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XChange EMEA Day 2: M&A, AI and the importance Plan B

The second day of XChange EMEA 2020 covered a wide range of topics, from selecting the right private equity buyer, to succession planning after acquisitions, to ensuring sustainable supply chain.

Attendees engaged with cybersecurity-focused presentations from Cisco and Kaseya and took part in boardroom sessions full of lively discussions with their peers.

M&A in the Channel

The first keynote of the second day focused on the accelerating dynamics of acquisitions in the channel, and how channel businesses could ensure that they select the right PE buyer to ensure a smooth transition.

Julian Riedlbauer of M&A consultancy Drake Star Partners explained to attendees at the conference that financial investors, particularly private equity funds, were some of the most active purchasers in the IT sector. They often prefer businesses with recurring revenue and diversified clients.

“Strategic buyers are looking for acquisitions that will enhance their offerings, or give them access to new markets and clients. Private equity investors are focused on building value within a specific investment period before exiting,” said Mr. He.

Julian Riedlbauer, XChange EMEA Day 2

Private equity houses are interested in a variety of factors, including access to their network, domain expertise, and the time frame over which they expect to increase the value before selling the business to another investor.

The audience heard that these can give a business a lot more flexibility than an acquisition by a buyer in the industry. Riedlbauer said that choosing the right PE firm is important. It should have a network of contacts that match the founder’s or owner’s timeframe, and a buying cycle which matches their preferred timeframe.

“Running a structured M&A and engaging multiple bidders can help you achieve a higher price for your business, by creating competitive tension between bidders,” he explained. He also reassured audiences that PEs are particularly interested in IT and services businesses, due to their relative stability.

“IT services and MSPs have a high value to buyers because of their stability, size and recurring revenue streams. These are highly valued during M&A transactions.”

Riedlbauer assured the audience that even though the economy has been experiencing volatility, the IT acquisition landscape remains vibrant. There are usually many potential buyers available to choose from, should a business owner decide to pursue private equity.

“Last Year, the IT Services Segment saw nearly 1,800 M&A Transactions, underscoring sector’s dynamic and growth potential, driven by trends such as hybrid and multi-clouds, cybersecurity, and AI,” he said.

“To maximize the value of your business and achieve the best price, it is essential to engage with multiple potential buyers. This will create competition, and you can use an M&A advisor who will help you navigate the complex process.”

Read this article for insights from Sonny Sehgal, CEO of Transputec, on AI and automation. Also read a summary of the final keynote presentation of the day by Olympic gold medalist Maarten van derWeijden…

VCs chase auto parts makers to hitch a ride on EV journey

A number of smaller electric vehicle (EV) component makers, many of which started in other businesses, are seeing increasing interest from venture capital funds, given the boom in the market.

These firms often pivoted from their earlier businesses to fill gaps in services provided by larger manufacturers, while also providing extensive design-to-manufacturing services to customers such as original equipment manufacturers (OEMs).

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Gurgaon-based Indigrid, for instance, started with the manufacture of TV set top boxes, before moving to electric vehicle parts such as motor control untis (MCUs) and instrument clusters over six-seven years. Matel started off as a solar water pump manufacturer in 2016 before starting EV part manufacture in FY21. Both the firms saw their maiden institutional funding only in May-June of 2024.
Such firms have raised funds to expand operations as local demand for EV parts has shot up, opening up the space that has been traditionally dominated by large manufacturers like Sona Comstar and Sterling Gtake.

The newer firms also try to provide full-stack solutions. Indigrid, for instance, makes MCUs, vehicle control units (VCUs), battery management system (BMS) and DC-DC converters, among other components.

“A lot of the large players are very specialised, like Sona Comstar which is mostly focused on motors and not on MCUs or VCUs… Design changes with the likes of Sterling Gtake and Bosch can be very expensive and take a long time,” said Matel cofounder Netaji C Patro.

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EVs also require many more electronic components and instruments compared with internal combustion engine (ICE) vehicles, which smaller firms can innovate on, Indigrid co founder Rishab Puri said. These new firms are both designing and manufacturing components like the MCU, VCU, BMS, DC-DC convertors, and instrument clusters, among other things.“Well-capitalised OEMs like Ather and Ola usually design most equipment in-house, but with sales increasing their reliance on supply chain partners will likely grow, even when it comes to designing iterations. Moreover, traditional firms like Bajaj and Mahindra are increasing their EV exposure, and they prefer relying more heavily on supply chain partners due to various benefits,” said Amit Sharma, general partner at venture fund Cactus Partners, which invested in Indigrid.

