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French Version

Venture capitalist awaits reforms to invest in region

Habib Kairouz has high hopes for Lebanon

With a permanent smile, U.S.-based venture capitalist Habib Kairouz emits a sense of optimism transcending the pessimism which characterizes Lebanon's present socio-economic reality.

He believes that Lebanon can overtake Dubai as the "regional oasis" for local start-ups and become the next powerhouse: "Entrepreneurs and capital are the two primary ingredients for a successful start-up. The Lebanese entrepreneurs have made their marks everywhere in the world but have always lacked venture capital and the legal framework to do it in Lebanon itself."

So where will the capital come from? With a high percentage of the Lebanese population living below the poverty line, a national debt of at least $36 billion and unemployment at an all time high, Habib Kairouz reiterates what many believe: "The Lebanese government should pay attention to its expatriates before its foreign investors," to aid in the recovery of its sinking economy.

"We have a huge amount of debt that somebody has to pay for. It's not going to come from the people living in Lebanon because they don't have it. So it can only come from the global Lebanese expatriate community or from international countries through debt relief. It should be a combination of both. But if Lebanon really wants to stand on its own as an independent entity, the diaspora should be the primary driving force."

He adds that the Lebanese expatriate community, believed to have an estimated wealth of at least $40 billion, should "collaborate with the government on specific industries, projects, no different from the way the Jewish community in the United States collaborated with the Israeli government to get their technology industry going."

But for the country not to become another tarnished investment, Kairouz reckons "growth should be fueled by direct investment in existing businesses to make them more efficient, productive and competitive thus capital is required. In the Gulf region, local institutional investors are starting to re-allocate capital away from the United States and Western Europe to the local markets and that's a good thing. Lebanon does not have local institutional investors with large resources and hence needs to rely on either Gulf investors as it has for the last decade or on the Lebanese expatriate community where it has failed to date."

Born in Northern Lebanon, Kairouz left Beirut for the United States in 1984 to study Engineering at Syracuse University but halfway through, he transferred to the Ivy League Cornell University in order to pursue Civil Engineering and Economics.

After his graduation in 1987, Kairouz worked in investment banking and leveraged buyout with Jesup & Lamont. After taking a leave of absence to earn a masters from Columbia Business School, Kairouz's entire group at Jesup & Lamont got hired by another investment bank Reich & Co.

His big break came in 1993 when one afternoon he received a call from his current partner who was referred to Kairouz by a prior colleague. "One day my partner called and offered me a great opportunity to actually build something rather then be part of something someone else had done."

Today he is a managing partner at Rho Capital, one of the leading New York City-based private-equity firms, in other words a venture capital firm with $2.5 billion under management which invests in early stage companies in the information technology, telecommunication and healthcare sectors. Venture capital firms are usually pools of capital organized as limited partnerships. The money comes from private investors or institutions like university endowments, banks and pension funds.

However, international investors have shown little interest in the Arab world. The region nets less than 1 percent of global foreign direct investment and most of it is concentrated in the oil and gas industry, thus leaving the technology sector high and dry. Kairouz, whose current and recent board seats include Avolent, Cesura, Innerwireless, Intralinks, iVillage, Sereniti, Tripod, Waterfront Media and Yantra, says that his firm has looked at investing in the region repeatedly over the years and has decided to date to wait for reforms both at the political and economic levels: "I am optimistic these reforms are coming; I just don't know at what cost or in how long."

Nevertheless he "would not invest in companies developing products to be sold in the United States when companies in India and China can do it much cheaper. Interesting sectors could be Technology Enabled Services targeting businesses in the Middle East, where proximity to the customer is critical and where the Arabic language is important. Also in alternative energy technologies given the region's deep understanding of the energy markets." Will he ever switch from business to politics?

"I would love to go back and do politics when I don't have to worry about business anymore because I don't think you can do both," he says.

Kairouz has high hopes for the future of Lebanon, especially after the March 14 massive demonstration. "Like all expatriates I got over-excited. There was a renewed sense of hope. I think that March 14 had a number of messages. The first message was pent-up anger against all political assassinations in Lebanon. The time had come for the people to say enough is enough. The second message came from the young and the Lebanese expatriates who saw March 14 as a turning page for the country, especially regarding the political system which everybody blames for the country's problems. The last message was an incredible sense of hope that Christians and Muslims came together and made it a very strong point not to be calling for religious objectives but one message for Lebanon. It's not as easy but the hope is still there."

Beirut 01-11-2005
Adla Massoud
The Daily Star

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