Launched on December 18, the Building Block Equity fund is another successful initiative by Bader, the NGO that provides small and medium enterprises with business opportunities and promotes entrepreneurship. It has adopted the equity tool to further influence and shape the local economic scene. The organization, which is backed by finance minister Jihad Azour, includes as many as 40 of Lebanon’s most successful and dynamic executives.
Supporting entrepreneurship
To achieve its goal, the organization has defined several action plans that streamline the business cycle. “The NGO tries to create awareness about entrepreneurship, through road shows at leading universities as well as media campaigns,” said Robert Fadel, ABC stores vice-president. The second initiative lies in the promotion of existing programs such as Kafalat or Berytech, which support entrepreneurs. There are around 15 such programs, dedicated to entrepreneurs in Lebanon and Bader works on making them accessible to the general public. The third initiative considers building partnerships between the public and private sectors in order to resolve critical economical issues. With the help of the finance and economy ministries, the NGO seeks to create a business friendly environment for small and medium companies, by improving the legal and regulatory frameworks. “Given the current situation, it has been difficult to advance on this particular issue,” said Fadel.
Focusing on educational entrepreneurship, Bader promotes MIT’s and other business plans competitions, offering training programs with Bader members to top five graduates from selected universities. The NGO plans to launch a mentoring program, whereby hand-picked entrepreneurs are counseled by Bader’s members. Bader’s final cornerstone activity operates through the use of several financial tools that can provide entrepreneurs or existing businesses with easy access to equity.
Subdivided into three sections, the Bader financial arm supplies businesses with external financing and capital, through the creation of a fund which invests in start ups and existing local companies. The first Bader financial program is destined to existing businesses which need further financing, to insure a sustainable level of growth. To apply this particular program, Bader has partnered with Kafalat. The ‘Start Up’ action plan is addressed to young graduates and entrepreneurs, who are looking to establish their own business. “Bader contributes to the endeavor, by providing them with technical and legal assistance as well as access to capital through the Bader Building Block equity fund, up to 20% of which is destined to such ventures,” adds Fadel. This initiative also permits young entrepreneurs to network with professional mentors who can advise them on the various business aspects such as managerial, accounting, team building and others issues, with Berytech’s assistance.
New opportunities
However, the Bader Building Block equity fund is mainly addressed to existing small and medium businesses that are looking to grow through equity. The fund aims to raise $10 to $20 million in the next 10 months. As a venture capital vehicle, it seeks to provide SMEs with accelerated growth and rapid expansion plans. Set up from inception to its first fundraising round by an international venture capital group managed by four, it receives the backing of Kafalat and international financial institutions as well as local banks. Adnan Kassar, Fransabank’s CEO, has already pledged $1 million to the fund and another million was committed by Marwan Khairedine of Al Mawarid bank, Tony Salameh of Aïshti and Azmi Mikati of Investcom
“One of the main problems identified by Bader was the lack of equity on the local market. Although many financial programs – such as the ones offered by Kafalat, the central bank and other local banks – are specifically addressed to SMEs, they mostly follow a loan and debt framework,” explained Naji Rizk, Bader equity fund manager. Recognition that Lebanese companies can not be built solely on debt, paved the way to the introduction of other financial option s such as equity. “Instead of lending money to businesses in need, thus avoiding sharing risk, Bader comes into the equation and injects capital,” said Rizk. Although the fund is backed by the NGO, the initiative aims at generating revenue for fund owners with a projected return varying between 20% and 30%. Depending on the amount of money raised, the fund is intended to partially acquire as many as twenty 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 underscored.
To be selected, SMEs need to offer an interesting business opportunity, room for growth and a workable management plan. Besides capitalization, fund managers supply acquired businesses, with support and managerial direction. “Ownership percentages have not been set yet and will depend on various factors. We need to strike a careful balance between the investor’s concern for profit and the owner’s motivation,” he said. Fund ownership is only temporary, as shares are to be sold five years into the venture, as soon as the acquired company achieves sufficient growth. Rizk explained that the main goal behind the fund initiative is the creation of an end-product that becomes attractive enough for future sale. Therefore, the Bader fund capitalizes on Lebanese human resources, by creating a platform for growth that can extend beyond local borders by branching out into other markets. “People are hungry for such alternative forms of leverage. Kafalat is a perfect example: the company started as a limited venture and turned out to be a major market player with more SMEs relying every year on its services. We expect in the next few years to achieve similar success, leading the way for others to follow.”
The Building Block fund is headed by Talal El Chaer, and managed by Naji Rizk, Fadi Daou and Maurice Khawam. Talal El Chaer is vice chairman at Dar El Handasah. Naji Rizk has a background in consulting and engineering. Fadi Daou is an engineer and technology specialist, who has launched three successful tech companies in the US. Maurice Khawam, who resides in Paris, is the manager of Next fund.