The likes of Indigrid and Matel are leveraging their small team size to provide multiple iterations of products at a much quicker turnaround time, something that is expensive and time-consuming for traditional auto component giants, said Mohammed Shoeb Ali, cofounder and managing partner at Transition VC, which invested in Matel.

However, the traditional firms have the advantage of deep supply chain relationships and larger capacity, while the newer players are still testing out some of their products and are much smaller in scale currently. Yet, there is a shift underway, with traditional OEMs like Hero MotoCorp and Bajaj, as well as newer OEMs like Bounce Electric, Revolt and Omega Seiki Mobility starting to work with these new age firms.

Despite being operational for years, such firms did not see venture interest as investors remained wary of the technical and commercial viability of smaller firms in such a sector. “This is a very research and development (R&D) heavy sector, and investors and companies often want conversion to happen much more quickly… we had to spend 3-4 years of time and money on our products before they could be commercially viable,” Puri said.

The long development cycle means that there is both a dearth of startups and investors in the sector. “The standards are higher in hardware of this kind as you need to validate the product design, product manufacturing capability, supply chain relations and so on… the larger VCs that we talk to want the companies to hit revenues of Rs 4-5 crore a month as a condition for Series A funding, which is a high standard compared to software firms,” Shoeb said.

With EV sales growing briskly, these firms are hoping to benefit from a first mover advantage, with the time and resources put into the products turning into moats. The overall sales of electric passenger vehicles jumped 91% year-on-year to 90,996 units in FY24, while the retails of electric commercial vehicles rose three-fold in the same time, according to automotive dealers’ body FADA.

“This won’t be a winner-takes-all market, and we’re hoping to be the proverbial shovel makers at the time of the gold rush by catering to everyone,” Sharma said.

AI games can help you improve your cybersecurity.

Securing the Future

The AI agents are not only available to the “good guys” like cybersecurity researchers.

Stavrou said that hackers’ work opens up more attack possibilities than defense because they only need to succeed once. “We are opening Pandora’s Box, but we’re attempting to understand the effects AI has on cybersecurity.”

The goal of MATrEx will be to assess scientifically the capabilities of red agents – what new strategy they will develop – and teach the blue agents how to outwit their attackers. MATrEx is designed to be run by companies internally, ensuring that their data and developed strategies are kept safe. It’s the only training environment that tests on both traditional network-connected servers and 5G.

Stavrou said that there has never been a system of this type connected to a cybersecurity testing platform with such a high level of simulation. “5G networks, which are relatively new and usually located within large companies, are often enclosed. This will allow us the opportunity to see what happens when AI agents attack and defend that type of connectivity and network.

First freight train on new route via Middle Corridor launched

The first freight train from China to Türkiye has been launched on a new route through the Middle Corridor, News.Az reports citing Azerbaijan Railways CJSC (ADY).

A train of 110 containers with household appliances and essential goods set off from Nanjing, the capital of the Chinese province of Jiangsu, to Istanbul along the Central Asia-Caspian Sea-Azerbaijan-Georgia route.

Multimodal cargo transportation from China to Europe is carried out along several routes passing through Central Asia, the Caspian Sea, Azerbaijan, Georgia and the Black Sea.

News.Az

Virginia Won’t enforce new California Emissions Rules

California’s ACC II law will require 35% of all new cars for model year 2026 to be electric. (Joint Office of Energy and Transportation).

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Virginia will be removing California’s electric car mandates next year and no longer be legally bound to follow “unworkable” and “out of touch with reality”, emissions regulations.

Next year, the state will not enforce California Advanced Clean Cars I auto emission standards as mandated by former Governor. Ralph Northam because the standards will expire in December and be replaced by stricter ones which Virginia officials won’t adopt.

Current Gov. Glenn Youngkin announced on June 5 that the state would be freed from California’s “out of touch” emissions laws.

Youngkin said, “Once more, Virginia declares independence — this time against a misguided mandate for electric vehicles imposed by unelected officials nearly 3,000 miles from the commonwealth.” “The idea that the government should tell people which car they can and cannot buy is fundamentally incorrect.” Virginians should be able to choose the vehicles that best suit their needs.

