Amina, Rachelle, and Peter are young urban professionals active in graphic design, in digital marketing, and in remote consulting. When Executive makes their acquaintance, they have stationed themselves at a long office table in the foyer of a co-working space at the Beirut Digital District (BDD). In this quasi-public space, they are working, each on their own account, a few meters away from two containers (construction site type) that are holding further “hot desks,” short-rental desks in one of the BDD’s dedicated co-working areas.

Hot desks are non-individually assigned work spaces which, in the case of BDD, are at the disposal of the office space provider’s registered subscribers, such as freelancers and micro-entrepreneurs, on a first-come first-served basis. Not a place where you settle down with your favorite potted plant, coffee mug, or other personal keepsake, but an instantaneous environment for individual creativity. “I am a graphic designer and work in creative spaces. What I love about this community is that it is an open space, which makes it easy to connect to people and move around,” Peter volunteers.

The universal questions on anything work-related today are of course about power and basic connectivity. Asked if it was community or infrastructure that drew them to the BDD co-working space, Rachelle interjects that for her, the motivating fact was “definitely infrastructure,” and Amina concurs. Peter, while reiterating that community is crucial for him, also concedes that co-working would not live up to its entrepreneurial promise if it weren’t rooted in the reliable provision of connectivity and all the productivity boosting that elements, even as basic as electricity in these difficult times, can facilitate. 

All three – whose professional focuses are as different as their characters, which already at the first encounter reveal themselves as ranging from studious to dynamic – agree that the community is something they benefit from, but confess with a laugh that their character disparities of ebullience and quietude are recipes for short disruptions of attention in the confined co-working area.

A sizzling need for digital work safety

And the young professionals who have all opted the last few months or even days to bet on co-working, are far from the only ones. According to BDD’s chief growth officer Ralph Khairallah, Beirut’s preeminent cluster at the juncture of real estate and tech entrepreneurship has, by mid-2021, reached overall greater occupancy than at any previous time in the almost 10 years of its existence and is now populated with at least 1,600 to 1,700 persons – entrepreneurs, NGO-staffers and employees at established enterprises that took refuge at BDD after the Beirut Blast.

In terms of its dedicated co-working areas that are distributed over three of its buildings, the district has reached capacity and has to waitlist people wanting to sign up for a co-working place. “We are fully occupied and have a waiting list of people who want to join BDD,” he enthuses.

High demand is not just the situation at BDD. Antwork is a co-working space that was established in 2016/7 in a restored building cluster along West Beirut’s Spears Street and that has since opened additional locations in Beirut (an ecommerce-centered space in Dora), Saida, Limassol, and, this spring, Amman. At Antwork’s main Spears campus, the idea of co-working saw – in a nice parallel to the sources of the demand wave seen at BDD – its greatest increase in acceptance by the entrepreneurial sector, business community, and third sector entities from the beginning of this year, says Zina Dayani, the enterprise’s CEO.

According to her, Antwork, with 367 desks and private offices, is 100 percent full and has a growing wait list, similar to BDD. “The wait list is much longer when comparing mid-2021 to end of last year,” Dayani tells Executive.

It is not only in central locations where co-working is seeing new demand, internationally as in Lebanon. Suburban and academically affiliated spaces are usually smaller than the leading co-working operations in an urban market but they have their own appeal and clienteles. However, independent co-working spaces that are somewhat remote from the real estate-tech entrepreneurship complexes in the middle of Beirut, for example the Submarine co-working space in the Jnah district, also saw an implosion of demand in 2020 and reversal of this downtrend into new growth in the first half of this year. 

“At the beginning of the COVID pandemic and the devaluation of the currency, most co-working spaces, and I have seen it at the Submarine space, were battling with COVID-19 restrictions and devaluation of the currency,” says Nour Alwan, an entrepreneurship ecosystem enabler who has been involved with co-working and entrepreneurship since the middle of the past decade. 

In her experience at Submarine, the overwhelming drop in usage turned into new demand on the strength of the co-working space’s investments in infrastructure – a buildup of supply redundancies and security in generators and internet connectivity. Ideally, co-working spaces should have both, the spirit of community and the infrastructure, Alwan notes, “but in Lebanon, you cannot have it all. Today, under the circumstances, infrastructure is key. Startups won’t be able to work, won’t be able to produce and profit if they don’t have the appropriate infrastructure.”

