Last month, the Lebanese Building Block Equity Fund announced its first investment in a technology firm. The $1 million in funding — which can be increased to $2.4 million — went to Luceor SAS, an internet deployment company based in France, but founded in 2005 by a group of Lebanese expatriates.
“The Building Block Investment will allow Luceor to market beyond its current French and European territories further to the east, into the Gulf Cooperation Council and the Levant as well as to the west, mainly to North America,” said fund manager Nagy Rizk. “It will permit it to compete on the global level [and] expand at a faster pace.”
The expansion of Luceor will take place through Luceor Technology Services SAL (LTS), a company incorporated in Lebanon and tasked with offering services, including maintenance, testing, integration and ultimately research and development for the Luceor applications.
According to its 36 month development plan, LTS will be creating up to 25 qualified technical jobs in the first 18 months of its deployment plan. The company is already tapping into a pool of specialized engineers that will be repatriated to Lebanon.
The Building Block Fund is part of initiative by the non-governmental organization Bader, which provides small and medium-enterprises (SMEs) with business development opportunities and promotes entrepreneurship. It is a closed ended fund registered in Luxemburg, specializing in Lebanese and Lebanese related SMEs in the technology, services and traditional industries.
Founded in 2006, the fund is designed to help existing businesses that need financing for development. It also takes interest in early development projects, when they meet the criteria set for this fund.
“These criteria facilitate project selection: each proposal has to be built on a proven business model or technology and has to generate a visible stream of revenues,” said Rizk. “Besides providing companies with capital influx, the company also offers technical, management and legal direction.”
Rizk said the fund provides entrepreneurs with the opportunities to speak with professionals who can advise them on a variety of business topics such as strategy, accounting systems and team building.
Contrary to traditional financial institutions, which provide companies with credit facilities, the Building Block Fund, which is mainly focused on existing SMEs, grows through equity, and has managed to raise more than $16 million.
The cash-out
“Investments in the Building Block Equity Fund aim at generating revenue for fund owners with a projected return between 20 to 30 percent. The fund intends to buy into attractive businesses, which are selected and managed following a five step process: identification of opportunities, building a case for investment, investing, creating value and monitoring the company before exiting,” Rizk said. “This practical and effective business model will be applied to other companies as well, with two already in the pipeline, one technology company and another food processing venture.”
Fund ownership is only temporary, as shares are to be sold after a certain time period (up to five years), as soon as the venture achieves sufficient growth and becomes attractive enough for future sale.
On average, Building Block’s typical investment varies between $300,000 to $2.4 million, with about 20 percent of the fund’s resources allocated to early development projects.
Today, Bader is translating a simple reality that has been capitalized on in the west: Lebanese companies cannot be built solely on debt; with equity, investors will be injecting funds and will share a company’s risk.
