Profitability Creates Optionality: Property Finder Founder And CEO Michael Lahyani With the journey their enterprises were on together coming to an end, Lahyani reflects on the successful founder-investor relationship he had with BECO Capital founder and CEO Dany Farha.
By Tamara Pupic
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It's been almost eight years since Property Finder founder and CEO Michael Lahyani advised entrepreneurs during a 2016 Entrepreneur Middle East interview to "not to build a business to sell it," and although a lot has changed for the UAE-headquar- tered proptech business and the MENA startup ecosystem at large since then, this statement still seems to epitomize his belief in his own company.
Proof of this can be seen in Lahyani raising US$90 million in debt financing in May 2024, with an aim to buy back Property Finder shares from UAE-based BECO Capital, who was the first institutional investor in the company. "Our commitment to the real estate market stands firm, as we aim to continue to drive strong returns for our ecosystem," Lahyani said, in a statement. "It is my hope that this event sets the precedent for other founders in the region to take their innovative companies to new heights, attracting global talent, and, in turn, creating the returns that fuel the entrepreneurial ecosystem across the MENA."
Property Finder began quietly in 2005 as a UAE-based property print magazine called Al Bab World, but by 2007, 51% of its online portal -AlBabWorld.com- was bought by the Rupert Murdoch- backed online real estate advertising network REA Group, and it was rebranded as Property Finder. Three years later, despite the far-reaching consequences of the 2008-2009 financial recession at the time, Lahyani and his co-founder Renan Bourdeau bought back REA Group's stake in the company. Since then, the growth trajectory of Property Finder has been on an upward curve, with Property Finder today serving more than 5.5 million active users each month across the UAE, Qatar, Bahrain, Egypt, Saudi Arabia, and Turkey.
Meanwhile, it has also been consistently supported by venture capitalists (VC) through several funding rounds- this includes $2 million from BECO Capital in 2012, $20 million from Stockholm Exchange-listed investment firm Vostok New Ventures in 2016, and $120 million from US private equity firm General Atlantic in 2018. As the first institutional investor in Property Finder, BECO Capital played an instrumental role in its development and success, but backing it in its early stage also brought the venture capital firm a strong return on its investment. Indeed, BECO Capital has been able to achieve a 2.41x distribution to paid-in capital ratio from its Fund I, off the back of its more than $1 billion valuation exit from Property Finder.
Related: Breaking Ground: Propertyfinder Group Founder And CEO Michael Lahyani
BECO Capital founder and CEO Dany Farha. Source: BECO Capital
Lahyani has thus been in a productive relationship with BECO Capital and its founder and CEO Dany Farha for more than 12 years now, and the synergy they have developed with each other can offer other entrepreneurs many lessons on what makes for a functional founder-investor relationship. Talking about the trust he enjoyed with Lahyani, Farha says, "Michael, of course, is competitive, and rightly so, but ethical; he always wants a great deal, but not to the detriment of the other party. In the very early days, we were buying a company in the region, and Michael had tremendous leverage. Despite this leverage, he still exercised fairness and balance and took a win-win approach, leaving money on the table, and creating an outcome that was fair. I've seen Michael do the right thing, and not just the most profitable thing many times in our journey, which is very important to us at BECO. Integrity is a core value at our firm, and specifically, doing the right thing, and not just the most profitable thing."
Lahyani exhibited the same principles until the very end of their enterprises' journey together, Farha adds. "We found ourselves -for the first time in our relationship- on opposite sides of the table, but we both continued to live by our values and find a win-win outcome," Farha reveals. "The other thing I would say about Michael is that, like all exceptional leaders, he has incredible clarity of vision, and a robust and dynamic decision-making framework, so much so that I would say that we were each other's mentors on many occasions. I find that the best relationships, not just professional ones, are the ones where both people in question grow, and keep getting better as a result of the relationship. Michael was always a support and a loyal friend, and my best founder relationships are the ones that are reciprocal in nature."