Also at the Smart ESA entrepreneurship hub, which is attached to the École supérieure des affaires (ESA) in Hamra, co-working demand surged in 2021 and the academically-minded hub has been filled up to about half of its 100 seats. With interest in co-working facilities being on the increase, the remainder of available seats will in part be kept from the market for use by Smart ESA’s cohort of newly admitted startups, chief executive Jihad Bitar tells Executive. 

“Co-working at Smart ESA is seeing renewed demand, but different than before. Teams split their physical attendance time for different reasons that range from [scarcity of] petrol to employee demand to work from home,” he explains. Making previously unheard-of requests, such as seeking spaces to seat half of their teams in rotation, startups are requesting an increased degree of flexibility from operators of co-working spaces, he adds.

With their approach favoring, albeit sometimes chaotic, community over ploughing away in isolation, Peter, Rachelle, and Amina, the three who Executive met at BDD co-working, are clearly part of a large and growing crowd of the digitally working who are receptive to this work environment. Moreover, they are also examples for the added twist that favors this co-working environment in Lebanon. This crucial twist is availability of air conditioning, internet, and profane electricity.

Notwithstanding the lockdowns-induced disruptions which last year deterred clustering of people in physical offices and the related accelerating trend towards home offices and remote working in Lebanon as in most countries, it appears to be the specific need of basic entrepreneurship infrastructures – which in the case of Lebanon are increasingly scarce and cherished amenities – that has this year visibly accelerated the demand for co-working spaces in the local entrepreneurship ecosystem. 

Another notable external factor in favor of Lebanese co-working spaces is the confluence of demand for stable and safe basic tech infrastructure with an increased desire of the country’s digital-era professionals to earn hard cash by working remotely for foreign clients. This combination has firmly positioned co-working spaces as the best bet in the ongoing recovery and realignment of the Lebanese entrepreneurship ecosystem. For an interesting but less important additional internal driver in favor of co-working culture in Lebanon, one can further speculate that the convivial character of this work environment is a good match with the general ease by which many young Lebanese interact socially.

Digitally promising but all new? 

While co-working is associated with the internet, tech entrepreneurship, and the culture of the digital age, neither the basic idea nor the economics of co-working seem to actually be innovations of the digital age as much as they are twists on a very old story of productive work. The need to find a shared place to work under the social mores of the respective age might, for example in the industrial era, have been met in a profoundly physical venue, a place as venerated as the dusty halls of a university library, as exclusionary as a restrictively administrated club in the city, or as convivial as a café on Vienna’s Ring boulevard.

In another, longer gone, era, what the digital era calls a co-working hub could even have been happening at an Athenian school of philosophy, such as the academy of Plato or its nearby competitor, the garden of Epicurus. But whatever the name by which the activity is known, clustering of human creativity, economic agency, relevant skills and mentors is core to the productive aggregation of intangible human and social capital of any economic era, be that pre-capitalist, industrial, knowledge, or post-knowledge economy. In this sense, irrespective of the period’s label, collaborative spaces for economic activity remain manifestations of human capacity for organization of labor as a task that is modulated by the tense interplay of individual ambition and team work.

From the macroeconomic and macro-social perspectives, constituent parts of the collaborative work narrative are the division of labor, the clustering of comparable skills into an expanded and easily accessible labor pool, the ambivalent practice of rentierism, and the financial dictates of matching revenue prospects with long-term obligations. Ignoring any of these elements of productive work comes with a high risk, and in some socioeconomic settings near certainty, of either moral or financial peril.

Co-working challenges for Lebanese entrepreneurs

In the 1990s, when computers and ICT connectivity made rapid and decisive inroads into life in Lebanon, early local varietals of digitally enhanced co-working could have been the internet cafés of Beirut that were popular among youth, or hospitality venues with WiFi, such as the basement of Starbucks in Hamra. The first serious buds of co-working culture in Lebanon came to bloom a mix of internet-cafe cultures and self-funded private initiatives in the 2000s, roughly at the same time as the concept started to gain traction internationally with some very large investments into co-working startups such as US-based and famously Softbank-funded WeWork.  

The next decade infused the nascent Lebanese entrepreneurship environment with the, predominantly financial, vigor that was sparked by the famed Circular 331 of the Banque du Liban, Lebanon’s central bank. Along with new venture capital firms, incubators, accelerators, and the birth of the Beirut Digital District, co-working spaces became noted propositions for builders and mappers of this new entrepreneurship ecosystem. 

