Bringing startups to life

His own New Economy company's future looks reasonably assured, now, Ziad Tassabehji, president of Interactive Technologies, is turning his attention to bringing other people's business plans to life.

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By  David Ingham Published  October 2, 2000

His own New Economy company's future looks reasonably assured, now, Ziad Tassabehji, president of Interactive Technologies, is turning his attention to bringing other people's business plans to life.

Ziad Tassabehji was staying with his brother in the United Kingdom when the bolt of lightning first struck him. He’d studied industrial engineering in the USA so had always been very interested in computers.

But when he started exploring the World Wide Web for the first time from his brother’s PC, he realised that this was where his future lay. “Looking at the Web for the first time, I decided that this was what I wanted to do,” he says.

He returned to the UAE, immediately resigned from his lucrative position as general manager of an insurance company and formed Interactive Technologies. Although he was operating out of a friend’s office in the early days, he had the same big ambitions as any new entrepreneur in charge of his own company.

He wanted to design interactive Web sites complete with e-commerce capabilities and online catalogues. But hard though it is to believe now, few people attached any importance to the Web back in August 1995.

When he set up shop, the Internet had only just become available in the UAE. He reckons that he may even have been one of Emirates Internet’s first customers outside of its own staff.

So to make ends meet as a startup, Interactive Technologies took on what he calls “brochureware Web sites,” static screens of text that companies really just used to post information on their products. He was the company’s only full time employee to start with, with two partners helping him during time out from their full time jobs.

Because the Internet was so new, life in the early days was also very much a case of going out and telling people about the Internet and the World Wide Web. “We had to create the need, because the need was not there,” says Tassabehji.

“We targeted big companies and the money we were asking for was very small.” He says that his background in insurance, a profession he had not particularly enjoyed, came in useful when it came to selling people something that they weren’t totally sure they wanted.

By the end of 1995, the company had picked up enough steam that his partners were able to leave their jobs and join up with him full time. In 1996, Interactive Technologies moved to its own offices.

It was around this time that the company started picking up the sort of high profile customers that Tassabehji wanted. Al Futtaim Group came on board and Interactive Technologies has now built Web sites for several of the group companies.

Another major early account was the Dubai Chamber of Commerce. Interactive has now worked with government departments all over the Emirate. One of its latest projects was the creation of an online revenue collection system for Dubai Municipality.

With its Dubai client base well established and with the Internet really beginning to take off now in the Middle East, Interactive Technologies is entering a serious expansion phase. There are two irons in the fire: landing more business for Interactive Technologies outside of Dubai and the establishment of a business incubator called ‘Interactive.’

To assist it with its expansion, Interactive sought out investors in the UK and has entered into partnership with an incubator there called Armada Partners. The companies will co-operate in two areas: Armada Partners has invested money directly in Interactive Technologies, and will help raise money for Interactive’s investment fund, as well as provide incubation expertise. “They are our vehicle to raise more money, on top of their incubation expertise,” says Tassabehji.

Tassabehji’s experience finding an investor is an interesting story on its own. As well as reaching out to potential investors in Europe and North America, he also approached institutions and high net worth individuals in the region.

Unfortunately, their attitude towards investments was not encouraging. High net worth individuals were “very sarcastic” about Interactive Technologies’ business plans, he says, and institutional investors were polite but didn’t follow up on proposals put to them. “Our experience is that it’s difficult for people in the Arab world to invest in the intangible,” says Tassabehji. “I think they take risks but they’d rather take a risk in real estate.”

Unperturbed, the company found plenty of interested investors in London. Armada was selected as a partner because Tassabehji felt he would get the focus and attention he wanted. A larger, pure venture capitalist may have been pleased to put in money, but may not have given the company the additional services and deal flow that he believes Interactive Technologies will need to help it to expand.

His hopes already appear to be being realised. Armada has fed Interactive Technologies a deal to build a new insurance portal in the UK. Although details are largely still under wraps, Tassabehji says that the portal will be positioned as a one stop shop for all personal insurance needs. He hopes to see it expand into Europe if all goes well in the UK.

Landing such a deal is a big triumph for a regional company. Although Tassabehji admits that Interactive Technologies’ lower offshore development costs were a major factor in bagging the deal, the company also had to meet quality standards. “They were impressed with what we’ve done before,” he says.

To this third party observer at least, the most exciting part of the company’s partnership with Armada could be the Interactive business incubator. Business incubators are a common feature in Silicon Valley and essentially involve startup companies being taken under the wing of a company that can then assist them with funding, marketing, and technology. The incubator basically provides the entrepreneur with the infrastructure and services he needs to get an idea off the ground, in return for a stake in his company.

Until now, however, there have been no true Silicon Valley-style incubators in the Middle East and Interactive really could be the first of its kind if it delivers. Interactive aims to have a total of around $15 million to invest, money that is currently being raised mainly by Armada from UK institutions.

There’ll be up to $3 million of ‘seed money’ to put into companies that are at the business plan stage. Up to $12 million will be placed in a capital growth fund and made available to pump into companies that are established and are looking for their second or third round of funding.

In the first case, Interactive will be looking for a majority stake in the companies it backs. This follows the classic Silicon Valley model of venture cptial investment.

Because Interactive is backing what is really nothing more than a business plan at that stage, it’s taking a fairly large risk with its money. It therefore wants a big stake to justify the chance it’s taking. “We’ll own maybe 80% of their company because we are providing 100% of the capital,” says Tassabehji. “We don’t believe they will have a business without us.”

In the second case, Interactive’s stake will be smaller and the company receiving the investment will likely not be in need of the incubator’s full range of services. “The capital growth fund will take our incubees to the next level,” explains Tassabehji.

When it comes to the type of companies that Interactive is looking to back, Tassabehji echoes the words of many around the Middle East: B2C is not so attractive and B2B is where the action is at. He thinks people will buy online but that the Internet audience isn’t large enough for e-tailers to make enough money. “The Middle East is a very small market so I’m very sceptical about the viability of any B2C project,” Tassabehji says. “Attention is much more on B2B.”

A committee of four people decides on which business plans eventually get Interactive’s support. Three of those people are from Interactive Technologies and one from Armada Partners. “This is a situation where you need as many good opinions as possible,” says Tassabehji.

Around a hundred plans have already landed on Interactive’s table, although a lot of them were remarkably similar B2C ideas. One reason why Interactive is lukewarm is about B2C proposals is the possibility of a big name coming into the market. Tassabehji thinks it will happen. “One day before long, Amazon will sell Arabic books,” he says.

When Interactive’s evaluation committee studies proposals, it’s looking for companies that have the potential to be profitable within two years, occasionally three; vertical focus and a management team with expertise in that vertical market. One idea in the pipeline is a portal for the media industry. “It’s going to regulate the marketplace between buyers and sellers,” Tassabehji says cryptically.

Interactive is even considering proposals from employees of Interactive Technologies. Tassabehji’s thinking is that if people want to move on and do new things, why not benefit from what they’ve learned from you? “I’d like to promote entreprenurial drive within the company,” says Tassabehji. “If one of the people here has an ambition to start his own company, I’d like him to do it with me.”

If Interactive succeeds, it could help bring to life more New Economy companies like Interactive Technologies. Except that this time round, the startups should have an easier time of it than Interactive Technologies had when it started life in a friend’s spare room.

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