THE PATHWAYS OF NEW LEBANESE MAKERS

A definitely export-bound outlook

Once upon a time of apparent – but as has been shown with overwhelming force, fake – stability in the Lebanese macroeconomic and entrepreneurship framework, the promulgated and immensely hyped dream declared the rising power of the local knowledge enterprise and tech entrepreneurship ecosystem. A large part of that dream has dissolved. It evaporated along with the illusion of a currency that could be the guarantor of startups, both makers and services providers, who would first prove themselves in the Lebanese test market, create jobs and achieve profits, and then venture into region and beyond.

Basma and Hexafresh are maker startups. They impersonate the Lebanese entrepreneurial dream in its latest incarnation. Today this means they are Lebanese tech ventures with manufacturing focus that have export potentials but no significant prospects to find clients in the country.

Hexafresh is a climate-wise compatible, zeroemission and low power consumption engineering solution for cooling needs in small spaces, like a home office. Basma combines the digital era technology of 3-D printing with the provision of a comparatively painless correction of a deeply rooted human problem: crooked teeth and imperfect smiles.

Both solutions saw the light in the past few years. Basma, which was created in 2018 with investments from founders, family, and friends, saw a first nonfamily funding round between the fourth quarter of 2019 and first quarter of 2020. Hexafresh, which is still in the prototyping phase of manufacture, was established in July 2020 with support from Berytech Fund’s Cleanenergy program.

Both startups thus were immediately confronted with the financial barriers and market access hurdles that have sprung up in Lebanon after the stumble and fall of the lira some two years back. The worst thing about them, from a local market perspective, is that they have given up on the idea of local sales for the foreseeable future. The best thing, from a local labor and talent perspective, is that their vision remains alive for job creation in Lebanon.

Basma is an example for adaptiveness and quick thinking in inspired innovativeness, meaning that founder Dr. Cherif Massoud did not shy away from jumping onto a winning idea that had been making inroads in developed markets but had no champion yet in the Middle East and North Africa (MENA) region. As he tells Executive, Dr. Massoud had practiced as an orthodontist in Lebanon for several years but saw his profession move into new and rising technologies of dental aligners that could for certain patient profiles substitute older corrective devices, such as orthodontic braces and retainers. “Change was happening and I had two options. I could either lead the change in our region or [see my business] die slowly,” he says.

LEBANON-BORN, OVERSEAS-BASED

As aligner technology was seeing growth in developed markets, Dr. Massoud saw an opportunity in bringing the new dental devices to markets in the MENA region, even as he and a business partner with engineering background dismissed, from the get-go, the idea of registering their enterprise in Lebanon.

Moreover, when preparing to conduct a first funding round in late 2019, Basma deliberately did not seek any funding that was guaranteed under the Lebanese central bank Circular 331. In the seed round, which was completed in January 2020, the investing funds nonetheless were local, including angels and noted Lebanese venture capital players B&Y and Cedar Mundi, along with the Kafalataffiliated iSME. Following this $1.2 million round, a $3 million Series A round was completed in June 2021. It was led by Middle East Venture Partners (MEVP) and involved iSME, Cedar Mundi, IM Capital, a UK-based fund called SOSF, and one by name of IFA capital.

Based on the venture’s dismissal of Lebanon as legal base, Dr. Massoud moved to the UK. He explains that the entrepreneurship environment there is very accommodating, making it easier to get started, in addition to having a “potent market” for Basma’s products. The prospective loss of the Lebanese market, however, would not deter him because it did figure in operations but not market terms. “From day one, we were physically operating in Lebanon but mentally operating in the region, and we see ourselves in the coming five years as having 50 percent of our revenue from the [MENA] region and the other 50 percent from Europe,” he says.

The team of Basma has grown to 40 persons who are located in Beirut, the startup’s headquarters in the UK, Riyadh, and Dubai, where the company recently set up an office. With an aim to grow its teams in all four locations, the largest cohort of Basma’s employees by job description is the customer relationship management and customer support team. It is followed in size by the engineering team, developers, and three marketing teams. According to Dr. Massoud, 20 percent of employees are healthcare professionals and technicians. Most importantly for Lebanese stakeholders, he says that all employee specializations are present in the startup’s Lebanon team which accounts for 75 percent of Basma’s workforce and is envisioned to expand from 30 to about 100 persons by end of 2021 or early 2022.

The company’s business model is informed on one hand by its manufacture of healthcare devices, which make partnerships with clinics and medical practitioners in its main target markets – currently Saudi Arabia and United Arab Emirates – a prime market access conduit. From this perspective, Basma’s recently obtained funding will be dedicated largely to the development of its partnerships with dental clinics in the Gulf, where its infrastructure is designed to involve medical practitioners. “We are a healthtech startup but this is still a medical device and you need the follow up of a doctor. We thus need to increase touch points with healthcare industry on the ground and online,” explains Dr. Massoud.