But while some international co-working operators, again most notably WeWork, achieved meteoric growth in the early 2010s, the local market of shared office spaces, although successful of sorts, was less ebullient. Some concepts that emerged in the past decade – such as a plan to establish a journalism co-working hub – fell victim to circumstances. Several newly created, small co-working spaces for startups did fold after a year or two.  And in terms of cultural resistance, there could be discouraging responses with which established businesses demonstrated their attitude, or lack of a clear grasp, vis-à-vis the concept of digitally powered third-party work environments.  

Ergo, [inlinetweet prefix=”” tweeter=”” suffix=””]Lebanese co-working entrepreneurs, from visionary community builder altcity to the top players such as Antwork, encountered challenging periods already before the country got submerged by crises[/inlinetweet]. According to Dayani, after two years of early growth at Antwork, 2019 from its first month was the venture’s most challenging year in financial and operational terms. “I remember how in our first board meeting of the year [2019], we had to discuss doing cost savings and doing everything we can so we can survive that year. We were looking to raise funds and people were not responsive.  Everybody had cash problems. Liquidity was very scarce even at the smallest levels. Entrepreneurs and startups were finding it hard to make commitments,” she says, noting how these difficulties foreshadowed the stresses that the entrepreneurship ecosystem and the entire Lebanese economy would be exposed to in the latter part of the year.

The inflection point

In contrast, in 2020, the year when everything morphed from entrepreneurship ecosystem 1.0 (system 331) to ecosystem 2.0 (system non-331) Antwork passed through a positive inflection point. This shift followed soon after the detrimental first shocks of coronavirus lockdown scenarios had passed. Potential tenants of co-working spaces suddenly showed themselves as hyper-sensitive to risks that they had never felt before. “They wanted to feel safe, and the touchless experience became a big thing, [in contrast to before] when we had it and nobody understood it,” Dayani says.

The idea of what she calls “touchless” interaction in running an enterprise at Antwork suddenly made sense to people who had hitherto scorned it, Dayani says. She adds that she sees the hybrid model of home office and physical presence at an office not as an “either-or” choice for enterprises but as a convergence of varied needs, for the accommodation of which the Antwork platform has been developed.

At BDD, the initial shock of COVID-19 was equally severe but soon replaced with desire for hands-free office solutions by ecommerce companies and other digital business that started thriving in the pandemic. “COVID affected us severely and people stopped coming to their offices. [But then] we got businesses that focuses on the touchless economy, which means they have technology-heavy needs,” Khairallah tells Executive. 

Concurring with Dayani’s perspective that the hybrid model looks strongest for setting the future of co-working, he adds that academic research into companies’ needs for future office work is something that is being undertaken in Lebanon in partnership of AUB and BDD. “Co-working is changing but definitely becoming more important. What we are seeing [in terms of corporate survey responses to co-working research] so far, is that hybrid is the preferred option. People have gotten used to working at home, but they need the office and need a co-working space at the office,” he comments. According to him the coming models of hybrid work environments will have to satisfy new and complex needs by offering operational solutions as well as by creating new hybrid work cultures which providers such as BDD could develop in partnership with enterprises and large corporations.

Green shoots and questions

A further indicator for the appeal of co-working as local investment option because of the large demand for creative work opportunities by tech talent in conjunction with an oversupply of vacant spaces that can be repurposed for co-working was the recent inauguration of a co-working space in another Beirut business cluster. At Galaxy Center, a shopping mall, boarded-up windows and dormant escalators make for a forlorn atmosphere, with just one cafe open for business. Here, Smart Spaces, a new co-working space was set up with capacity of 65 spaces and support structures, occupying two floors of a former retail clothing store.

For the operator of the new space, investments in fit-out and a solar roof for electricity generation was an opportunity to attract talent from the area that could use the space for a symbolic monthly subscription fee of $10 and possibly be activated to fill needs of the center’s corporate parent group. The co-working space is geared towards advertising related apps, Chief Executive Jamil Ghaith tells Executive.  “We are a big offshore Lebanese company. We have our kitchen here in Lebanon but we operate in Middle East and Europe. We have platforms for freelancers to do online campaigns and already outsource some work to Russia and South East Asia. So we thought it is a good time to get some Lebanese people,” he says.

A nagging question in the cum-corona-virus world is of course how far work patterns will revert to the old ways. From where Dayani is positioned, the new coworking culture is here to stay. She says that he impact of Covid-19 has given “everyone a very clear idea of what hybrid and co-working means. It became more accepted and more interesting to all types of businesses. We feel that we are very well placed to capture this momentum, because we have been preaching this for the past four years.” Dayani concedes, however, that the enterprise is now faced with the question on how to take this model forward. “This is what we are working on,” she says, hinting at further expansion in country and Mediterranean peers.  

