I’m confused. Every time we write about the country’s entrepreneurship ecosystem, our researchers and fact checkers conduct extensive investigations in an attempt to once and for all classify central bank circular 331 in the right policy framework. They always come to the same conclusion: it’s an equity guarantee. The whole purpose of this policy instrument is to mitigate the high risk of the “valley of death” or when there is a high probability that a startup firm will die off before a steady stream of revenues is established.
With all due respect, the handful of venture capital (VC) funds currently deploying guaranteed capital are not serving that purpose. They’re thirsty for revenues such as private equity (PE) funds, not value creation such as VCs. They’re all looking at ticket sizes of $1 million or more in companies that are past the proof-of-concept stage and starting to see some real cashflows. These aren’t seed tickets and definitely don’t need a guarantee. Don’t get me wrong, growth-stage companies in Lebanon were startups back when the ecosystem was smaller, functioning with little institutional support and starving for capital. They are more than worthy of investment but in a manner that allows limited partners (LP)’s or shareholders to enjoy the risk and rewards that come with financing a limited liability company (LLC).
No wonder funds are complaining of lack of deals. But what about the young companies that have graduated from Bootcamp, Speed and the UK-Lebanon Tech Hub? This equity guarantee is for them. It’s meant to help them and many, many others that are still not even aware that 331 exists to help them make it to the other side of the “valley of death” so they too can one day welcome the big tickets and stay in Lebanon instead of looking elsewhere.
For seed funding to start finding the right targets we need many more accelerators, co-working spaces and marketing tactics to discover and nourish all the remaining scattered talent. There are many excellent opportunities that are equally tech and scalable; in this issue, for example, we bring to you a selection of entrepreneurs in the agro sector.
Banks and investors that make the leap of faith to support accelerators should have the first right of refusal to invest in graduates of these programs and not the other way around. Only those investments are worthy of an equity guarantee.
As 331 money gets allocated quickly, it is not too late to reconsider the structure and rewards of existing funds with special attention to carried interest arrangements. The time is now to give our only working policy its rightful purpose. Let’s reprioritise our goals so that everyone can benefit from a just share in the pie.