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Banque du Liban’s initiative is aimed at keeping new business in Lebanon
Banque du Liban Accelerate 2014, the first international start-up conference in Lebanon, took place last week. Visitors came away with the impression of a strong and developing start-up economy in Lebanon. More than 20 companies presented their ideas, most of them founded a just few years ago, if not months.
There was much praise for the creativity and willpower of the Lebanese people from all panels of the conference. It seems to be just a matter of time before Lebanon becomes a Middle Eastern silicon valley; until unemployment among young and educated people has vanished; until there is no reason for anybody to leave the country. But the surroundings of Lebanese start-ups are just emerging like the companies themselves, and most of them have to fight massive obstacles.
Facing obstacles
One of the major concerns is slow Internet connections. Increasing the speed would have a massive impact on Lebanon’s GDP, claims Henri Asseily, managing director of Leap Ventures. And according to Nicolas Sehnaoui, former Minister of Telecommunication, improvements could be made easily. “The fiber already exists,” he said. “It’s just the programming on one computer to open it. We are one week away from decision making to jump leap-frog in terms of quality and speed. “ Asked why this hasn’t already been done, Sehnaoui said: “It’s an enigma. Today, the decision makers are from the same group. It‘s not political. Because now there is no political reason for someone to say: I will not let this work so you don’t make a political win out of it.”
But the education of young entrepreneurs is also a problem. When it comes to the often very specialized needs of start-ups, founders have difficulties finding good partners in Lebanon. Hind Hobeika, for example, designed a device to monitor swimmers’ workouts, which attaches to goggles. Her company is called Instabeat. To enhance the prototype, she had to find electronic engineers and industrial designers as well as web developers. Finally, she hired in Ukraine, while her manufacturing is done in the US — she couldn’t find the industry here. During a panel on “The other knowledge economy,” she also mentioned high import duties and outdated laws that make it hard for young entrepreneurs to get started. “There all kind of constraints,” she said, “but the basic and most important one is the Internet.”
Bijan Azad, director of the Darwazah Center for Innovation Management and Entrepreneurship at AUB, says more training is needed on the business side. Azad says it’s important to teach the students about what the right businesses to come up with are. There’s no need for a new Amazon, he said. “Instead, it is important to focus on the constraints of the environment you’re in and to create solutions.” This could be to work on problems in traffic or electricity, said, adding that he has already observed is a change in mentality. To work for a start-up has become more acceptable, as opposed to being employed by a big company.
Another obstacle all the start-ups have to deal with is funding. While some, like Hobeika’s Instabeat, have received a lot of support from various funds and angel investors, others find it hard to find financing. Rami Khawandi, founder of the traffic app Tari’ak, is at a good stage now. “But investors are not embracing innovation as much as we liked them to,” he says. Khawandi feels most investors are too conservative, putting their money into things like Arabic Spotify instead of truly new ideas.
Walid Mansour is a managing partner at Middle East Venture Parteners, one of the biggest venture capital firms in the Middle East. It is important to his company that start-ups don’t focus on Lebanon alone, given that Lebanon is such a small country. At the moment, his company has 19 start-ups in its portfolio. Only a few days ago, one was sold to a Japanese investor, and at $13. 5 million it was one of the largest exits in the Middle East. The start-up, Shahiya, offers cooking recipes in Arabic. When it comes to investments, Mansour says, “we can’t be as aggressive as VC firms in the US.” There, firms can take on much more risk because they have both more capital and more start-ups to choose from. “We don’t have enough money to come and invest in the next Google; we don’t have the talent and we don’t have the willingness — we are not there yet. Maybe in a few decades,” Mansour said. Until then, he hopes to create a positive loop with exits like Shahiya’s.
Central Bank as catalyst
To speed up things, policymakers are pushing money into the developing Lebanese ecosystem. In August 2013, the Central Bank issued the Intermediate Circular 331. The programme is designed to give incentives to commercial banks to support start-ups in the knowledge economy as well as funds in the field and incubators or accelerators. Banque du Liban backs 75% of the bank’s participation in this field. If a start-up fails, the commercial banks only lose 25% of their investment.
Altogether, the Central Bank is ready to invest $400 million. To take advantage of this funding, the start-ups have to be Lebanese SAL companies with their main office in Lebanon. By this, start-ups will, at least at first, stay in the country and increase economic growth. Additionally, the banks will be educated on becoming start-up partners, rather than mere loan granters. Marwan Kheireddine, chairman and general manager of Al-Mawarid Bank, says this is slowly working. “Today, we have not seen many banks active on the front of investing directly in companies. We have seen a lot of banks active in investing in funds that will ultimately invest in companies.” Kheireddine says the main issue is how big and how quick the knowledge economy sector evolves. “Is it going to be a few billion or a hundreds of billion industry sector?”
The Lebanese start-up ecosystem is developing, and help from the Central Bank is giving significant incentives to young Lebanese to start new businesses. But with the struggle to find qualified employees and good investors, some young entrepreneurs may still turn their backs on Lebanon. From their point of view, it is crucial that obstacles such as of Internet access, education and financing be overcome as soon as possible.
