Trails and tribulations: Venture Capital in Lebanon

Published November 1st, 2012 - 09:39 GMT
Is there a future for a viable Venture Capital environment in Lebanon?
Is there a future for a viable Venture Capital environment in Lebanon?

Most new businesses need finance, and most venture capital firms are looking for a good investment. So why is it so hard for startups to get funding, and why do Venture Capitals say they don’t get good business plans?

Some businessmen and investors brainstormed ideas Wednesday morning about the best ways to connect viable companies with VCs, whose investments in new Lebanese enterprises have grown by over sevenfold during the past three years.

But in Lebanon, where doing business is ranked among the worst in the region, where there is a general lack of corporate transparency, outdated laws on intellectual property and weak infrastructure – not to mention political instability – this is easier said than done.

“With all the support and players, entrepreneurs are still reaching VCs unprepared,” said Tarek Sadi, managing director of Endeavor Lebanon, a global non-governmental organization that supports high-impact entrepreneurship. “People need to professionalize their business before they approach VCs.”

He also suggested that VCs be more accessible, noting that it’s in their interest to find feasible companies.

“There needs to be feedback from VCs, because there’s a lack of transparency and a lack of understanding about how VCs work,” said Sadi. “They should be better about explaining their terms so that it’s more efficient for everyone.”

But Elie Habib, Lebanon country manager for Riyada Enterprise Development, part of Abraaj Capital, the largest venture capital fund in the Arab world, had some tough love for aspiring entrepreneurs thinking of those pitching business ideas in hopes of receiving funding in return.

“Entrepreneurs say there’s no money available to us. But not every entrepreneur should get money,” said Habib, whose firm – similar to the other five main VCs in Lebanon – receives around 200 pitches per year, of which they fund one or two. “The assumption is that if an entrepreneur has an idea they should get money. That’s wrong. The odds are really low – about one in a hundred.

“They need to be ready to make an impact and understand the risk. A lot of them won’t do it. Lebanon is a really small market. As soon as you form a company, you have to understand how to expand it into Saudi Arabia.”

He added, “We want global companies from Lebanon.”

He also suggested that if someone is really serious about starting a company they should “do homework” and find out if it’s really worthwhile. “Who’s your customer? How can it be profitable? If 100 people are doing the same thing and losing money, maybe it’s not a good idea. You have to ask yourself: What am I bringing to the picture? You have to have something new that will allow you to enter the market.”

Labib Shalak, CEO and founder of the Tripoli-based software development company Mobinet, is one example of an entrepreneur who found investment from the World Bank’s International Finance Corporation, and he is now in the process of expanding his enterprise of 100 employees with offices in Lebanon, France and Morocco.

He’s proud of the talent he has been able to attract, especially given Tripoli’s reputation for violence and poverty.

When they see his office, he says, “people change their view of Tripoli – say they thought it was like Kandahar.”

But he is aware that his story is an exception, expressing frustration at daily obstacles that continue to affect his business – including poor infrastructure and a lack of specialty education in software engineering.

“I returned to Lebanon because I love my country, but I wouldn’t have come here otherwise,” he said.

In California’s renowned Silicon Valley, a growing network of Lebanese expatriates appear eager to invest in new ventures in their home country, noted several members of the panel.

But Salam Yamout, national ICT strategy coordinator at Presidency of the Council of Ministers, expressed exasperation when reminded of Lebanon’s diaspora.

“People think the diaspora is the solution to all of Lebanon’s problems,” she said. “There are fundamental things that need to happen here in Lebanon.”

Habib of Abraaj agreed, saying, “We need safety. We’ve reached an unacceptable level of insecurity in Lebanon. If I want to bring an investor to Lebanon, he needs to be safe.

Still, with all of the reasons VCs give for not investing in new businesses, they are still looking for the next big thing.

“Our goal is to have 10 to 20 really big success stories to change the economic landscape of Lebanon,” said Sadi of Endeavor. “People talk about tapping into the diaspora. But those groups represent a small percentage. Our goal is to go beyond that.”

 


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