On the other hand, however, Basma was not deterred from operations during the 2020 lockdowns in target countries, because the business to consumer (B2C) channel of its online reach was impervious to the lockdown restrictions that many dental clinics were faced with (numerous surveys last summer mentioned dentistry related professions as the most exposed to coronavirus risk). To the contrary of being hurt by the pandemic, the startup’s portal Basma.com was launched as digital native brand in March 2020, as first and only company to offer orthodontic digital end-to-end service in the region. “We are able to deliver our treatments fully online, this is our edge,” Dr. Massoud enthuses. According to him, Basma followed the direct to consumer success of its portal by developing the additional support offering of connecting patients’ to medical practitioners who are not far from their physical location.

The best thing [about newly established Lebanese maker startups], from a local labor and talent perspective, is that their vision remains alive for job creation in Lebanon

LEADING IN THE REGION

Partner clinics will not need to be equipped with an own 3-D printer but rather with a digital scanner for dental impressions. For development of its partner network with local clinics in the immediate main target markets such as the UAE, the company is engaged with aligning clinics digitally by either integrating an existing digital scanner or providing a scanners to clinics who do not have this equipment. Additionally, given that the method of dental aligners is new and may not be known to all partner practitioners, the startup created a “Basma

academy” for delivering training – by video tutorials or in-person sessions – to doctors over a short term.

The overall aim is a good customer experience. “We try to make it an easy and nice experience for our users by minimizing the number of clinic visits and doing most of the work ahead of time, thus decreasing the chair time with the doctor and just making the necessary things happen in the clinic, with all the rest digital,” Dr. Massoud emphasizes, adding that by not outsourcing any part of its aligner production, the startup was able to create a strong customer support infrastructure and feedback loop with customers.

Among what he says is a $4 billion dollar addressable market in region, Basma’s prime target group are younger adults above 18 who either had had prior braces – 40 percent of customers – or had not previously had the chance to align their teeth because of financial or other reasons. The main selling points for Basma’s dental aligners according to Dr. Massoud thus are convenience, moderate costs and digital payment options, and the customer’s retained confidence because the product is discreet – the aligners are not as visible as braces.

Despite the impassive rise of this Lebaneseborn dental startup, however, persons in Lebanon who would like to rely on Basma to improve their smiles, should not expect that the company’s growing MENA network will reach here any time soon. “We don’t view Lebanon as a market at all. We view Lebanon as a place for us to work, to operate, to produce and to export. We don’t look at Lebanon as a market because in the financial collapse, it cannot be a market. It is a driver and place where we can operate and attract talent, provide jobs and serve the region because we can speak the language,” Dr. Massoud explains.

The company – whose plans already envision a Series B funding round in 18 to 24 months – wants to remain independent in the short to medium term but possible exits beyond consolidating its aimedfor MENA and European market positions, could well include an acquisition by a strategic partner.

In the same breath by which he concurs that the best way to put shining smiles on the faces of residents who remain in Lebanon today would not be a dental correction but reforms and economic policy, the expatriate founder of Basma confirms, “Lebanon is in our hearts and the best way how we can focus on helping the economy is by focusing on a very smart end product that we can produce in Lebanon and export to anywhere in the region.”

“The best way how we can focus on helping the economy is by focusing on a very smart end product that we can produce in Lebanon and export to anywhere in the region”

[Editor’s note: The Hexafresh profile was researched and written by Alexis Baghdadi, Executive’s managing editor].

By this time next year, Lebanese startup Hexafresh aims to start rolling out the first prototypes of its flagship environment-friendly cooling solution “made in Lebanon” to the French market. With the proviso that most materials for its units will consist of imports, Mohamed Ibrahim, Hexafresh cofounder and chief technological officer, assures us that the company’s product and future ones will be assembled in Lebanon and presented as Lebanese in both concept and design, following the strategy adopted by an increasing number of European and international companies. The promise is clear: a zonal air conditioning unit that really cools and really produces zero emissions.

How ironic is it that electrical appliances designed to cool temperatures actually contribute to rising global temperatures? With a growing world population, air conditioning units are becoming increasingly essential to ensure indoor comfort in hot and humid regions, not least so in our part of the world. But such cooling devices are also becoming necessary in regions previously considered temperate but now experiencing the effects of global warming on fauna, flora, and human life. It seems the higher temperature rise, the more air conditioning units will be in demand, producing more emissions that contribute to heating the planet and locking this vicious circle in motion. With a growing demand and need, even so-called energy-efficient air conditioning units and their reduced emissions cannot offset the seemingly inexorable temperature rise. Simply put, emissions are still produced by the compressor components of air conditioners, and “energy-efficiency” only denotes savings in electrical input as a ratio of a unit’s cooling capacity.

