It was a chance conversation in July 2013 that ended Hala Fadel’s 10-year weekly Beirut-to-Paris commute, and led her to launch Leap Ventures, a Beirut-based venture capital firm.
And it was stepping onto a board seat that same year at Endeavour UAE, a global support network for entrepreneurs that opened Noor Sweid’s eyes to the funding crunch faced by some entrepreneurs in the Middle East.
Fadel and Sweid, along with Hervé Cuviliez and Henri Asseily, are the four partners in Leap Ventures, one of the only venture firms in the region that focuses on second round investments. In January 2015, they launched a $71 million Lebanon fund, and expect to close on a second regional $80 million round in November. The funds will invest between $5 million and $10 million apiece in some 15 startups, with an investment horizon of five to seven years. Ultimately, the exit route is an IPO or a sale to a corporate buyer.
Not only is Leap a rarity in the Middle East, its female founders are also rare. The number of women VCs in the Arab world can be counted on one hand. Besides Fadel and Sweid, there are Neveen El Tahri of 138 Pyramids and Salam Saadeh of active m, making them pioneers in a burgeoning field. Sad—but the situation is not much better in the U.S. Only five women, for example, are on the FORBES Midas list of the 100 top venture capitalists.
That chat Fadel had on a plane bound for San Francisco was with Cuviliez, then owner of digital Arabic media company Diwanee. He was struggling to find investment above $5 million and worried he’d have to sell at a much lower valuation than the company deserved. “I told him, sell your company and we’ll start a fund that will do series B,” says Fadel, who worked a grinding schedule as a portfolio manager at French asset management firm Comgest. Sounds like a whim, but he did, and Fadel quit her job. They formed Leap in mid-2014.
At the same time, albeit 1,300 miles away in Dubai, Sweid was having a similar epiphany. As a board member of Endeavour UAE, she noticed that growing companies had no access to capital whatsoever at levels exceeding $5 million.
Neither Sweid, 35, nor Fadel, 41, knew the other. But within eight months of Leap’s launch, mutual acquaintances introduced them. They clicked, and Sweid, opened the UAE office of Leap.
They’ve yet to prove themselves as venture capitalists, but their backgrounds are impressive. As it turns out, both are MIT alums, with MBAs from the Sloan School of Management. Although they’ve worked in the corporate world, they have experience as entrepreneurs—meaning they know what it takes to get a startup off the ground and can relate to the struggles founders face when building a company.
A Syrian who grew up in London, Saudi Arabia and Dubai before heading to the U.S. for college, Sweid helped run her family’s business, Depa, one of the world’s largest interior contractors. She also had a hand managing its $1 billion initial public offering in 2008 in Dubai and London. On the side, noticing a dearth of yoga studios in Dubai, she launched in 2006 Zen Yoga, one of the first yoga studios in the emirate, and built it into a chain of three with her cousin before selling it to a private equity firm in 2014.
That was Sweid’s entrée into the Middle East startup world, and she was hooked. She decided to switch sides and become an angel investor. Although she won’t disclose details, Sweid’s first investment in 2008 was in a startup that was struggling for growth funding. She now has a portfolio of 12 to 14 investments.
The Lebanon-born, Paris-bred Fadel, on the other hand, first got a taste of entrepreneurship in 1994 as an undergraduate at the University of California, Berkeley. She founded a startup selling 3D screens, and in classic entrepreneur form, became so deeply enmeshed building it that she neglected her studies, and didn’t receive a degree because she spent all her tuition money on the startup. It folded. The lesson there: while entrepreneurs like to think of themselves as visionaries, being too ahead of the market is not a good idea. Also: know when to cut loose. Passion is what drives entrepreneurs, but it can sometimes blind them.
That first setback didn’t deter Fadel from riding the wave of the dotcom boom as an MBA student at MIT in 1998. “I wanted to be there, to be surrounded with people who speak about technology and start businesses in the field of tech,” she says.
She formed another startup, Booleo, a telecom software business. She got very lucky this time, and sold Booleo to a customer right before the dotcom crash in 2000.
Even after joining Comgest in Paris in 2002, Fadel found a way to remain connected with the startup world, specifically budding entrepreneurs in the Arab world. In 2005, she opened the Arab chapter of the MIT Enterprise Forum, which promotes entrepreneurship worldwide, and staged startup competitions. (This year alone, she received more than 5,000 applicants).
The competition consists of three tracks—Ideas, Startups and Social—and mentors prep entrepreneurs for the final rounds. This year, the first Iraqi startup made it as a finalist.
The caliber of some of the business plans impressed Fadel enough to decide she could apply some of the rigor she used in picking stocks at Comgest to selecting startups.
“This was when I decided to take the leap and come back to the region for good,” she says.
Leap Ventures’ office, in a scruffy part of the capital dubbed Beirut Digital District, has the vibe of a Silicon Valley upstart, with its inspirational quotes painted on the walls and the cardboard cutouts of Steve Jobs and Elizabeth Holmes, the youngest self-made woman billionaire.
So far, the partners have invested in three startups. Fadel will only disclose two: UTurn, an online entertainment channel from Saudi Arabia, and Energy24, a Lebanese power storage startup. She and her partners are looking at another three.
Silicon Valley décor aside, they have to educate both entrepreneurs and investors—Lebanese banks, corporations and high-net-worth individuals on the world of startups. Financing innovation, though risky, can bring multiple returns on investment. The odds are stacked up—up to 75% of startups fail, but it takes one winner to make up for duds, and then some.
“It is critical the funds achieve returns of around 20%,” says Fadel. Or, “no one will invest in VC again.”
Fundraising for the first fund went swiftly, because of the Central Bank of Lebanon’s 2013 Circular 331 plan, which dedicated $400 million to Lebanese startups by allowing banks to invest a percentage of their equity in VC funds. Leap is having a harder time raising capital for the Middle East and North Africa fund. Launched in March, the fund set a target of $80 million, and is now halfway through its goal. “We’re in the middle of rethinking how much we should raise because we already have our hands full with the deals that we’re invested in right now,” says Fadel.
To boost their chance of success, Fadel, Sweid, and their partners are importing practices that are commonplace in the U.S., but foreign in the Middle East. One example is making employee stock option plans mandatory to attract and retain talent—a primary ingredient in a startup.
“It’s a lot of work for us as VCs who come later to reengineer the deals, to restructure, and to put in place the right company to be able to play that global game,” says Fadel.
As trailblazers in the Middle East, a lot is riding on their shoulders. “I think you have to prove yourself with your track record regardless of whether you’re a man or a woman,” says Sweid. She’s right.