Plugging the gaps
New programs offer business, financial help to entrepreneurs
New programs offer business, financial help to entrepreneurs
Since 2013, and the advent of Circular 331 in that year that was designed to boost investment in the knowledge economy, the Lebanese startup ecosystem has matured significantly. The injection of funds into the ecosystem raised awareness and attracted aspiring entrepreneurs. However, with 331 funds funneled to accelerators and VCs via commercial banks having previously slowed, and the country now facing the possibility of economic crisis, the future for Lebanese entrepreneurs looks increasingly challenging and uncertain. Fewer entrepreneurs have set up shop in Lebanon in the last few years as compared to the original Circular 331 boom, and there are still gaps in the ecosystem, such as an early stage and post-acceleration, but pre-VC stage, gap that must be addressed.
For startups in their early stages, ways to mitigate risks and alleviate challenges entrepreneurs face include accelerator and incubator programs that provide support to fledgling businesses, whether by providing finance or in-kind services such as office space, mentorship, and access to networks. According to a 2018 Arabnet report on the Lebanese innovation economy, an ecosystem gap for early stage support exists, and 80 percent of survey respondents said the need for ecosystem support motivated them to apply to accelerator programs. In conversations with VC funds, heads of accelerators, and entrepreneurs, Executive was told that funding for post-accelerator stage entrepreneurs is lacking. Today, there are at least seven accelerators and incubators, most of whom were launched in the few years post-331, with the notable exception of Berytech, an ecosystem for entrepreneurs which launched in 2002.
Circular 331 was credited with causing dramatic change in the ecosystem; some attempts to create acceleration programs in the pre-331 era came and went leaving little impact. Now a new generation has been ushered in, and, in some ways, the accelerator aspect of the ecosystem is beginning to see a nichification. New accelerators and other initiatives offer support for green industrial initiatives; fintech (similar to the recently launched Startecheus); fi
nancial inclusion, which in part includes fintech; social enterprises; and one will target renewable energy, waste, and water valorization. In an August interview, IM Capital fund manager Corine Kiame told Executive, “We need more accelerators. We have so many gaps. And we need more accelerators outside software, we need incubators and accelerators that are diversified across the sectors.” While new niche programs are cropping up, one general initiative has emerged as well like the Talal and Madiha Zein American University of Beirut Innovation Park (AUB-iPark) that launched on September 2.
Those behind these initiatives see a need for this new nichification. Developing programs specifically for agriculture and industry, considered productive sectors, may help spark innovation and churn out new products and solutions to further develop them. In June, Executive wrote that there were not necessarily enough fintech players in Lebanon to warrant a fintech accelerator, and that outlook has not changed. According to 2019 Arabnet data, there are 16 fintechs in Lebanon, and regulatory hurdles and the absence of a sandbox in Lebanon make other regional countries more attractive options (see story page 62).
SUPPORTING INNOVATION
Beirut-based French business school, École supérieure des affaires (ESA), is launching a new accelerator set to be operational in Q1 2020. This will be housed alongside ESA’s SmartESA accelerator program in a new 3,000 square-meter facility, but will operate on a slightly different model. SmartESA’s new program hopes to incubate 10 startups per cycle, with startups from fintech, insurtech, and productive sectors eligible to receive $50,000 in cash, plus in-kind services, with a chance for follow-on funding. Unlike SmartESA, which only offers in-kind services and does not take equity, the new accelerator will take equity as payment from the startups. For the new accelerator, the SmartESA team is in talks with corporate and private sponsors, but as nothing is yet finalized details remain scant, and they are applying for Circular 331 funding via a partner bank, but Antione-Jihad Bitar, SmartESA coordinator, declined to say which bank. With banks implementing stricter capital controls and protests in the country in their second week, he says “Are they going to change their mind after the crisis? I don’t know, but it’s an important question.” With one pure fintech accelerator already in existence, the need for two, given the current number of fintechs and lack of important support from the central government and central bank, even with SmartESA’s new accelerator only partly focusing on fintech, is questionable according to members of the accelerator scene.
