So you’ve decided to take your idea to the next step and here you are with your own startup ready to kickstart! Unless you’ve managed to save up a lot of money or you’ve recently inherited a very rich relative, looking for investment is one of your first main objectives. In this booming Lebanese entrepreneurial ecosystem, new investment opportunities are lining up by the day and they’re looking for people just like you. So where do you start and how do you find them?
Regardless of where you are in that startup life, you need money to keep the lights on, the team happy, and the momentum going. Raising money may not have been your dream when you began building the company, but your ability to do so will determine how far it will go.
Stages of Funding
Understanding the different needs at each stage of funding will equip you with the confidence to engage investors with a clear pathway to what you each will get out of the exchange. The five stages outlined below provide a foundation to get you started. The stages are categorized based on the amount of money raised and the source of funding.
This is usually a small amount of money given to a company to give it the momentum it needs to produce its initial product. Normally, the company will have a concept and will know that it has potential viability on the market. Seed money gives the company just enough runway to move from this early conceptual phase towards a product. At this stage of the company’s formation, capital is required to perform a variety of early operations such as market research, product development, or prototype production.
Seed accelerators are potential options. Accelerators are investing in both your startup and your potential to develop and pitch your solution to potential investors. Take the time to prepare, research, and validate your idea before approaching an investor for a higher likelihood of acceptance.
Another route you can take to raise investment is to find an individual who is prepared to invest in the idea of a startup. Eventually, your startup’s needs will grow and you will require increased funding toward product development, marketing, or just to expand your team. Angels differ from other investment entities such as Venture Capital firms since they are using their own money. You should keep that in mind when seeking an angel for funding. They may invest individually or also pool their money with a group. Since the money raised at this stage can be significantly higher than in the seed round, investors will also expect a compelling pitch and a good amount of traction.
Venture Capital Financing
Venture Capital financing can provide resources to scale the business to new markets, customer segments, or to increase marketing efforts for additional customer acquisition. Multiple rounds of funding at this stage may happen, and investors may also offer to join the organization and provide additional expertise.
Expect due diligence from your potential investors and prepare to answer questions–all kinds of them, and often. Since VCs are investing other people’s money, their job is to make a sound investment in businesses that are likely to yield a meaningful ROI for their clients. VCs vet startups regularly, so when you pitch to them, be engaging and be prepared.
These firms are continuously seeking to make investments in startups. Check the map of Lebanon’s startup ecosystem to see the list of the major players looking to invest in Lebanese startup companies. With firms such as these, you could raise a much larger investment than from an individual.
At this stage, your startup is growing and looking to scale significantly with a commercially available product. The funds raised at this point will be geared toward expansion to new markets, mergers, acquisitions, or preparing for an IPO. Investors at this stage want to see a clear roadmap toward profit shortly. For example, mezzanine financing can cover the expenses that an IPO involves. With the profits made from the IPO, the mezzanine investor is paid back with interest.
Investment Opportunities in Lebanon
As part of Circular 331, the Central Bank’s initiative to de-risk investments made by banks into startups, $400 million has been made available for the financing of new businesses. This circular guarantees up to 75% of the value of a commercial bank’s equity investment in startups or Venture Capital funds.
To combat this lack of faith in the small businesses, the World Bank also announced its loan of $30 million specifically for seed and growth-stage startups. The iSME fund, which will be operated by the loan guarantors Kafalat, who obtained $25 million for investment and $2.5 million for development grants of up to $15,000 to entrepreneurs.
Meanwhile, USAID, the US agency for development and aid, has launched a $15 million program with Beirut’s incubator and accelerator Berytech. Three venture capital firms have also already established funds that have raised decent amounts of money. Middle East Venture Partners (MEVP), Berytech Fund and LEAP Ventures have each raised at least $50 million.
MEVP has $75 Million in capital and is growing. So far it has invested mainly in Lebanon-based startups, but also in Jordan, Saudi Arabia, the Emirates and Egypt. As one of the first VCs in the Arab World, it has been investing in startups since 2010, injeting between $200,000 up to $5M per company. In addition, Wamda Capital - born out of the media platform Wamda - has also built a $55 Million fund. A newer player is Y Venture Partners (YVP), an early-stage investment and advisory firm. The outlook for 2017 is very positive with the announcement of many new and expanded funds.
The ecosystem is increasingly buzzing with accelerators, events and other startup catalysers. These include AltCity’s BootCamp, Flat6Labs,UK Lebanon Tech Hub, Speed Lebanon, Startup Megaphone (International Promoter of Lebanese Startups), SETT (a think tank based out of Beirut, working on a 20 year plan for Lebanon’s startup ecosystem), Lebanon For Entrepreneurs LFE (NGO), ArabNet (a large regional digital and tech conference) to name the most renown. Check the map of Lebanon’s startup ecosystem to view the broader list.
The number of tech investors in MENA has been growing exponentially, with the ecosystem adding around 30 new funds per year in the past two years, compared to 10 in 2013 and 20 in 2014. Corporate investors are now joining in on the action with banks like Al-Mawarid Bank and Société Générale de Banque au Liban, which were also encouraged by Circular 331 to support startups directly.
So the building blocks are all there. Beirut is finally leveraging its culture of freedom, its diversity, its high-fun living standards and its location to its advantage in the Arab region. The region is turning to Lebanon to foster innovation and embrace the entrepreneurs of the Middle East and eventually the globe, so that Beirut can someday become the go to place for those who wish to change the world and pave the future.