Economic tremors reshape co-working profitability

The limited exposure to property risk in the current economic situation might be to the advantage of the, in international comparison, small or medium co-working operators in the country. In principle, what essentially is a for-profit real estate venture before it can be a community, a co-working space must make profits from tenancy. But a large operator invariably has to balance long term obligations on the grade A office properties they own or, more often, lease with the uncertain timeframes of short-term tenancy that can fluctuate immensely.

This has the effect that profitability of co-working operations tends to evaporate during crises. Thus in the course of the global coronavirus recession of 2020, large and small operators all around the world suffered setbacks that have yet to be recovered with new demand. At least one very large listed co-working operator has recently reported significant losses even for the first and second quarters of this year. IWG Plc, an international office space holding headquartered in Switzerland and traded in London that operates well-known co-working and office rental brands (most notably Regus and Spaces), in August announced a widening of losses for H1, 2021, to 183.4 million pounds Sterling ($250 million), from 176.2 million a year ago.

Real estate investment experts also were not horribly surprised that, despite the prophesied revolutionary synergies of real estate and tech entrepreneurship in the co-working narrative, the short history of digitally empowered co-working spaces in the 21^st century has already produced one very large hype-and-bust scenario. This was the notorious case of the aforementioned globally operating WeWork – a 2010 co-working startup that rose to unicorn status, peaking at $47 billion in presumed value in January 2019, only to come down to a valuation of $12 billion or less within the space of eight months.

The moral dilemma of visionary rentierism

Morally, the WeWork story went into hubris mode in its own way with a vision of a new future that the match of real estate and co-working would be creating. Its marketing blurb promised to “revolutionize the way people and companies work.” This purported culture or ideology of “we,” which manipulated millennials’ thirst for community, was for some critics interwoven with a nasty narrative of the WeWork co-founder Adam Neumann as a self-proclaimed tech messiah and his allegedly brainwashed acolytes.

Underlying the hype of the co-working narrative, however, is the same old question of rentierism. Both as social and as financial assets, for-profit real estate can produce genuine returns only on basis of the creation of value-added. This added value must enlarge and ideally exceed the return which is produced solely by the fact that any clustering of economic power in an urban setting brings rental income to the owner of any property, such as an office, located there – without such proprietor having necessarily a justified moral claim to this ‘economic desert.’

Economic rents are gains from agglomeration that accrue to property owners and to professionals, and research has highlighted the growing contradiction between the persistently spatial and predominantly national determination of policies with rent-producing effects and the growing internationalization of social and digital networks that cannot be adequately taxed on grounds of national policies. In other words, economic rents are costly and unproductive distortions of digital transnational economies.

This dilemma of unearned and undeserved rent taking can easily cause inequity in productivity conditions, namely as soon as a productive hub is deprived of public investments that depend on the volume of taxes that are collected – but under a digital economy with many remotely working professionals not collected in fair form at the point where economic value is added.

For community-trumpeting operators of commercial co-working spaces, this growing dichotomy between public involvement (including taxation and investments) and productivity might, quasi by way of a balance sheet of tangible and intangible profit and loss, raise a dual economic and social survival question of a co-working space’s sustainability: Will operators then in the long run have enough foresight to, by continually reinvesting and developing even in absence of adequate public investments and policy incentives, sustainably add more value to its tenants’ productivity than it extracts in private profits?

The question internationally appears to have near-term macroeconomic implications up to the level of taxation and management of public goods. For local operators, however, this intriguing systemic question is in all likelihood moot. Much closer to the survival question of co-working spaces is the here and now of the Lebanese economy. According to Khairallah, the multifaceted crisis of Lebanon brought an even larger load of challenges to co-working operators as stakeholders in the entrepreneurship ecosystem. These challenges were the COVID-19 pandemic, the thawra protests, the banking and liquidity crisis, the demise of funding backed under central bank Circular 331 plus the impact that this caused on the entrepreneurship ecosystem, and lastly the instability caused by economic political malaise of Lebanon.

Most of the tornado that disrupted co-working operators along with other stakeholders in the Lebanese entrepreneurship ecosystem must be accepted as external shocks that operators could do little to avert, but some of the fallout was perhaps managed better by co-working operators than by businesses with less entrepreneurial mindsets. Co-working operators have told Executive that as far as the operational detail of profitability of local co-working spaces in the 2020 economic crisis, they handled the lira and liquidity quagmire with a lot of flexibility and a strong dose of understanding for their clienteles. 

