Getting hands on

Abdallah and Ghaith Yafi of Y Venture Partners explain their new fund

Abdallah and Ghaith Yafi (Greg Demarque | Executive)

Just as Lebanon’s startup ecosystem is growing, so is the diversity of its funding sources. Abdallah and Ghaith Yafi are the brother duo behind Y Venture Partners (YVP), a new, early stage investment and advisory firm. Prior to starting this venture, they founded Lebanese ecommerce site ScoopCity as well as Canadian ecommerce site TheVolts. Executive sat down to discuss their latest — and likely most ambitious — project.

 

Under Y Venture Partners, you launched a microfund at the beginning of the year. What triggered this?

AY: It came as a very natural extension of what we do. Ghaith and I have been in entrepreneurship, in startups for the past five years. That is, we already started a couple of ventures and scaled them … both quite nicely. One of them in Canada and one of them in Lebanon, both of them ecommerce businesses. The one in Canada we partially exited. So that’s why today we’re able to focus a bit more on the investment side of our work … Given our experience and given everything we’ve done in the entrepreneurship space over the past five years, we started getting involved in different initiatives around entrepreneurship in that space in Lebanon. And entrepreneurs were naturally coming to us for support and advice. For the longest time, we were giving coaching [and] mentorship for free. And with some of these companies that we liked, we invested a little money as angels.

It started off as something we did on the side [and then] naturally evolved into something we’re doing much more formally and much more fully today. So YVP came together at the beginning of [2014] and it’s a micro-VC, or a small seed fund, that typically invests in early stage startups. We do small tickets. We’ve done anything from $15,000 to $100,000.

 

For what equity ranges?

AY: We’ve done 15 to 25 percent.

GY: We invest cash, but we also invest our time. So it’s an in kind contribution. Basically, we get shares in return for both investment in cash and investment in kind contribution.

 

What is the total amount of the fund?

GY: Our stakes in the startups we built ourselves are in the process of being rolled into the fund. So if we consider everything we did building and investing in the past five years, the cash amount is probably around $2 million. Whatever we own today in other startups is rolling into YVP Holding. If we own a certain percentage of ScoopCity, [it] will be transferred into Y Ventures. So basically we’re transferring our direct investments into Y Ventures. And these would become portfolio companies.

We didn’t completely exit in Canada; we partially exited the business in Canada because we merged our business with the competition. We still have equity in the new business, but we’re not involved anymore in the management. So we exited management; we partially exited ownership.

 

How much more money will you be investing?

AY: We’re looking to invest around half a million dollars into three or four new companies before the end of 2014.

 

Are you going to keep adding money to this fund, keep raising?

AY: Since it’s a nontypical structure, we can just raise money and [add] capital per opportunity, as opportunities come … but the idea today is to go out and raise the proper fund with a proper [partnership] structure to provide not only for our ventures, investing with follow-on rounds, but to also increase the size of the portfolio going forwards. That’s our intention.

 

OK, so you’re planning on raising a second fund?

AY: Yes. We’re planning on raising another fund, and it’s probably [going to be] between $5 and $10 million. The average ticket size would be a bit larger. So today we’re talking like $50,000–$100,000 and in the future we would be doing $500,000 on average per venture, maybe more. Sometimes up to a million per venture.

 

For both the fund that you currently have and the upcoming one, you’ll be looking at specific businesses and specific industries?

AY: Absolutely. Our experience is ecommerce, so we have our share of experience having built and scaled a couple of ecommerce companies. This is where our expertise lies, but … [in terms of investment criteria] we want to invest in businesses we understand. Because as I said earlier, we not only provide money — we want to be very hands on. We want to support our entrepreneurs closely, so we invest in businesses we understand. And that’s tech businesses. We do ecommerce, mobile, digital; we’re looking at a gaming company right now. Everything that has to do with technology is our bread and butter. So yes, it’s very tech focused.

 

How do you compare your advisory services to what is offered by a typical VC? VCs obviously have some role in companies, but how active would you say you are compared to a typical VC?

GY: We definitely have a more hands-on approach than a normal VC. Even when we raise our bigger fund, we will continue to have that approach because we feel that, as I said, we invest in businesses that we feel we can help, we invest in businesses that we have experience in. We like to be close to the entrepreneurs because we’ve been through the entrepreneurship cycle, we understand what it takes to build businesses, to manage people, to run operations and all of that. We see ourselves as people providing them with smart capital and also access to [personal] networks. In terms of involvement, we won’t be part of management, that’s for sure, but what we do usually — and in some cases we’ve done in the past and we will continue to do — is create executive committees in the companies we invest in … where we will meet with the entrepreneurs once a month, at least, to help steer the business.

 

So kind of like a board of advisers?

GY: Yeah, it’s … closer. It’s not a board of directors. Typically a board of directors would meet four times a year, and would do the high level stuff. The executive committee would meet once a month or even sometimes more, and would do the executive level stuff, basically strategy, budget, business plan [and so on]. Because if you invest at that early stage, you want to help the entrepreneurs shape their business model, find the right scalable business model …

AY: Validate the business model.

GY: Yes, validate the business model. We want to optimize the chances of entrepreneurs and companies to actually find that repeatable, scalable business model, which would prepare them for the next stage of investment and become sort of investible. So that’s the typical involvement. We won’t be able to do more than that because we want to invest in at least 10–15 companies.

 

How many of these 10–15 companies have you invested in already, and does that include your previous companies?

GY: Our previous companies [number] a couple, and we have three other investments that we made in 2014 … By the end of November 2014, we will have invested in two or three more.

 

Why launch this fund now? Are you seeing more opportunities in Lebanon, or is this just where you guys find yourselves?

AY: There are two things. First of all, given everything that’s going on — the new supply of money via [Banque du Liban circular] 331, all these new funds that are coming out — whether it’s LEAP, MEVP, Berytech — all of them, decently sized, $35 million and above fund sizes — we feel there’s a gap that we can fill. And this gap is at a slightly earlier stage than all of these funds. It’s very good for the economy; it’s very good for the ecosystem; you want to make sure all of these funds have deal flow. This is where our expertise lies — this is where we’ve been successful in the past. We’ve been successful at taking companies from seed level to a series A type of level. We’ve done it ourselves with our ventures, and we want to be able to do it with the ventures we invested in. When the opportunity came up, and looking at where these funds [were] positioning themselves, we thought there was a great opportunity. We can benefit by placing ourselves here, but the whole ecosystem can benefit if we can … fill that gap and provide the bigger VC players with deal flow.

Livia Murray

Livia covers business, finance and economic policy for Executive.

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