Virginia declares independence once again – this time against a misguided mandate for electric vehicles imposed by unelected officials nearly 3,000 miles from the Commonwealth. — Governor Glenn Youngkin (@GovernorVA) June 5, 2024

California’s stricter laws will require 35% of all new cars purchased for model year 2026 to be electric. By 2035, all new light duty vehicles must be 100% EVs.

Travis Voyles – Virginia’s secretary for natural and historical resources – explained in a memo to state officials on June 5 that Virginia will default to federal standards under the Clean Air Act after ACC I expires by the end of 2024. As of January, ACC II will no longer be enforced in Virginia and automakers can sell new vehicles according to current federal regulations.

Virginia Attorney General Jason Miyares sent a nine-page letter to Youngkin, and state senator Ryan McDougle to emphasize this development. The letter stated that state residents would no longer be legally required to follow California’s emission standards once the new calendar year begins.

Miyares said that California’s EV mandates were unworkable and out-of-touch with reality. Thankfully, the law doesn’t bind us to those regulations. “California doesn’t control what cars Virginians purchase, and any thought that automobile manufacturers should be penalized millions of dollars for not allowing Virginians to choose their vehicles is absurd.”

Virginia ACC opinion

Youngkin’s Office stated that if Virginia legislators decided to follow California’s upcoming emissions requirements, Virginia automakers who sold standard, non-compliant vehicles would have faced fines “upwards $20,000 per vehicle”, Youngkin’s statement. By 2023, only 9 percent of Virginia’s vehicles will be electric vehicles.

Youngkin’s office stated that adopting California’s new regulations “could result in hundreds of millions in penalties.” Virginia auto dealers and consumers could be forced to pay these costs. This would leave auto dealers with less cash to pay staff and offer raises, or grow their business. Many small auto dealers could be forced to permanently close.

McDougle is one of six state legislators who oppose Virginia’s adoption California’s new emissions regulations. “Virginia laws should not be decided by California politicians. Virginians elected to serve Virginia should decide our laws and address issues facing our commonwealth, he said.

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Air Freight Market: Predicting delays, Optimizing routes and AI’s role in air freight efficiency

Exclusive Report by InsightAce Analytic: Air Freight Market to Reach USD 483,28 Billion by 2031

InsightAce Analytics Pvt. Ltd. announces a new market assessment report entitled “Global Air Freight Market Share, Trends Analysis Report by Service (Freight, Express, Mail, and Other Services), End-Use, (Private and commercial), and Destination (Domestic and International) – Market Outlook and Industry Analysis 2031”.

The global air freight market is expected to reach USD 483,28 billion by 2031. This represents a CAGR (Compound Annual Growth Rate) of 6.17% over the forecast period.

Get a free sample copy of the report: https://www.insightaceanalytic.com/request-sample/1632

AI revolutionizes air freight management

Air freight solutions are essential to the global logistics industry. They ensure a safe and efficient movement of goods. Air freight solutions are in high demand as global trade expands, and manufacturing becomes more diverse geographically. Here’s how AI has transformed air freight management.

* Improved visibility and tracking: AI-powered solutions allow businesses to track shipments in real-time, allowing them to monitor their location, status and possible delays. This increases transparency and reduces uncertainties for both shippers as well as customers.

* Optimized Routing & Scheduling : AI algorithms can analyze vast quantities of data to identify most efficient routes and schedules, taking into account factors such as weather, traffic patterns, fuel consumption, etc. This results in faster deliveries and lower transportation costs.

* Predictive maintenance and safety: AI can analyze sensor information from aircraft to predict potential equipment failures. This allows proactive maintenance, minimising downtime and ensuring safe and reliable air freight networks.

Factors driving growth in AI-powered air freight solutions:

* Growing demand for efficiency: Businesses need to provide faster and more streamlined solutions in order to meet customer expectations, and remain competitive. AI optimizes processes and delivers faster air freight services.

* Increased Air Cargo volume: The global market for air cargo is experiencing significant growth due to factors such as e-commerce, globalization and other factors. AI is essential for managing this increasing volume efficiently.

* Air freight solutions should prioritize cargo security and safety. AI can be used for data analysis and identifying potential risks. This helps to prevent incidents and ensure shipments are intact.