“We did very good cash flow management during the period when we were getting paid in lollars as well as Lebanese lira,” says Khairallah, emphasizing that BDD accepted shouldering of many costs because it made “efforts to maintain a community rather than just a rental [property].” At Antwork, tenants were accepting that the co-working operator has moved to “adjusting prices every few months,” Dayani says. She adds “We started adjusting [rates] with new contracts but until today allow anyone to pay how they want, in Lebanese, checks, transfers, fresh dollars, and we are very flexible on payment terms.” 

According to what both operators tell Executive, the reorganization of tenancy relations was done in such a way that mutually agreeable payment arrangements were sought, including facilitation of settlement of rents and subscription fees by check and Lebanese dollar transfers under existing contracts. In turn, tenants were portrayed by operators as understanding of the need to price contracts with a view to dollarized maintenance costs where imported materials would be involved. Nonetheless, for the overall industry, the pricing of tenancy packages became a major question that providers took time to get right, says Alwan.

Going forward in the near term, the challenges are not fading. It seems highly improbable that co-working spaces in Lebanon will find it easy to fulfill the self-chosen mission as entrepreneurship bastions by providing what has been looking for over a year – and in the past few weeks even scarily more so – like islands of sanity and stability surrounded by a rising tide of scarcities. However, the longer term outlook of co-working in Lebanon might benefit from the ongoing and today far from clear shifts in work cultures that can only continue in an increasingly digitized and globalized world of work and remote work. In the long run, it might all be determined by the ability of local co-working spaces to stick with their chosen missions of supporting community and entrepreneurship in changing digital environments. 

After nearly two years of a state in turmoil, the tide of bad news in Lebanon has reached the point where everything appears broken and almost nothing looks like it would ever function again. And it is true. To a point. Nothing in Lebanon is fully functional today, for example the entrepreneurship ecosystem. 

This system, which has for the last decade been hailed as one of Lebanon’s biggest economic options, has been thrown back to where it was before 2013, sighs Nicolas Rouhana, general manager of IM Capital. 2012-13 was the time when the ecosystem was kicked into rapid formation by what Rouhana describes as a shock of half a billion dollars, namely the issuance of Circular 331 by Banque du Liban (BDL), the central bank of Lebanon, which set the stage for practically all investments into the entrepreneurship ecosystem over the following years.

Stripping down the pillars

However, the ecosystem that formed under the curating values of guaranteed funds and rational looking financing risks, was not driven equally well by policy and legal infrastructures as it should have been. This hints at the oddity of the system.

IM Capital, a key player in the financing of promising startups for as long as the ecosystem has existed, remains a pillar of its financial infrastructure because of its broad support mandate and nourishment with hard cash (both courtesy of the United States Agency for International Development, USAID), as well as its integrity and independence from the Lebanese public sector and banking. But it has lately been confronted with gaping holes in what used to be an imperfect but nicely growing landscape of fellow financial players, venture capital (VC) organizations, startup programs, accelerators and incubators, ancillary services providers, etc. 

Of those, many noted actors such as the Hult Prize and the Flat6 Labs accelerator have exited the Lebanese stage. Such demises – and the host of incomparably graver national misfortunes which are so well known that repeating them would be an exercise in dullness – have left the remaining entrepreneurship ecosystem entities at times in situations where they feel that parts of the system have been amputated, to the point of it no longer making sense to act “because one cannot clap with one hand,” Rouhana says. He notes for example that startups face immense problems because of disruptions in the administration and the banking sector, creating insurmountable barriers against basic business acts such as registering companies and opening bank accounts.

The disassembly of systemic components in the public and finance sectors was exacerbated by disruptions of funding flows or invested companies and new restraints on the financing of startups. Again, no need to reiterate what the monetary disaster of 2019-21 to date did to the accessible bank balances of those enterprises. This has led IM Capital and other members of Lebanon’s VC Association to last year set up an “SOS Fund” under a paradigm of rapid fundraising. “The SOS Fund has fresh dollars and lollars and we invest directly,” Rouhana explains, meaning that the SOS Fund, capitalized by the participating limited partners, made one-shot investments into the most promising startups in the portfolios of participating VCs. 

Deployment issues were, according to Rouhana, also encountered by angel investors, where investment opportunities in advanced startups with larger financing needs were hit by currency restraints of angel funds. In response to this challenge, the angel funds that have been created in collaboration with IM Capital were pivoted into an angel accelerator fund for early startups.