RayMondo sal, a green industrial incubator initiative by environmental NGO Fondation Diane received a $3 million investment from Viridis investment fund (both the NGO, Viridis, and RayMondo were founded by Diana Fadel, who is the majority shareholder of the latter two), says RayMondo manager Antoine Abou Moussa. The new incubator had its soft launch in August and hopes to be fully operational by the end of the year. Located in the Roumieh industrial district in its own 3,000 square-meter facility, RayMondo has plenty of space to incubate new initiatives. So far, FabricAID has begun to use the space, and Abou Moussa says they are in advanced discussions with L’Atelier du Miel to have their operations there. Abou Moussa says that startups, SMEs, universities, and even corporations can use the space. He tells Executive they will invest between $50,000 and $100,000 in startups, and they will consider taking equity, a percent on eventual sales, or collecting rent as ways to monetize the company. He did not know the total size of the fund available, and when asked if there was a range they were considering investing in total, he replied, “No range.”
According to a press release from RayMondo, they will have space for 40 green startups and SMEs. Abou Moussa says that they are searching for one large “anchor tenant,” such as a university that rents space as well. RayMondo will buy the machines necessary for industrial innovation, and currently they are sorting out viable clusters for investment; the clusters include waste management, food waste and food companies, and essential oil production. Abou Moussa says that while no fund size is specified for equipment investment, Fadel will provide funds based on a needs assessment. “It’s new and it’s untapped,” Abou Moussa says. “We’re using our gut feeling in a lot of places. We don’t have a lot of studies done yet on green industries. There’s a few studies, but they’re not specific to what we’re doing. Whatever comes, we’re open, and we’re trying to adapt and understand.”
Similarly, Cleantech, an offshoot of Agrytech— which in itself is a program by Berytech—which will be launched in June 2020 will look at three
With one pure fintech accelerator already in existence, the need for two, given the number of fintechs, is questionable.
Agriculture and industry will continue to be cornerstones of the economy.
main categories: renewable energy, waste, and water valorization. Although Cleantech will be open to all fields and backgrounds that have to do with water, waste, and energy, Ramy Boujawdeh, deputy general manager of Berytech, says they are working to link it with Agrytech (see story page 56) through what they call the water energy food nexus. “If you want to create sustainable agriculture, you need to make sure you are not depleting your water reserve and not abusing your energy to produce food,” he says, explaining candidates would be startups that are looking at techniques to reduce water usage in agriculture, for example, or at using less energy for irrigation. Cleantech plans to form advocacy groups for each category that will develop and publish white papers to draft laws that aim to improve the capacity to utilize innovation in the Lebanese agricultural sector.
A DIFFERENT KIND OF SUPPORT
No matter the outcome of ongoing protests in the country, industry and agriculture, will continue to be cornerstones of Lebanon’s economy, despite accounting for a relatively small share of total GDP; combined, they currently account for around 15 percent of total GDP according to McKinsey’s Lebanon Economic Vision. With added stress on the finance and insurance sector in the last two months, which accounts for 9 percent alone, agriculture and industry’s importance cannot be overlooked. Innovation in these sectors have the potential to be largely impactful, and support for startups in these sectors will be important to help entrepreneurs develop their ideas and get their nascent businesses off the ground.
Two other niche initiatives that operate differently from traditional accelerator and incubator programs are the Arab Financial Inclusion Prize Fund (AFIIP) and the Hult Prize Lebanon. AFIIP was inaugurated in 2018 and is currently in its second cycle; it provides funding and a more informal support network to startups, SMEs, and larger corporations in the financial inclusion field across the region. AFIIP has $55,000 that will be dispersed this year as part of the grant that is provided by four sponsors: Consultative Group to Assist the Poor (CGAP), the Sanad Fund by Finance in Motion, Spectrum Digital Holdings, and Tamer Amr, who is a private sponsor. Alexander Reviakian, cofounder of AFIIP says while he realizes the amount is small, the technical support provided to winners and finalists is an added value.
As AFIIP is a grant, it operates differently from an accelerator, yet when asked what support they provide outside funding, Reviakin pointed to several ways that AFIIP, which had 97 applicants this year, helps those who apply to network (e.g. by paying for them to attend regional conferences with major players in financial inclusion and setting up meetings in advance) and indirectly develops their go-to-market strategies by facilitating connections between small players, like startups, and large players, like regional banks and accelerators.