Air freight management becomes more efficient, secure and cost-effective by leveraging AI. As AI technology evolves, we can expect more innovative solutions to transform the air cargo industry.

List of prominent players in the air freight market:

Bollore Logistics

* DB SCHENKER (Deutsche Bahn Group (DB GROUP))

* Deutsche Post AG (DHL GROUP)

* DSV Panalpina

* Expeditors International of Washington, Inc.

FedEx

* Hellmann Worldwide Logistics

* Kuehne+Nagel International AG

Nippon Express

* United Parcel Service, Inc.

Market Dynamics

Drivers-

The growth of e-commerce is the primary factor driving the expansion of the Air Freight business globally. The growth in e-commerce sales, due to the increase of online buyers and sellers, is one of the main drivers of the global Air Freight market.

Air Freight is a growing market due to the growth of ecommerce. Online vendors need this service to deliver their products to clients on time. Even though ecommerce was growing before the COVID-19 epidemic, the epidemic increased consumers’ dependence on online sales and door-to-door deliveries.

Challenges:

The expected increase in jet fuel costs is a significant obstacle to the expansion of the global Air Freight Market. Businesses operating in the global Air Freight Market are sensitive to the rising fuel costs, which are one of the major operating costs for vendors.

The price drop was attributed to the oversupply due to increased production from nations such as Russia and Canada, as well as the lifting sanctions against Iran. The US also produced more oil due to the adoption of the fracking technology. On the other hand, this surplus is expected to slow down in the near future. It is also predicted that crude oil prices will rise during the period of projection.

Regional Trends

North American air cargo is expected to grow rapidly and soon account for a large portion of global revenue. This is made possible by the wide use of Air Freight products and services in regional users. The future growth of the North American Air Freight System market will be influenced by the high level of technological adoption as well as the presence of major solution providers. In the US and Canada – two North American countries – air freight management software is widely used.

A substantial portion of the market was occupied by the European region. This is due to the local logistics industry being able to handle an increase in cargo. The industry is also expected to grow due to the increasing investments made by the major market participants in developing better Air Freight Software. This expansion can be attributed to a number of important players in the region.

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Recent Developments:

* Turkish Cargo announced that in 2022 it will invest in technology and infrastructure to offer privileged shipping solutions that are flexible and cost-effective.

* In 2022 Cathay Pacific Airways Limited will introduce specific booking tiers to its clients as part of the priority options it offers. Shipping priority will provide customers with more options, including faster shipping, increased capacity and shipment assurance.

Segmentation of Air Freight Market

By Service

* Freight

* Express

* Mail

Other Services

By Destination

Domestic

* International

By End-Use

* Private

* Commercial

By Region

North America

The US

Canada

Mexico

Europe-

* Germany

The UK

France

* Italy

* Spain

* Rest of Europe

Asia-Pacific-

* China

* Japan

India

South Korea

* South East Asia

* Rest of Asia Pacific

Latin America

* Brazil

* Argentina

Rest of Latin America

Middle East & Africa

GCC Countries

* South Africa

Rest of Middle East & Africa

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InsightAce Analytic, a market research firm and consulting company, helps clients make strategic decisions.

Our quantitative and qualitative market intelligence solutions provide the market and competitive intelligence needed to expand your business.

We help our clients gain a competitive edge by identifying untapped market, exploring new and competitive technologies, segmenting possible markets, and repositioning their products.

Our expertise is to provide custom and syndicated market intelligence reports that include an in-depth market analysis and key market insights. We do this in a timely manner and at a cost-effective price.

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WeWork gets Indian Competition Watchdog’s approval to exit unit, Venture Fund to acquire stake

This article was first published by Benzinga India.

India’s competition watchdog has approved Real Trustee Advisory Company’s and Volrado’s Funds’ acquisition of WeWork India. The CCI had allowed WeWork to exit its India unit on February 2.

What happened? According to the Press Information Bureau, the CCI sanctioned the purchase of certain share capital by Real Trustee Advisory Company Private Limited(Real Trustee), Volrado Venture Partners Fund I and II and other independent co-acquirers.

