Entrepreneurs should be more thoughtful and selective about investors to whom they decide to pitch their business, advises Michael Lahyani, founder and CEO of propertyfinder, a Dubai-based online property portal.
Taking part in the third Arabian Business StartUp Academy held last week at The Address Dubai Marina, Lahyani was talking about the company’s latest funding round which resulted in raising $20 million in capital from Sweden-based Vostok New Ventures earlier this year.
“Through this process I learnt a couple of things that I can share with you,” Lahyani said. “One is not to talk to everybody because every investor wants to talk to an entrepreneur since that is their source of information. If they do not talk to entrepreneurs, they do not know what is happening out there.
“It is your job as an entrepreneur to know to whom to talk. Somebody who has never invested in marketplaces will not invest in you. Somebody who has never invested outside of their territory is probably not going to invest in the Middle East. Somebody who has never done the ticket size that you are looking for will not invest that much in you.
“Talk to the people who do your ticket size, who know your vertical, and who understand your region. That will eliminate 95 percent of the people who want to talk to you. Focus on those ones.”
Having graduated from HEC Lausanne and started his career at PricewaterhouseCoopers in Geneva, Lahyani moved to Dubai from his native Switzerland in 2004.
He quickly identified a gap in the property advertising space and launched the first real estate classified in the Middle East, in print and online, named Al Bab World.
Three years later, Australia’s REA Group, an online advertising company which is a subsidiary of News Corp, acquired 51 percent of the company. Lahyani’s start-up was rebranded as propertyfinder.
“I have to say that it came in at a very handy time because if we had not closed that deal, we would have been bankrupt a couple of months later,” said Lahyani. “We could not fight against our competitor Gulf News and we did not have the funding that would sustain the business. I had put all my savings into it.
“When they said that they wanted to buy 90 percent, I offered them to buy 100 percent of the company, but they wanted me to stay in the business. Eventually, they bought 51 percent and invested $2 million in it. What was great with that was that it came from people who were very savvy in this industry. We learnt a lot from them.”
Speaking to an audience of more than 150 entrepreneurs, Lahyani said that propertyfinder was a money-losing business which broke even only in 2011. Before that, he said, REA Group had withdrawn from the UAE market due to the struggles caused by the 2008 global financial crisis. In 2009, Lahyani bought back REA’s stake and regained 100 percent control of the business.
In 2012, the company started its regional expansion, having secured funding from Dany Farha who would later found BECO Capital, one of the first venture capital firms in the UAE.
“There were no events like this in 2012 in Dubai,” said Lahyani. “There were no venture capitalists, there was no start-up ecosystem [as today]. Among my friends, I was the only one running a start-up. Everybody was employed in big corporations.
“Luckily, Dany Farha had just exited Bayt.com [the Middle East’s largest job site]. We clicked very quickly, we saw very much eye-to-eye. He had done with Bayt.com what I had been planning to do, meaning to expand across the Middle East.”
“It was his first investment. Those were the very early days of the venture capital industry in this part of the world. I needed an anchor investor to lead my round. As most of you know, nobody wants to invest in your business until you have an anchor investor.
“I also got a couple of investors outside the region because I wanted to get some ambassadors. The minute somebody puts money into your business, he is going to rave about you at every event. Also, it is good to take ambassadors who are not in the same circle and thus have a different reach. Try to find loud people.
“I picked investors in Turkey, Malaysia, and two investors in Silicon Valley. Those were small tickets when compared to what Dany had put in, but suddenly I had a group of well-connected people, covering the globe and talking about propertyfinder.”
propertyfinder Group now operates in Qatar, Egypt, Bahrain, Lebanon, Saudi Arabia, Morocco and the UAE, and employs more than 200 people in seven office locations.
The company was named Arabian Business Start-Up SME of the Year in 2013, and was ranked among Dubai SME 100 companies in 2013 and 2014. Last week, Lahyani received the StartUp CEO Award of the Year by CEO Middle East.
Lahyani also invests in start-up technology companies through Merro, an investment vehicle he co-founded with two partners.
Concluding with a few more pieces of advice for the Academy’s attendees, Lahyani said that before closing his latest funding round with Vostok New Ventures he “had four term sheets that did not go through.”
“Some of them got scared at the last minute, or they were working on some bigger deal, or it suddenly was not the right timing,” he said. “Although some of them I backed out from. It was typically a VC from the US who came up with a lot of binding clauses, asking for guaranteed returns and some very exotic terms that I had to hire American lawyers to explain to me what that meant.
“I realised that I was selling my life and that there was no way I could get a penny out of this company [under those terms].
“That is what happens a lot in Silicon Valley. In the last few years, there have been all these start-ups raising funding at crazy valuations, but ultimately the investors have so many protective rights that the probability that the entrepreneur will see any money is very small.“
Other speakers at the event were David Ashford, chief information officer at The Entertainer, and Noor Shawwa, managing director at Endeavour UAE.
For other highlights from the event, which was supported by the Dubai Chamber of Commerce and Industry, AJSM Investments, ADIB Business, Creative Zone and Emirates Auction, please follow this link.
The fourth Arabian Business StartUp Academy will take place on December 5, 2016.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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