About Beirut’s middle-stage ecosystem and its multiple opportunities [Report]
The World Bank’s Tech startup ecosystem in finding and recommendations report, analyzed the tech startup ecosystem in Beirut, in an attempt to provide an accurate description and measurement, and a comparison of four key components: skills, finance, entrepreneurial supporting infrastructure, and the community.
Infrastructure, and investments
The report found that Beirut’s ecosystem is an early to middle-stage one that has passed its nascent growth phase but is still far from maturity.
Supporting infrastructure (for example, accelerators, mentors) and the community are still maturing. Accelerator programs do not seem to provide sufficient quality training for entrepreneurs to be sustainable and quality mentors are scarce, with few instances of angel investors, the report highlighted.
According to Fadi Bizri, cofounder and program manager of SE Factory, and partner at B&Y Venture Partners, it is true that the infrastructure is still maturing, but it is certainly growing better.
“The elements needed for the growth of the ecosystem are there, but there’s a continuous need to improve the quality. We certainly need to benefit from the experiences of international veterans of the industry especially that we’re just beginning,” Bizri told Wamda.
Events and community building appear to have been catalyzed by the programs of the Banque Du Liban (BDL), the Central Bank of Lebanon (BDL Accelerate and Circular 331), and donor and government action still drive many activities in the ecosystem.
Forty-three investors were recorded in Beirut. About half of them are venture capital firms and the other half angel investors.
They made a total of 58 investments in 35 startups, and all investments were identified as equity financing. The median number of startups invested in per investor was one, but with several notable outliers.
Speed@BDD invested in nine different startups, Berytech in four, and Middle East Venture Partners (MEVP) in three. The median investment amounts in later years of existence is encouraging in that they are exceeding $100,000.
“We agree with the report’s second finding which states that the supporting infrastructure and the community is still maturing in Lebanon. MEVP has personally invested in Speed, DNY Group, and actively supports Seeders, all of which enable up-and-coming Lebanese entrepreneurs with mentorship, capital, and continuous support. However, while significant advances have been achieved since pre-2014 and pre-Circular 331 days, Lebanese companies (minus a couple of exceptions) are still far off from attracting global and sizeable capital. However, given the rate of growth and perseverance in our market, we will get there soon,” explained Walid Hanna, founding partner and CEO of Middle East Venture Partners.
Bizri said that money is abundant, but it is not being given out anarchically. “Processes and due diligence are not easy, and this is the way things should be to prevent any company devaluation or cash bubble from happening,” Bizri explained.
Hanna also shared the same insights. “There is a misconception that any average startup can raise capital in Lebanon. While there might be a slight premium on valuations, companies still need to pass certain stringent filters in order to qualify for funding, and, once funded, need to pass further filters to maintain a growth trajectory, specially now that more than half of the 331 funding has been invested.”
Bizri said that the government has already done its part in supporting entrepreneurship with the launch of Circular 331. It is now the role of startups and entrepreneurs to make sure they have good exits in order to appeal to the private sector to inject its money once the BDL funding stops.
“We have more VCs ready to invest, and we are witnessing more and more angel groups and corporates allocating VC money, which accentuates the entrepreneurial interest in the country,” said Bizri.
On average, each year, 12 new startups are created, resulting in a 24 percent compound growth rate in startup creation since 2009.
Founders are predominantly male, and twice as likely to focus on business than technical functions, with 40 percent doing both simultaneously.
At the time of founding, founders are 29.8 years old on average. This puts Beirut on par with mid-stage ecosystems, such as Bogota, and mature ecosystems, such as New York, which has an average age of founders in the late 20s and early 30s and confirms the maturing stage of the ecosystem.
Founders in Beirut are typically highly educated and have had some professional experience before they start their ventures. Educational levels are especially high among founders in the context of Lebanon, with over 90 percent having a university degree and over 50 percent having a postgraduate degree.
“Our ecosystem is indeed made up of talented and educated people; we know for a fact that education level (undergraduate and graduate) within founders as a percentage of total founders is even higher than its comparable ratio in more mature ‘tech hubs’ such as USA and London,” said Hanna.
Startups in Beirut face some bureaucratic hurdles in their life cycle. Ventures can rapidly open a bank account but incorporation, renting an office, hiring qualified personnel, and obtaining a credit line from a bank typically takes about a month. Obtaining funding is a much lengthier process taking about four months to close (for example, individual or institutional investor). Compared to other early and middle stage ecosystems (such as Dar es Salaam, Tanzania, and West Bank and Gaza), processes in Beirut are lengthier for receiving credit and funding (with West Bank and Gaza), indicating greater difficulty (linked to procedures or access to finance requirements) in obtaining funding for startups.
A set of policy recommendations were developed. When it comes to the community, policy recommendations included strengthening coordination mechanism and ecosystem support program with stakeholders, in order to expand cluster connectivity, coordinate private and public action and increase density of connections among all stakeholders.
Also, recommendations included increasing the absorption of international talent, connecting with domestic corporate non-tech sectors, in order to expand the ecosystem community to traditional industries and absorb international connectivity.
The report also highlighted the importance of increasing capacity building of mentors in accelerators and attraction of international talent (as mentors, entrepreneurs or capacity builders) to the ecosystem in order to address the lack of sufficient number of quality mentors and strengthen support services.
In terms of skills, there is a need to expand practical education in universities and through rapid skills training programs and include public education programs, in a way to address practical business acumen gaps, provide pipeline of talent for startup scale-up, and include lower income/educated population.
When it comes to investment, there is a need to assess quality of startup funding and prepare phase out of Circular 331 introducing private sector funding for the sake of addressing potential bubble of startups and distortion of investment market, and ensure sustainability of funding.
Finally, the report recommended address processes constraints (for example, access to loans and funding) in order to reduce constraints for startups incorporation and operationalization.