Real Trustee, Volrado Ventures and Embassy Buildcon will initially acquire certain share capital in WeWork India from WeWork’s parent, Embassy Buildcon. Embassy Buildcon will then acquire 100% of Ariel Way Tenant Limited from WeWork International Limited. This will allow Embassy Buildcon to indirectly hold the share capital for WeWork India via OAW.

Real Trustee is trustee of Volrado Ventures. These alternative investment funds. Embassy Buildcon is an Indian limited-liability partnership that is involved in real estate. OAW holds WeWork India shares on behalf of WeWork International.

WeWork India offers flexible workspaces as well as digital real estate solutions for workplaces to companies. WeWork Inc. owned 27.5% of the Indian unit.

Benzinga APIs brings you Market News and Data

Paradigm completes $850m fund to invest in early-stage crypto projects

Paradigm just completed its third crypto fund.
Crypto VCs are recovering from the bear market.

Venture capital firm Paradigm has completed its third fund, raising $850 million to invest in the earliest stages of crypto projects.

Venture capitalists are the lifeblood of crypto, and some of the top crypto VCs, including Paradigm, say their assets increased in 2023 from the previous year, DL News has reported.

The rebound in the fortunes of some VCs mirrors the revival of the broader crypto market, as Paradigm saw its funds’ value surpass $10 billion last year.

The company’s co-founder Matt Huang said in a statement: “It’s more important than ever to accelerate a positive future for crypto, not just as investors but as builders.”

Over the past few years, Paradigm has helped launch a number of open-source projects with the goal of pushing the crypto frontier forward.

“We’re excited to dedicate significant effort to such projects over the coming years,” Huang added.

Still, despite renewed optimism for the industry, many crypto VCs haven’t yet recovered to the heights of the last bull market.

In 2021, Paradigm said it had $13.2 billion in assets under management, and in 2022 it said it employed 73 staff members. Now, it has only 59 employees.

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Business

Key Discussion points

Progressive taxation
Social welfare programs
Job creation and economic empowerment
Access to quality education, healthcare and other services
Strengthening labour rights
Tackling corruption

In the rapidly evolving digital landscape of today, the convergence between AI (Artificial Intelligence), and cybersecurity has undoubtedly transformed the way that organizations operate and provide services.

Local governments, which are the foundation of public administration and service provision, are not excluded from this paradigm change.

Local governments can improve their service delivery and strengthen their cybersecurity defenses by leveraging the potentials of AI, cybersecurity and neoliberalism, while also embracing the principles of progressive thinking and neoliberalism. This will help them to achieve sustainable development and civic wellbeing.

This paper explores how AI and cybersecurity, combined with neoliberalism, and progressive-minded approach, can elevate the centrality of local government in development efforts.

Neoliberalism can provide local governments with a framework to foster innovation and efficiency in the delivery of services. Its emphasis on free markets and privatization, as well as deregulation, is a good fit for this.

Local governments can use AI to optimize resource allocation and improve service quality by embracing market-oriented solution and public-private partnership.

Neoliberal principles also encourage entrepreneurial initiatives, which can lead to economic growth in local communities. This creates a fertile environment for technological advancements as well as societal progress.

In contrast, progressive-minded approaches emphasize the importance social equity, environmental sustainability and inclusive governance for the pursuit of development.

Local governments can ensure that AI initiatives are geared towards marginalized communities and addressing systemic inequalities. They can also promote social justice by incorporating progressive values into the decision-making process.

In addition, progressive cybersecurity strategies aim to protect digital rights, promote transparency in government operations and protect privacy. They align cybersecurity efforts with democratic principles, empowering citizens and civic empowerment.

The fusion of neoliberalism with progressive-minded roles in the implementation of AI can foster a dynamic, synergistic effect that balances economic efficiency and social equity, inclusivity and security, and innovation with transparency.

Local governments that adopt a dual approach can catalyze development outcomes that are sustainable, empower marginalized groups, and cultivate resilient digital infrastructures that support democratic values and civic engagement.

Local governments can navigate the digital age by embracing both neoliberal perspectives and progressive ones. They can also foster innovation and drive inclusive growth for all segments of society.

In recent years, Nigeria faced significant challenges in income inequality. A disproportionate amount wealth was concentrated in the hands a small portion of the population while many Nigerians continued to live in poverty.

Inequality must be addressed to promote social stability, economic development, and sustainable growth in the country.

To reduce inequality in Nigeria, government can implement a variety of policies and initiatives.

