Dubai: Banks may still be unsure about lending to start-ups or small businesses … but private equity is certainly not sharing that hesitation.
Right through last year and even in recent weeks, private funding is getting into the hands of those business owners who can show a certain measure of operational track-record. eCommerce ventures — JadoPado and Souq.com received sizeable cash injections — seem to be the most favoured. But they are not the only ones.
So, is it the case that venture/private funds are willing to pick up the slack in financing options? “Venture capital investors are driven by the “power law”, which requires us to continuously invest in ideas that other people are not thinking about,” said Dany Farha, Co-founder and CEO, Beco Capital. “That is how they are able to build massive businesses and create significant returns.
“The economic slowdown is what has allowed tech to boom. There is a very strong positive correlation between a weak economy and a booming tech industry.
“It is when economic conditions are difficult that consumers and enterprises look for the most efficient solutions … and these are typically provided by technology companies.
“Investors all over the world follow trends. However our mandate is not to invest in what is trending but to invest in the best entrepreneurs building the most scalable businesses that have technology in their DNA. And in doing so our mission is to create a massive impact on the regional technology landscape.
“We basically seek to invest in businesses that are digitally transformational and scalable. JadoPado fits this profile perfectly.
“It is a MENA (Middle East and North Africa) based and focused marketplace that has the ability to address a very large market of consumers and merchants across a large geography, backed by a strong founding team, all enabled by a strong stack of technology.
“As a marketplace, JadoPado is shifting the way businesses in the region are selling to consumers and how consumers are buying products and services. The JadoPado team created a disruptive marketplace with an incredibly strong and scalable platform.”
With the kind of take-up rates eCommerce in the region has been having, it is relatively easy for established names to draw in funding support. But how easy is it for other start-up businesses to get an investor to hand in a sizeable cheque?
The service sector seems to be better placed, or more precisely those who are able to deploy technology into their consumer-facing businesses. These include businesses that have brought out apps helping consumers make restaurant bookings or order takeaways are a case in point. Another favourite of venture funds in the region are ride-hiring app providers. Undoubtedly they do not want to be left behind in “discovering” the next Uber.
Apart from picking up the stake in JadoPado, Beco Capital also has exposures in the portal Propertyfinder as well as the ride-hailing service Careem.
“Beco focuses exclusively on supporting technology start-ups,” said Farha. “We are planning on closing a couple of regional transactions that fit perfectly within our investment remit in the first-half of the year.
“We are early stage investors and come in as early as the seed stage, with follow-on investments for Series A to C. We are large minority investors taking stakes ranging from 10-30 per cent. Beco is a holding company.
“Therefore, we are able to choose the best time for us to exit our investments to produce the best returns for our shareholders, rather than just exiting in order to return capital for our shareholders.
“(And) we have not experienced interest rates as a potential obstacle to our ability to raise funds.”
It was in November last that Beco Capital put in $4 million into the UAE online marketplace JadoPado. (The latter was earlier a pure-play online retailer.) For Beco, it was not a deal that came through all of a sudden.
“We have been in touch with the (JadoPado) founder (Omar Kassim) and have been following the development of his business for a few years now,” said Dany Farha, CEO of Beco Capital. “It was later when the business model evolved and became a fit with our investment strategy that we decided to invest in it.
“So, the timing of our investment was not dictated by the stage of the company’s fund raising but by its evolution. JadoPado was at inception a primary e-commerce provider which did not fit within our investment remit, and subsequently the founder pivoted into an eCommerce marketplace.”