Similarly, Hult Prize Lebanon, developed in partnership with Lebanon’s central bank—Bank du Liban (BDL)—Blom Bank, the United Nations, and Hult Prize Foundation, which operates in 15 cities globally, is a grant and mentorship program designed for university students. Hult Prize Lebanon, part of the global Hult Prize Foundation that launched in 2009, is now beginning its third cycle having launched its first cycle in Lebanon in 2017. It awards an annual seed grant of $250,000 for one startup focusing on impact entrepreneurship, which in Lebanon could be those that focus on electricity or healthcare, for example. Karim Samra, CEO and founder of Changelabs and COO of Hult Prize Lebanon tells Executive that when they began the initiative they found Lebanon to be an attractive country because of BDL’s Circular 331. Since they began operating in Lebanon, the number of participants doubled from year one to year
two, and Samra says numbers for year three are on track to double again. There are now around 70 active campuses spread across 30 to 40 universities, with 5,000 students applying last year, Samra says.
Beginning in September, Hult Prize Lebanon sends mentors to campuses for what they call the on-campus round and students receive training in ideation and pitching; experts also run hackathons. For round two, teams that make it to the next phase are invited to Beirut Digital District for the Student Startup Forum for further coaching, and ultimately they pitch their ideas. Finally, the teams are narrowed down to the top six who go through a six-week incubation program in Beirut, and experts are flown in to provide mentorship throughout the cycle. The winner is registered as a company and continues to receive support while establishing their business. While the runners-up receive no cash, Samra says that last year, two were accepted into Berytech’s program. Two avenues exist for Lebanese to get global experience; the winner of the Student Startup Forum is invited to an incubator program in London, and the best on-campus team from each campus is invited to compete in global regionals.
Both these programs provide networking opportunities to companies in their programs. Reviakin tells Executive that plans to expand in coming years include developing more categories for applicants, such as one for startups and one for more established companies. These programs both offer direct avenues to regional and global conferences, networking, and opportunities for additional funding. In Lebanon, where many startups look to expand beyond Lebanon, this kind of networking could be a key ingredient to helping many survive and grow their companies.
The AUB-iPark does not discriminate on the type of startups it will accept and has identified pre- and post-accelerator gaps as target areas for their new initiative. Leveraging research and talent produced at AUB, they hope to improve the quality of the pipeline going into accelerators. For the post-accelerator stage, mentorship and networking are the main offerings. Overall, the ecosystem lacks investors for the post-accelerator stage, though a couple new initiatives have emerged in the last few years. And while mentorship is valuable at any stage, cash is crucial for startups in the post-accelerator stage to further develop their product and expand their customer base through marketing. While the AUB-iPark will not take equity or charge for rent, they offer no cash for startups. Startups with at least one founder that is a current student or AUB alumni will be eligible for the program. They will run competitions in which smaller cash prizes are available, but the details had not been confirmed as of writing. Salim Chahine, AUBiPark executive director, says, “We are using the support of our Zein Endowment as well as the AUB operating budget to support startups.” He declined to comment on the size of the endowment or budget.
With all these new initiatives and fewer new businesses, the question of the utility of so many new accelerators is raised. Bitar says that while the overall number of startups is decreasing, the overall quality has increased. But even with an overall quality increase, are there enough new ideas to warrant so many programs? Bitar believes there are. And efforts like the AUB-iPark and Hult Prize that aim to create startups and feed the pipeline at the university level, perhaps they will successfully generate interest in entrepreneurship.
Ideas are often born out of crises, and with Lebanon on the brink of crisis, some are hoping to see more turn to entrepreneurship. “We’re always worried about the economic situation, right?” Chahine says. “But this is something out of our hands and out of our control, so we’re trying to look at things positively. If there’s an economic crisis, our kids need to do something differently, and our kids need opportunities. Maybe pushing them to think of their struggle, they can come up with new ideas.”
Making predictions right now for the future is hard, but entrepreneurship certainly has a role in the future of this country, especially in productive sectors. If these programs are able to find enough quality startups to accelerate and incubate, they have the potential to add real value to the ecosystem. It can be assumed that a few quality startups will emerge in the coming year or two as the ecosystem since Circular 331 has gradually established itself, but if there will be enough to fill up the space these new programs in addition to spaces existing programs offer is yet to be determined. And regarding a holistic examination of the ecosystem, more analysis is needed on the post-accelerator gap to determine current supply and demand and its effects on the ecosystem.
Ideas are often born of crises, and with Lebanon on the brink of crisis, some are hoping to see more turn to entrepreneurship.