1. Progressive taxation: The Government can introduce progressive tax policies which require those with higher earnings to pay a greater percentage of their income in taxes. This can help redistribute resources and wealth more equitably throughout society.

2. Social welfare programs: Investments in social welfare programs, such as cash transfers and healthcare, education and housing, can help lift people from poverty and provide a safety-net for those who are most vulnerable.

3. Job creation and economic empowerment. The government can prioritize initiatives to create decent and well paying jobs, especially for marginalized groups like women, youth, people in rural areas, and others. This can reduce income inequality and promote empowerment.

4. Access to quality healthcare and education: Providing equal opportunities to all Nigerians, regardless of their socioeconomic background, can help level playing fields and provide equality.

5. Strengthening Labour Rights: Enforcing labor laws, protecting workers rights, and promoting a fair wage can help reduce income disparities, and improve the wellbeing of the workforce.

6. Tackling corruption is crucial for creating a transparent and accountable system, which benefits all Nigerians and not just a select few.

Michael Lahyani, Founder and CEO of Property Finder, says that profitability creates options.

Entrepreneur Middle East is an international franchise of Entrepreneur Media.

Michael Lahyani, the founder and CEO of Property Finder, advised entrepreneurs in a 2016 Interview with Entrepreneur Middle East not to “build a business just to sell it.” Although a lot has happened since then for the UAE-based proptech business as well as the MENA startup eco-system at large, this statement seems to still epitomize Lahyani’s belief in his company.

Lahyani raised US$90m in debt financing for Property Finder in May 2024 with the aim of buying back shares from UAE-based BECO Captial who was the first institution investor in the company. Lahyani stated in a press release that “our commitment to the real-estate market remains firm as we strive to continue driving strong returns for our eco-system.” “I hope that this event will set the precedent for other entrepreneurs in the region, allowing them to take their innovative businesses to new heights and attract global talent. This, in turn, will fuel the entrepreneurial ecosystem in the MENA.”

Property Finder was born in 2005, as a UAE property print magazine named Al Bab World. By 2007, Rupert Murdoch’s online real estate advertising group REA Group bought 51% of AlBabWorld.com and rebranded it as Property Finder. Three years later, despite all the negative effects of the financial crisis in 2008-2009, Lahyani, along with his co-founder Renan Boudeau, bought back REA Group’s stake in the business. Since then, Property Finder’s growth trajectory has been on an upswing. Property Finder now serves more than 5.5 millions active users every month in the UAE, Qatar and Bahrain, Egypt, Saudi Arabia and Turkey.

It has also received consistent support from venture capitalists through multiple funding rounds. This includes $2 million in 2012 from BECO Capital, $20 million in 2016 from Stockholm Exchange-listed investment company Vostok, and $120 millions in 2018 from US private equity firm General Atlantic. BECO Capital, as the first institutional investor, played a key role in the development and success of Property Finder. But backing it at its early stage brought a strong return to the venture capital firm. BECO Capital was able to achieve a 2,41x ratio of paid-in capital to distribution from its Fund I due to its $1 billion valuation exit.

BECO Capital founder Dany Farha. Source: BECO capital

Lahyani and BECO capital and its CEO Dany Farha have been in a productive partnership for more than 12 year now. The synergy that they have developed can teach other entrepreneurs a lot about what makes a good founder-investor relationship. Farha said that Lahyani was a trustworthy partner because he was competitive and ethical. He always wanted a good deal, but never at the expense of the other party. Michael had a lot of leverage when we first started buying a company. Michael still acted with fairness and balance, taking a win-win strategy, leaving money on table and creating a fair outcome. Michael has done the right thing and not the most profitable thing on many occasions in our journey. This is very important to BECO. Integrity is a core BECO value, specifically doing the right thing and not only the most profitable.

Farha says that Lahyani displayed the same principles to the very end of the journey their enterprises took together. Farha says that they found themselves – for the first time in their relationship- on the opposite side of the table. But we both continued to live our values and achieve a win-win result. “The other thing that I’d say about Michael is that he, like all exceptional leadership, has an incredible clarity of vision and a robust, dynamic decision-making frame work. I would even say that we were mentors to each other on several occasions. I find the best relationships are not just those that are professional, but also those where both parties grow and improve as a result. Michael was a loyal and supportive friend. My best founder relationships are those that are reciprocal.