In retrospect analysis, the financial hopes for funds that had been fueled under the regime of the BDL’s Circular 331 could not but vanish with the financial instability phenomena and loss of investor trust in late 2019. “After the crisis. there were reputation issues with 331 funds because they all were based on banks that had blocked depositors’ funds and because capital calls were done in LBP on the 1,500 rate, meaning they could not produce anything useful in terms of real cash,” explains Rouhana.

But reorganization and reform of the financing layer of entrepreneurship was not the only struggle that was cast upon financial stakeholders. The climate in the national economy, and with it the atmospheric pressure in the entrepreneurship ecosystem, has had other repercussions according to ecosystem stalwart Rouhana who more than once in his interview with Executive resorts to terms like “back to square one” and “firefighting.” 

Acknowledging that the current period is a hard time for anyone to be active in the entrepreneurship ecosystem and that people just want to escape from the political environment, Rouhana says this makes it even harder for the remaining ecosystem players to operate. “All these support structures disappeared. There are few, us and others, who remain, but you need deal flow and people to do all these things. We are really back to square one,” he says, adding, “Today, what makes a difference, is what you did post October 2019. Everything is recent. We are firefighting and we will see if we can rebuild.” 

Other stakeholders at the ecosystem’s backbone share the pain of working, in a political economy context that takes the concepts of uncertainty and unreliability of everything (and of political promises specially) to heights never seen before, with an entrepreneurship development line that has been degraded from a sophisticated ecosystem into a disjointed assemblage of stuttering bits and pieces. But like Rouhana, they also display a sort of contrarian determination to keep going, for the hope of rebuilding and the sake of the many stakeholders that rely on them. 

Thus exerting herculean efforts in nurture of endangered green shoots in finance, startup acceleration and the likes, these ecosystem stakeholders all the while also exude peculiar emotional or spiritual vibes. One such notion is that confidence – an overused and empty term in many mouths today – is today still a tiny bud with a long and difficult journey of recovery still to come; another that a professed and fake resilience – meaning a malpractice of adapting to keep operational in the face of ever more political evil – has to pivot to true resilience of demanding economic and social rights for one and all.

For Nadim Zaazaa, managing partner in entrepreneurship-themed multi-tasking enterprise Nucleus Ventures, the pain is undeniable. “I think the short term prospects are very dark – we are minimizing losses and have a huge talent drain. More importantly, we have what you call the stay-drain, the fact that a lot of talent that remains in the country, is working remotely for foreign employers. There is income in the country but the value creation is taking place outside,” he tells Executive. 

In Zaazaa’s view, the single remaining advantage of Lebanese entrepreneurship is the improved competitiveness in terms of labor pricing. Even then, he sees scant light at the end of the financing tunnel or in terms of existing good entrepreneurship initiatives. “I think rebuilding an investment landscape in Lebanon requires a reset of the regulatory environment and getting investor confidence back, which we are lacking. We don’t have the banking sector and the basic infrastructure for [winning investor confidence back], so realistically speaking I think the investment landscape has been rubbled. There are deals but they are not concerted and it will take time to rebuild that landscape. And a lot of painful changes,” he says. 

Although he asserts that human capital who remain in Lebanon under these circumstances are not necessarily contributing greatly to value creation in the country, he still sees a narrow path of opportunities. “There are three to four universities who are going to be Noah’s arch for entrepreneurs – they will be what remains [of the ecosystem] and what can be nurtured. This Noah’s arch will in my opinion be the only viable reset of Lebanon’s economy,” he says, adding that this assessment has motivated Nucleus Ventures to shift from being governmentally funded to partnering with university innovation systems. 

New acceleration prototypes 

The perhaps second-most prominent layer of ecosystem components, after the financing players with their eternal lure of presumedly (but never really) easy money, were the incubators and accelerators. The impact on these engines of entrepreneurial contents was no less severe than the impact on the financing pillar. However, the withdrawal and retrenching of some well-known entities was juxtaposed with the entry of players of a different type. 

“There is a change in the ecosystem in terms of accelerators and startups. You have new accelerators popping up,” says Jihad Bitar, CEO of academically aligned acceleration program Smart ESA, which in 2017 (late in comparison to other accelerators in the old ecosystem) was established in association with the École Supérieure des Affieres (ESA) business school and has since grown notably in terms of both facilities and programs. 

Yet instead of funding that was enticed into the ecosystem under Circular 331, the new accelerators are equipped with monies by international development agencies and donors, and operate with a model of grants. “Donors are seeing that entrepreneurship is one way to help Lebanon rebuild. Big organizations want to go beyond humanitarian help to Lebanon into rebuilding an economy and see entrepreneurship as part of this,” Bitar explains.

