Lebanon’s startups face a battle to survive

Reuters/Louisa Gouliamaki

Lebanon’s startup ecosystem, once a thriving hub of innovation in the Middle East, is now struggling to survive amid intensified fighting between Israel and Hezbollah, which has displaced more than one million people and compounded years of economic turmoil.

It is a devastating turn of events for a country that has struggled over the past five years with a dwindling economy and the exodus of some of its brightest minds. 

Lebanon is no stranger to war, or financial and political crises. Its difficult economic landscape has produced a more resilient and innovative type of entrepreneur, but this latest conflict threatens the survival of what little startup activity was happening since the paralysis of the economy in 2019 and the Beirut port explosion in 2020. 

Companies that rely on a stable internet connection, electricity and transport infrastructure are now struggling to maintain basic operations.

The country had to deal with hyperinflation, banking restrictions, regular blackouts and disrupted supply chains even before the current war but fragile infrastructure has been further damaged. This has forced many startups to pause operations, close their businesses or relocate – mostly to the GCC. 

In 2023,12 startups based in Lebanon raised $1.1 million, a drop of 95 per cent compared with the $22 million raised by 25 startups the year before. 

So far in 2024, just four startups have managed to raise less than $1 million. This downward trend is unlikely to change for the foreseeable future. In fact, Lebanon’s startups will have to rely more on grants and non-equity assistance as regional investors do not have the appetite for such a high-risk market. 

This scarcity of investment has resulted in many startups relocating abroad; some are taking their entire teams, while others are leaving their backend offices in Lebanon where costs are far cheaper. 

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A survey conducted by Arabnet in 2022 found that 53 percent of startups had moved their headquarters or parts of their business outside Lebanon. Startups such as Podeo, FOO and Garbaliser have set up offices in the UAE to tap into a more stable market and attract investment. 

They are not alone. More entrepreneurs are likely to make the move, whether to the UAE, Saudi Arabia, elsewhere in the region, or further afield.

The UAE and Saudi Arabia, in particular, have become safe havens for these companies, offering everything from innovation hubs to government-backed funding programmes designed to attract foreign talent.

What Lebanon loses in talent, the GCC is likely to gain in contribution to its goals of economic diversity and digital transformation. More startups will also mean more jobs, income from visas and licensing, and higher demand for housing and office space. 

While this brain drain will have a negative impact on the Lebanese economy, it does allow its startups to continue to survive in markets that offer plenty of customers as well as investment.

If these businesses maintain a backend office in Lebanon, then they also help to maintain jobs in the homeland – something that ought to be encouraged. 

However long this current war lasts, Lebanon’s startup ecosystem has a long way before it can regain its momentum and vitality.

But one ought to have faith in the Lebanese entrepreneur, often a resilient and tenacious type, who is hungry for success even in times of war and economic devastation. 

Triska Hamid is a writer focusing on technology and startups in the Middle East and an angel investor