the program. Initially, talks were given by experts to all startups simultaneously, and although they covered generic problems, were largely untailored to specific needs of individual startups which varied drastically from team to team. After consultations with the startups, the three-hour slot that experts were booked for to address the entirety of Speed’s startup class was divided into six half-hour slots, as “a one-to-one mentorship could actually solve specific points a startup has which generic talks cannot address,” explains Abou Saab.
Charlie Khoury, CEO and co-founder of drone-building company Next Automated Robotics (NAR), was also keen to explain how Speed’s entire accelerator process had helped his company to evolve. “The number one thing that changed was scalability,” says Khoury. “When we first came to Speed our product was just a quadcopter – a simple drone with limited flight. During the acceleration we [changed] to a design that could have outreach and applicability.” NAR incorporated vertical takeoff and landing technology into their drone, which now has better wind resistance, higher speeds, a greater flight range and overall a greater applicability to different industries.
Speed’s great contribution, however, comes in the form of creating a direct vehicle for Lebanese startups to head straight to Silicon Valley. This process enables startups from Lebanon to apply to the ‘LebNet Ignite powered by Blackbox connect program’, an immersion which focuses on global startups and provides access to mentors and resources in Silicon Valley, and, for example, includes coaching on pitching and business strategy. The program was made through a partnership with LebNet, a network of Lebanese-American hi-tech professionals in the Bay Area, and in turn was organized for Speed by Lebanon for Entrepreneurs, some of whose members sit on the board of the accelerator. George Akiki, president of LebNet, explains the driving factors behind the immersion; “Lebanon has been witnessing an accelerated pace of deal flow, innovation, startups and startup capital. Our intent at LebNet is to build a closer relationship with the ecosystem in Lebanon and impact the formation of world-class companies and entrepreneurs.” NAR and Rational Pixels, the latter of which creates product-placement technology, will enroll in the two-week program, and startups in subsequent Speed cycles will be encouraged to apply to the program on a regular basis. For Charlie Khoury, the opportunity is second to none, as direct exposure to Californian firefighters allows them to fine-tune the usability of their drone, which was originally built with the intention of combating wildfires: “We want to see daily examples of how [firefighters] deal with the fires, and can see, for design purposes, how people use and would use [our technology].” As for NAR, the US is a key market for the drones they are developing; therefore being in-country and having the opportunity to have direct meetings with different stakeholders will “have a huge impact on our future” explains Khoury.
By giving entrepreneurs clear access to opportunities abroad and exposure to strategy and business giants within Lebanon, Abou Saab hopes future talent will be more likely to remain in the country rather than seek employment abroad. “We were able to get Rida [Sadek, of Rational Pixels] back from Barcelona after he had lived there for eight years to come for the acceleration [program],” explains Abou Saab, himself a returnee from the US after a career at Microsoft and Skype. “Even for the next batch we have started receiving applications from [Lebanese] living outside of Lebanon, with the idea of coming back. Having something which is retaining them here is a big value added [to the ecosystem] right now,” notes Abou Saab.
Participants in both Speed and Bootcamp are encouraged to be open to constructive criticism, alterations and continuous external validation to their product and ideas. For Khoury, one key piece of advice to startups was “never [to] move forward before you have external validation. Stop wasting your time on assumptions.” Speed’s similar ethos is useful for those attending the post acceleration immersion in Silicon Valley, where the final chapter in the disastrous saga of golden startup Clinkle has rocked investors and entrepreneurs alike. After a hugely successful round of initial $25 million seed-funding in June 2013 – despite Clinkle not having a publicly available demo of their highly-anticipated mobile payments app – the company imploded in the summer of last year with a mass exodus of employees, upon realization that the promised app didn’t exist, and a press hounding of the company’s hollow investor promises made by the CEO, Lucas Duplan. According to American business magazine Forbes, in January 2016 investors made the rare move of asking for what was left of their money back from Clinkle’s accounts. Whilst NAR and Rational Pixels are a long way off from seeking funding of $25 million, hopefully the lessons of humility that Duplan has had to learn with a spectacular failure will already be installed, in some fashion, in the Lebanese entrepreneurs thanks to the coaching they initially received.
The work of both Speed and AltCity is crucial to developing the entrepreneurial ecosystem, but only if it is met by similar efforts along the pipeline. At the moment, there seems to be a gap in the development chain as the ticket sizes offered by venture capital powerhouses MEVP and LEAP are far greater than what most startups require. Tickets of up to $1 million are good for series A and B level funding, but are far beyond the requirements for idea and seed-stages which AltCity and Speed offer – traditionally $25,000 and $30,000 respectively. There are tentative steps to amend gaps within the pipeline. Fadi Bizri, managing director at Bader Young Entrepreneurs Program, has joined forces with Abdallah and Ghaith Yafi, managing partners at Y Venture Partners, and Rami Jisr, former general manager of Audi Investment Bank and current managing partner at Broadgate Advisers. The group has created Broadgate and Yafi Venture Partners (BYVP), a $50 million hybrid fund which aims to invest tickets in early stage startups. Ticket sizes are estimated to be between $100,000 and $1 million, and the venture is in final stages of negotiation for the license with the central bank, and is due to go live around March 2016.
However, arguably there need to be further programs like Speed which invest in very early stages, or even up to $100,000 in total, otherwise many startups will fail to get off the ground. Without this investment, as Theo Khoury analogizes, it’s akin to participants in a marathon receiving a gallon of water at the 5km mark, and 50 gallons at the 20km mark, but nothing between 0 and 5km. “They’ll just die of thirst before they even reach 5km,” says Khoury. Only when every inch of the pipeline is fixed, and startups are given investment at earlier stages, can the central bank rest safe in the knowledge that the money from Circular 331 is being spent in a way that most effectively develops and showcases the talent that Lebanon has to offer.