From Lahyani's perspective, the two most important foundations of a successful relationship between an investor and an entrepreneur are trust and alignment of values- but these, he notes, are not built in one meeting in a boardroom. "There is simply no substitute to spending quality working time together," he says." However, time is scarce, particularly for an early-stage investor who -by nature- will have multiple companies, and an early-stage founder whose to-do list is somewhat endless. So, the way Dany and I spent quality time together was through travel. We attended conferences together, set up board meetings abroad, and visited companies running similar businesses in different markets. We had a particularly memorable trip to Japan to visit Summo, the leading property portal there. We made sure to always take the same flight, sit next to each other, and book the same hotel. These are small details, which, over a period of 11 years, made a big difference. Through those trips, we built a one-of-a-kind relationship that ended up being strong enough to withstand any challenges the business could throw at us. Of course, we didn't realize this until much later- we did it naturally, because we liked each other. So, as my takeaway, I'd say to early-stage founders: don't take money from an investor with whom you don't get on. It's not going to lead to anything good, because you'll run into challenges, and if a solid, positive relationship isn't there, it'll get ugly, and fast. Once you reach scale, it's a different dynamic, and relationships with your investors can be more formal -not that mine are- but in the early days, those tight bonds are crucial to success."
To complete Property Finder's buyback, Lahyani got debt financing from Francisco Partners, a global investment firm with a presence in San Francisco, New York, and London; plus, the strategic decision to execute the debt financing and complete the buyback was supported by Property Finder's remaining institutional investor General Atlantic. The whole process, Lahyani says, taught him that there are various ways to create liquidity for an early investor- other than raising a new round of investment. "To have options, you require two elements," he explains. "Firstly, you need to run a profitable business, because allocating funds for a share buyback, while your business still requires investments to grow, isn't a wise business decision. Secondly, having a strong relationship with the investor is crucial when you're sitting at opposite ends of the table to agree on a price."
Dany Farha and Michael Lahyani. Image courtesy Property Finder.
Another new insight for Lahyani was that raising debt can be "trickier" than raising equity. "The term sheet is the tip of the iceberg, and the real negotiations truly happen when drafting the contracts; conversely, in equity rounds, once you've aligned on the terms, the rest is pretty standard," he explains. "It's also become apparent that traditional lenders are not comfortable providing funding for buyback transactions; they look for hard assets as a collateral. But private credit funds get it, and understand that a buyback transaction is accretive, and an opportunity for the existing shareholders to own more of their company, and for the lender to make healthy returns. A key lesson has been that running a tight ship, and bringing your business to profitability, creates optionality- it's because we consistently generate free cash flows that we are able to raise debt. And having the right advisors throughout the process is imperative. I wouldn't recommend doing it solo."
Globally, institutional investors have increasingly started turning their focus to yield as opposed to growth, which is in response to the changing geo-political and macroeconomic environment, as per a new research from Managing Partners Group (MPG). However, when it comes to the MENA region, Farha's outlook on the future of the local markets is distinctively positive- he is now one of only a handful of investors who have achieved their second $1 billion valuation exit- BECO Capital Fund I's history of exits also includes the high-profile acquisition of Careem by Uber for $3.1 billion in January 2020. "In just over 10 years, we have advanced phenomenally," Farha says. "We had $50 million invested annually, very few investors, equally few founders, no government prioritization of the digital and innovation sector, and almost no digital infrastructure, and no exits to reference. Today, we have $3 billion being invested annually, hundreds of regional and global VCs and professional investors now actively investing in the region, including many homegrown VCs that are running world-class firms, and leading the charge in developing the ecosystem, many major government initiatives and investments into the ecosystem, and so on. Plot the graph to see where this is going. With our young, affluent populations and forward-thinking leadership, the genie is out of the bottle, and there is no putting it back in."
Lahyani adds that, although the global startup funding landscape is currently challenging (Crunchbase reports that the overall startup funding in 2023 was down by less than 20% when compared to the years before the onset of the COVID-19 pandemic, i.e. 2018 to 2020), the UAE/MENA region remains one of the rare markets where capital is still being deployed in early-stage companies. "So, in relative terms, it's better than most other emerging markets," Lahyani says. "Many investors have been burnt post-pandemic, as they backed companies with grand ambitions, but very little profitability in sight. So, my advice would be not to promise a plan you can't deliver. You can lose an investor's trust at deck level by projecting unrealistic assumptions and revenue growth. You want to come across as sound, thoughtful, and credible. Also, stick to proven business models with strong unit economics, healthy margins, and predictable outcomes." Plus, Lahyani also advises not raising funds unless it is necessary as "this is a time to focus on your operations, improve your margins, and fine-tune your products and/or service." But for those who have to raise funds at the moment, Lahyani urges seeking out founder-friendly investors. "They have to be those who can stay invested for a long period of time -like BECO Capital- because success usually takes longer than the original plan," he says.
