If foresight can be inherited, investors in Beco Capital could be in for a profitable run.
Dany Farha, the chief executive of the venture capital business in Dubai, explains that in 1968 his German mother foretold the civil war in Lebanon and moved to the UAE with her Beirut-born husband “before it was a country” to seek a new life in a haven from the coming conflict.
That was the start of Mr Farha’s connection with the UAE, where he and his partners have helped to launch a string of businesses. Beco is the latest vehicle for an investment philosophy that relies as much on intuition and “gut feel” as it does on modern analytics.
Mr Farha, 44, has been involved in some of the UAE’s most notable start-ups, culminating in bayt.com, perhaps the Middle East’s best known job search website.
He is currently invested in other high-profile businesses including the internet taxi firm Careem and real estate website Propertyfinder, and is carefully thinking about the next move, which could be a quantum leap for Beco. “We’re raising a new chunk of capital and thinking through all our capital-raising options. It’s at a very exciting stage,” says Mr Farha.
Raised in the UAE but educated in Britain, his first job was in the fixed-income department at Lehman Brothers in London between 1992 and 1995. “I was being paid to learn, and for a while it was a great place to be,” he says.
But in 1995 things changed. A boom in global equity trading left fixed-income trailing, and Mr Farha began to see things differently. “The learning curve flattened out and I got bored,” he explains.
He looked around the UAE for opportunities and hit upon the industrial catering business, then dominated by one big player who had most of the public sector and big corporate contracts sewn up. “It was a monopoly that needed busting,” he says.
The technique was to be repeated throughout subsequent ventures: identify a near-monopoly in a labour-intensive sector, inject technology into it, and see margins rise as costs fall and productivity soars. Intercat now has a leading market share in catering.
The same principle was applied to commercial laundry, and Butlers was born. Now the bed sheets at many Dubai hotels will have been laundered by Butlers.
“The two main costs of any business – labour and energy – were both increasing, so it was obvious. I saw the same thing all over the UAE. If you have a problem once, it’s just a problem; if you experience it 10 times, it’s an opportunity,” he says.
The next venture grew out of Mr Farha’s own problem in finding the right people to employ. “Again, it was solved by technology. This was in 2000 or so and the dot.com boom was at its height, before it crashed later. We applied internet technology to the jobs market and came up with bayt.com, which grew into the biggest online jobs site in the Middle East.”
That taught him another lesson in the school of entrepreneurship. “Technology can transform a business, and if it doesn’t, we won’t touch the idea. If it only produces incremental, rather than transformational change, it isn’t worth it,” he says.
In 2011 and 2012, Mr Farha went through something of a sea change in his life and business outlook. Six months of consultation with a life coach led him to focus on what he enjoyed – “learning and variety” – and to change his role from being an active manager of businesses to being an investor in them. The result was Beco.
The acronym is taken from an American space industry phrase “booster engine cut off” and refers to that stage of a space flight where the craft moves out of the Earth’s gravity and into weightless orbit. “It’s the company’s mission to get start-ups to that stage where they can fly on their own,” he says.
In an environment where it has been tough for start-ups to get funding from traditional sources, Beco cultivates start-ups via three stages of finance: seed capital, which can be up to US$500,000; then to stages A and B, which require progressive investments from $1 million up to $5m.
He has to be selective. “We are very disciplined. We had 400 applications in 2014 and made only one new investment, with four follow-ons. This year I expect 500 applications, but we’ll probably make only three new investments,” says Mr Farha.
The crucial factor is the “technology transformation”, but also the people involved. “We spend a lot of time getting to know potential investments, and in the end the human factor is the most important,” he says. “There has to be an ethical basis to the relationship, and also the right chemistry. Call it a ‘gut feel’ if you like, but really it’s a product of very rapid memory recall of previous situations and a judgment call. Intuition, if you like.”
Apart from Careem and Propertyfinder, Beco’s current portfolio also includes Roundmenu, a restaurant finding service, the car sales website Sellanycar, and Bayzat, an internet service that allows price comparisons between medical insurance polices.
Beco has largely invested its first round of cash-raising, which pulled in $50m, and is looking to raise a fresh slug of capital from its investors, mostly UAE entities which Mr Farha declines to name.
He believes the time is right for technology-inspired venture capitalists. “The low oil price will be good for us because people will be looking elsewhere apart from the big infrastructure projects. Look at Uber, a product of the post-crisis recession. That would never have happened at all if we were all bloated and rich,” he says.
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