Munir Nabti, co-working veteran and long-time advocate of social enterprises, is one of the exponents of the new type of acceleration that has come to the Lebanese (and regional, see interview page XXXX) ecosystem. More than a mere executive at the helm of new accelerator Bloom, he is his ever-optimistic self. Asked about his evaluation on the ecosystem today, he aims at putting the latest troubles into some perspective by telling Executive that the system’s stakeholders have seen cycles of ups and downs, including the establishment and closures of systemic entities over the past 13, 14 years. 

While he agrees that there are plenty of new barriers and challenges to work through, he emphasizes that he sees new efforts for growth and collaboration in terms of accelerators, and elsewhere. “We are working on fostering the collaboration of accelerators and had several sessions that we want to keep expanding and have more ecosystem discussions. So I think there is definitely opportunity to build a really thriving ecosystem that not just helps keep people here and supports enterprises but that also helps to launch enterprises and attract enterprises from abroad to Lebanon,” Nabti enthuses. 

Building block by bock

Ralph Khairallah, the chief growth officer of the Beirut Digital District (BDD) – the central real estate cluster and community hub that provides tech enterprises and ecosystem stakeholders with many increasingly scarce services – sees Lebanon’s entrepreneurship environment in transition from ecosystem 1.0 to 2.0.

In his opinion, the ecosystem 1.0 was in many regards a trial version, or trial experience, from which operators as well as startups could learn. “Everybody was learning. We as startups were learning and even the investors and mentors were learning along with the first batches of startups. Eventually everyone has matured and we now know better how to place our bets,” says Khairallah, who before joining BDD had gained experience as co-founder of a startup. 

Instead of the previous system that had bubble aspects and might have attracted minds into entrepreneurial gambles, operators under ecosystem 2.0 are fated to build on solid grounds and manifest as profitable industry for bringing fresh investments from abroad. “Innovation and digitization is the future. This was not a wrong bet for BDD, and today is the time to get the most out of this bet,” he adds. 

According to Khairallah the performances of successful investors, startups, SMEs and even NGOs in Lebanon during the crisis reflect globally very favorable economics for the digital sector, an impact that is visible in the high demand for co-working spaces in Lebanon that has improved in 2021 to date. 

Interacting with ecosystem stakeholders in this summer of 2021, Executive actually found the number of viable appearing startup companies and exorbitantly dynamic founders (which are not by default the same things) to be surprisingly large. 

From manufacturing startups and an online media startup to regrettably nontransparent and communication-averse e-commerce mall operators (too many of which declined Executive’s requests for information and interviews to allow for writing of a viable story), new social enterprises and some very intriguing edutech startups (see story page XXXX), the magazine’s team found more, and more diverse, reasons for profiling of startups – and editorial excitement in doing so – than in several preceding investigations of the respective years’ latest entrepreneurship novelties. 

Viable old recipes, spun anew 

This impression actually jibes with what Smart ESA’s Bitar observed when he describes a trend among applicants for acceleration programs and startup competitions. “Fewer entrepreneurs are left but those that remain are more serious. The average age is higher, many being experienced people who lost their jobs or quit their jobs and see this as the right time to create something. This brings a bunch of experienced people to the market,” Bitar notes, audibly glowing about the good assessments that Lebanese startups received in June at the awards ceremony of a startup competition by name of Prix Entrepreneur ESA-HEC Paris, on which Smart ESA worked in the first half of 2021 in collaboration with French business school HEC Paris.

Judging from remarks that Bitar made in earlier interviews with Executive, the experience of seeing improved commitments and better drives in overall shrinking numbers of startups, and ergo a gradual increase of quality in ecosystem beneficiaries, seems to be a trend that has begun already before the crises of 2019 and the following years struck Lebanon’s entrepreneurship aspirants.

The insight that longer-term trends in the Lebanese entrepreneurship annals have not actually been totally altered but at most further accentuated over the past two years of serial crises, however, should not astound. Other trends that have been highlighted in the recent past, have similarly been in existence before the crisis. Particularly the idea that Lebanese startups are well advised to maintain their “kitchen,” development, and back office activities in the country of their origin but cannot sustain an optimal trajectory of growth by focusing on the local market and therefore should from inception prepare and seek access to capacious and stable markets in the region or elsewhere, is not really new. 