Seeking the best high-efficiency and environment-friendliness alternative to conventional air conditioners, Hexafresh opted for thermoelectric coolers. These devices cool air and diffuse it through a fan, making them more attractive than regular fans that only displace air. They also lack a compressor unit and therefore produce no emissions. Thermoelectric coolers function according to the Peltier principle whereby an electrical current passing between two dissimilar metals can produce a cooling effect going one way, and a reverse heating effect going the other way. The only input is electricity, the only output is cooled or heated air, with zero emissions. While studying at Rafic Hariri University, Ibrahim was first exposed to this technology and he put together a handmade prototype with a team of friends who would eventually become co-founders of Hexafresh. Later while pursuing advanced studies at HEC Paris university, this technology materialized into an application and business concept.

The trigger for Ibrahim were the heat waves France experiences every year. Recently, France has been recording an increasing number of deaths from heat waves year-on-year, marking a high of

1,924 casualties in 2020 according to French public health services (up from 1,500 in 2019). Factors affecting this increase include an ageing population and, as of last year, additional complications related to the COVID-19 pandemic, but the real killer remains global warming. Even as temperatures continue to rise, cooling solutions are not evident in the country: the installation of many conventional air conditioning units is banned in many residential areas in France because of their emissions, the noise they produce, or simply because they are seen as an aesthetic blight on certain neighborhoods’ architecture.

And so in July 2020, Ibrahim and his co-founders applied for the Berytech Cleanergy Program and one of their concepts was selected and became Hexafresh. With USD 17,000 in seed funding from the Netherlands, the team was able to produce a minimum viable product (MVP), the eponymous Hexafresh unit, assembled in Lebanon from electrical parts, fiberglass, and aluminum. In the future, the unit’s body will be 3D-printed, rendering it more lightweight and affordable. Part of the seed funding also went into running an Ansys simulation on the prototype to maximize its efficiency. “Depending on conditions, we can safely say today that Hexafresh can produce a temperature of eight to 10 degrees lower or higher than the room temperature,” Ibrahim affirms. As a way of saving costs for consumers, Hexafresh designed their unit as portable and zonal. According to Ibrahim, the Hexafresh unit consumes only about 300 watts to heat or cool the air by eight to 10 degrees inside a volume of 1.3 m3, consecrating it for personal use. Being this energy-efficient, effective, portable, and sold for a fraction of the price of other alternatives, makes it an attractive value proposition for individuals at home; almost as if it was intended for the elderly in France. As added benefits, the Hexafresh unit acts as an air freshener and dehumidifier.

MIDWAY BETWEEN FRANCE AND THE GCC

For the near future, Hexafresh will seek to secure $50,000 in angel investments. After incorporation in France, this fund will be used to obtain the CE certification for their product and manufacture 300 air conditioning units that will be rolled out for user-testing in France in the summer of 2022. “We sought to incorporate in France because it makes things so much easier for us financially right now. Our main market is France and our brand identity is based on the French market and we are looking for funding opportunities and partners in France,” Ibrahim says, explaining that “Hexa” is a direct reference to the roughly hexagonal outline of mainland France that earned the country its nickname “L’Hexagone,” and can be seen in the shape of the Hexafresh unit. “While the economic situation in Lebanon poses many problems, it has benefited us in terms of reduced labor costs. Hopefully we can maintain our design and assembly operations in Lebanon and once the situation improves, we can contribute to better job creation.” Feedback gathered from testers will serve to prepare the final consumer product that should be set for mass production in 2023.

Of course, France isn’t the only target market for Hexafresh but it is an ideal testing ground. “The need for a viable air conditioning solution is a real pain in France, and it could save lives among the elderly” Ibrahim comments, adding that other countries at high risk of casualties caused by heat waves include Belgium, the Netherlands, Germany, the United Kingdom, among others. Hexafresh units could also be purchased as casual personal air conditioners in less life-threatening settings. Asked about the Lebanese market, Ibrahim admits that hyperinflation, coupled with erratic fuel and electricity provision may not put their product within easy reach of many Lebanese residents, unfortunately. Hexafresh have their sights set on penetrating GCC markets with versions of their product intended for outdoor use. “Lifestyles have started to change in the GCC,” explains Ibrahim, “with the COVID-19 pandemic and confinement, people have started seeking to spend time on their balcony or in their garden, and this is the growing niche we are targeting.” Currently, the only cooling solutions for limited outdoor activities in GCC markets consist of large fans with misters, which are bulky and require maintenance. Ibrahim sees virtually no competition for Hexafresh once they introduce an adapted version of their personal air conditioners equipped with batteries. According to Hexafresh’s financial model, the company will be valued at $1.2 million within five years.

“While the economic situation in Lebanon poses many problems, it has benefited us in terms of reduced labor costs.”