Indeed I didn't miss it. I walked directly into his office, which in scrappy start-up fashion had no receptionist, to the sounds of Nagy ending a Skype call with Paris. He greeted me enthusiastically, "Can I offer you some tea? We are tea fanatics around here. I have 80 different types of speciality teas."
Luckily, I love tea. "Yes please," I said. "Choose according to your taste." He served me a delicious green tea, apparently from China, which he steeped for me himself.
"I'm starting a company that sells speciality teas," He continued. "We're trying to prove that with the right marketing and execution, you can easily build a successful company out of Lebanon."
Nagy is an entrepreneur turned venture capitalist running the Building Block Equity Fund with his partner Fadi Daou. I've written about how Lebanon is a land of "flash and no cash" and how there's little opportunity here. Together, this duo is trying to change that. They recognize the large gap between (1) microfinance and small business loans available for the mom & pop shops and (2) private equity available (largely from outside of Lebanon) to fund large companies and real estate development projects. The entrepreneur who wants to build a scalable growth business is simply out of luck unless he has large sums of family money to support him.
"We've screened over 70 companies during the past year," said Nagy. "If a company is not venture-fundable, we still try to help them by connecting them to the right people or providing some strategic guidance." Nagy and Fadi are also involved with the Bader Young Entrepreneurs Program, which provides mentor ship and connections for young entrepreneurs and promotes entrepreneurship education in unversities in Lebanon. Often, Nagy and Fadi guide entrepreneurs to the Bader program for help.
The Building Block Equity Fund itself is structured as a "real" venture fund and has already made several investments with several more in the pipeline. It has limited partners, standard fund terms, and invests using standard preferred securities. This is actually rare to see in the Levant. Most of the other funds I have met with are either (or a combination of):
1. All family money. Thus funds are all coming from one source and often managed by family members. This typically means the fund mandate is very broad and the investment strategy lacks focus.
2. Evergreen. There are no capital commitments on the part of investors. As opportunities come up, investors have the option to fund. This means there is no critical mass of capital dedicated to funding a particular investment strategy.
3. Not raised. Surprisingly, many operational funds haven't actually raised most of their capital yet. An example is a fund with a $50m goal that only has $2-$5m of capital committed for investment. It's very difficult to have an investment strategy with risk diversified across various types or stages of companies when the amount of capital and number of possible investments is unknown. This can lead to a failure of the venture model before it is even given a chance to succeed. Very bad for a region just starting to experiment with venture capital. I'll write more about this problem later.
In my opinion, the Building Block Fund has the right strategy: take a pool of committed capital and invest it in early and growth stage Lebanese and Lebanese-related companies with charismatic entrepreneurs and the potential to scale. Granted, narrow geographic focus in a country that has been prone to conflict in the recent past is risky. However, if your goal is to promote economic development in Lebanon via entrepreneurship, this is the right way to do it. And who better to execute on the strategy and manage the risk involved than a couple of experienced Lebanese entrepreneurs and investors?
I'll keep my eye on the Building Block Equity Fund during the next few years. I anticipate hearing some good news coming out of their portfolio companies.
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