The Lebanese startup ecosystem hasn't failed. It's just not solely in Lebanon anymore.

Faced with severe internal adversity, the Lebanese startup ecosystem has transcended into a multi-headed creature, spanning different continents.

Image source

A promising decade

Less than a decade ago, Lebanon’s startup ecosystem was a leading force in MENA. The country’s capital, Beirut, was widely recognized as one of the region’s most dynamic startup hubs, replete with international-minded and creative talent. The country’s globe-trotting and engaged diaspora provided the ecosystem with an undeniable advantage, a dynamic shared on a much larger scale by Lebanon’s neighbor and longtime foe, Israel.

The ecosystem was nascent but growing amidst a backdrop of continuous social, economic, and political turmoil that had plagued the country for decades. Local incubators were starting to make a name for themselves, and local VCs were starting to raise decent funds. Locally-bred startups such as Anghami, which later became the first Arab company to list on the NASDAQ, were starting to pop up.

In 2013, the ecosystem received a considerable boost from the government through the launch of Circular 331 spearheaded by the country’s now-infamous central bank, Banque du Liban (BDL). The initiative incentivized local banks to invest 3% of their capital into the local startup ecosystem by guaranteeing reimbursements of up to 75% in the case of failure.

The Circular initially aimed to unlock $400 million into the ecosystem, a target later augmented to $650 million in 2016. Admittedly, the Circular funded some of the country’s first tangible incubators, VCs, and startups. It showed some promise to an ecosystem accustomed to a dysfunctional and sluggish government.

“The Circular paved the way for hundreds of budding businesses and dozens of incubators and accelerators to receive financial support directly from commercial banks or through special venture capital funds. During that period, Lebanon moved from fifth to second place regionally in quantity and value of tech investments, now only trailing the United Arab Emirates (UAE).” - Le Commerce du Levant

Dusk sets in

While Circular 331 moved the needle, it wasn’t perfect. Companies receiving funds were bound to a couple of burdensome conditions, such as registering the company in Lebanon. Being a tiny market of 4 million people, Lebanese startups are obligated to expand internationally to achieve relevant scale, something a Lebanese corporate entity doesn’t quite facilitate.