Lahyani believes that trust and alignment of value are the two most important foundations for a successful relationship between a businessman and an investor. But, he says, these are not built during a single meeting in a conference room. “There’s no substitute for spending quality time working together,” he says.” Time is a precious commodity, especially for an early stage investor who, by nature, will have several companies and an early stage founder with a seemingly endless list of tasks. Travel was the way Dany spent quality time with me. We attended conferences, held board meetings abroad and visited companies that run similar businesses in other markets. We visited Summo in Japan, the largest property portal there. It was a memorable trip. We always took the same flight and sat next to each other. We also booked the same hotel. Over 11 years, these small details made a huge difference. We built a unique relationship through these trips that was strong enough to survive any challenges the business would throw at us. We didn’t realize it until much later. We did it because we liked eachother. As a result, I would tell early-stage founders to avoid taking money from investors with whom they don’t get along. It won’t lead to anything positive, because you will run into challenges and if there isn’t a solid, good relationship, things can get ugly fast. Once you reach scale it’s a completely different dynamic. Your relationships with investors can become more formal. Mine are not, but in the beginning, those tight bonds were crucial to success.”

Lahyani received debt financing to complete Property Finder’s buyback from Francisco Partners, a global firm with offices in San Francisco, New York and London. General Atlantic, Property Finder’s last institutional investor, also supported the strategic decision. Lahyani says the whole process taught him that there were other ways to create liquidity, than raising a second round of investment, for an early investor. “To have options you need two elements,” he says. “First, you must run a successful business. Allocating funds to a share purchase when your business needs to invest to grow is not a smart business decision. Second, a good relationship with the investor will help you reach an agreement on the price.

Dany Farha, Michael Lahyani. Image courtesy of Property Finder.

Lahyani also learned that raising debt is “trickier than raising equity”. “The term sheet represents the tip of the spear, and the real negotiation happens when you draft the contracts. In contrast, equity rounds are pretty standard once you have agreed on the terms.” “It has also become evident that traditional lenders do not feel comfortable funding buyback transactions. They look for hard assets to use as collateral. Private credit funds understand this and know that a buyback is accretive and gives existing shareholders the opportunity to own more shares of their company while allowing the lender to earn healthy returns. Running a tight ship and bringing your company to profitability creates flexibility. It’s because we consistently produce free cash flows that are able to borrow debt. It is important to have the right advisors at every stage of the process. I wouldn’t recommend going it alone.”

According to a new report by Managing Partners Group, institutional investors are increasingly focusing on yield rather than growth. This is due to the changing macro-economic and geopolitical environment. In the MENA, Farha is more optimistic about the future of local markets. He is one of a few investors who have made their second $1 billion valuation. BECO Capital I’s exit history also includes Uber’s high-profile acquisition Careem for $3.1 billion in Jan 2020. Farha says that in just 10 years we have made tremendous progress. “We had $50m invested annually, few investors, few founders, little government support for the digital and innovation sectors, and virtually no digital infrastructure. We also had no exits. We now have $3 billion invested annually. Hundreds of regional and international VCs, professional investors, and homegrown VCs are actively investing in the area. Plot the graph and see where it is heading. “With our young, affluent population and forward-thinking leaders, the genie has been let out of the bottle and it is not going to be put back in.”

Lahyani says that despite the current challenges in the global startup funding landscape (Crunchbase reports the overall startup funding was down by less that 20% compared to years before the COVID-19 Pandemic i.e. The UAE/MENA region is one of the few markets where capital continues to be invested in early-stage businesses. Lahyani says that, relative to other emerging markets, the UAE/MENA region is better. “Many investors were burned post-pandemic because they backed companies that had grand ambitions but little profit in sight. My advice is to not promise something you can’t deliver. You can lose the trust of an investor at deck level if you make unrealistic assumptions about revenue growth. You want to appear as if you are thoughtful, credible, and logical. Stick to business models that have proven results, good unit economics and healthy margins. Lahyani advises to not raise funds unless absolutely necessary, as “this is the time to focus your operations, improve margins, and fine tune your products and/or services.” Lahyani advises those who need to raise money now to seek out founder-friendly investors. “They must be investors who are willing to stay invested for an extended period of time, like BECO Capital,” he says.