Still, it is indubitable that Lebanese startups – with some very specific and rare exceptions – today have not only every incentive but almost an obligation to start their market journeys by immediately going abroad and hopefully generate income that will flow back to Lebanon. Owing to the entrepreneurial ingenuity and adaptability of locally incepted startups that are not afraid to jump abroad, maker and manufacturing startups thus represent good hopes even if any wishes must be abandoned to see such companies serve firstly the Lebanese market or be listed on an electronic financial market in Beirut. 

Among the other bits and pieces that are momentarily working and being developed in the entrepreneurship ecosystem, those deserving most attention appear once again to be based in the financial realm. On the investability level, the comparative advantage of having discounted valuations in terms of talent-power intensive startups for example in edutech has the ability – nicely demonstrated by the acquisition of tutoring marketplace Synkers – of reeling in foreign strategic investors to viable Lebanese companies. 

On the access-to-finance level, the paradigms of impact investing and development investing, with all the inherent self-interests that such paradigms entail, offer what ecosystem stakeholders Nabti and Rouhana perceive as unused potentials. Nabti suggests that by working together, highly reputed funds and impact-themed operators in the ecosystem, could mobilize “substantially more funding than what has already come to Beirut” from potent investor groups, including diaspora groups. 

“I think a lot of funding doesn’t come to Lebanon because there aren’t enough groups that can easily deploy money. If we can figure out a model of having 10 accelerators work together with aligned basics, methods of approaches, we [as unified stakeholders] can go to a donor and say: Hey, we want to support 1,000 companies over the coming five years, 1,000 startups in Lebanon, and have proper accounting and proper mechanisms for collaboration, etc.,” Nabti proposes as method which could tap into funding levels from donors and impact investors that are not in the thousands and hundred thousands of dollars but in the hundreds and thousands of millions. 

Such pathways of thinking audaciously and big might seem theoretical to some who have lost every ounce of trust that the future can hold good news for this country but in fact, there are funding activities already underway in the ecosystem and plans for more funds. IM Capital’s Rouhana discloses that his team, which has been very busy with implementing the SOS Fund and angel accelerator fund, is preparing the launch of a new fund towards the end of this year. This fund is expected to have a life cycle of five to six years and include a share of fresh dollars, aiming for fast delivery and total size similar to that of the (not yet fully revealed) $12 million SOS Fund. “We will look at companies and their investment readiness. Investment criteria will be export potential and growth potential of SMEs,” Rouhana says.

Funding sage Rouhana, having been able with IM Capital to convince USAID of the need for a new fresh-dollar fund of $20 million, a big step up from a previous first funding of $15 million in the context of the previous ecosystem, concurs that a new and much larger series of positive financial shocks might be in order. “What is needed is perhaps $40 or 100 million per year in order to make a difference and shake the system and bring back what was lost in terms of confidence,” he says. 

But any assessment of the entrepreneurship ecosystem’s realistic new investment paradigms and need for a systemic pivot, while an obvious necessity for more reasons than one wants to count, also today highlights again that the ecosystem’s first incarnation had aspects of a prefab structure that came into being in one concerted rush under the impetus of the central bank’s Circular 331. 

Any ecosystem fully deserves this name only if is something organic. Also, it will be more resilient, the more organic it is. In one of Executive’s many musings on the entrepreneurship ecosystem during the past eight years, our then colleague Matt Nash, in an article published five years ago, argued that most natural ecosystem disruptions are fast and furious but that the impact of Circular 331 by contrast was more comparable to climate change. 

The BDL-approving metaphor may raise some eyebrows today, on several fronts. One, the ecosystem’s disruption over the past two years, and the role of the Lebanese financial sector in it, was anything if not fast, furious, and debilitatingly painful. The second protest note might say that reliance on one-sided and distortive intervention at the start, however well-meaning, brings immense risk at the next inflection point where it then can occur and become, as Rouhana stresses, more of a curse than an asset. 

But the country’s entrepreneurship ecosystem also shows the truth that the creation of the ecosystem by push from the central bank was at the time one of the best things that could happen in the Lebanese economy and that what is dysfunctional or disassembled today is not in all cases completely dysfunctional, or broken beyond repair and systemic redemption.

Both realities – the dismal situation of everything economic and the remnants of preserved functionality – apply to the entrepreneurship ecosystem. This piece of jewelry of the Lebanese economy, quasi its diadem of innovation, is partly broken, partly disassembled, and in many respects dysfunctional. It cannot escape from being part of this country. But at the same time, the entrepreneurship ecosystem in this dismal summer of ‘21 retains key characteristics of what it was from 2013 to ‘18 and early 19: a system of more – more hope and vigor than some other segments of the economy – and a system of new beginnings.