Shahiya, an in­vest­ment by Ja­panese com­pany Cook­pad

Tokyo based Cook­pad pays $13.5 mil­lion for Le­banon’s NetSila

Executive Magazine - - Contents -

I In ev­ery cor­po­rate nar­ra­tive, some dates are noted as re­mark­able, while oth­ers less so. For the founders of Shahiya, a dig­i­tal por­tal for Le­banese culi­nary se­crets and cooking in­struc­tions, Jan­uary 28, 2015 is one such mem­o­rable date. It is the day when NetSila, the hold­ing com­pany that owns the five year young Shahiya recipe site, com­pleted the last step of hand­ing over its en­tire eq­uity to Ja­panese ac­quirer Cook­pad for $13.5 mil­lion, as well as the date they had to evac­u­ate the Cook­pad team on only its sec­ond visit to Beirut.

Just as the ink was dry­ing on the pa­pers that would fi­nal­ize the ac­qui­si­tion, a cross bor­der ex­change of fire, in­clud­ing rock­ets, erupted on the coun­try’s south­ern bor­der in what is con­sid­ered the most sig­nif­i­cant mil­i­tary con­fronta­tion be­tween Is­rael and Hezbol­lah since 2006. There is per­haps no bet­ter ex­am­ple of the Le­banese se­cu­rity sit­u­a­tion tak­ing its toll on busi­ness than the anec­dote of hav­ing to evac­u­ate the buyer.

For those of us used to th­ese cycli­cal bursts of vi­o­lent hap­pen­ings, gen­er­ally with­out


es­ca­la­tion, it would be good to re­mem­ber this is not nec­es­sar­ily some­thing that falls within the com­fort zone of your av­er­age buyer — and cer­tainly not your av­er­age Ja­panese one. Tokyo was ranked the safest city glob­ally by the Econ­o­mist In­tel­li­gence Unit’s Safe Cities In­dex 2015, with third largest Ja­panese city Osaka also ranked high at num­ber three.

Per­haps not sur­pris­ing, then, is the ab­sence of sig­nif­i­cant Ja­panese in­vest­ment in Le­banon. Cook­pad, which op­er­ates in the same dig­i­tal space as NetSila but with global am­bi­tions, is a rare ex­am­ple of a Ja­panese com­pany buy­ing an Arab startup. Though the Ja­panese em­bassy in Le­banon could not con­firm whether Shahiya was the first ac­qui­si­tion made by a Ja­panese com­pany, they did as­sert that Ja­panese in­vest­ment in Le­banon was mar­ginal. Ja­pan does not ap­pear on the United Na­tions Con­fer­ence on Trade and Devel­op­ment’s (UNC­TAD) list of for­eign di­rect in­vest­ment into Le­banon by coun­try, which in­cludes 15 states.


But while Beirut and Tokyo are very dif­fer­ent in terms of life­style, se­cu­rity and cul­ture, there is some­thing that brings Le­banese and Ja­panese peo­ple to­gether: food.

Food, that is, and the in­ter­net. In the in­creas­ingly dig­i­tal world, where con­tent pe­rus­ing has shifted to the web and mo­bile plat­forms, the Shahiya team is still con­vinced that some things have re­mained the same, par­tic­u­larly peo­ple’s ap­pre­ci­a­tion of, and fas­ci­na­tion with, food. “The tools are chang­ing, but the re­la­tion­ship, the need, is con­stant,” says Daniel Neuwirth, co­founder of Shahiya. The por­tal, cre­ated in 2010, was fo­cused on food all the way. “We re­ally wanted food, the best in food, only food,” says Hala Labaki, co­founder and CEO of Shahiya. Labaki and Neuwirth are two of the four co­founders of the plat­form, along with Ca­role Makhoul Hani and César Ge­mayel.

Cooking up the con­cept for Shahiya in a pe­riod when dig­i­tal busi­ness in Beirut was very young and new star­tups could still find vir­gin mar­kets, the four founders tell Ex­ec­u­tive that they specif­i­cally moved back to Le­banon to start the ven­ture. Living abroad at the time,

they saw promis­ing signs that in­ter­net pen­e­tra­tion in Le­banon, which had been lag­ging be­hind, would in­crease. “We sensed very pos­i­tive growth sig­nals in this in­dus­try in par­tic­u­lar. And we thought, ok, let’s do some­thing,” says Labaki.

Five years on, the num­bers proved them right in so many ways. Us­age of the new site roared along with roughly 100 per­cent an­nual ex­pan­sion in user num­bers and peak con­sump­tion dur­ing Ra­madan, the Shahiya team says, cit­ing a “smooth” pro­gres­sion to 3 mil­lion unique vis­i­tors per month at the time of ac­qui­si­tion. In terms of turn­ing a profit from their ad­ver­tis­ing based busi­ness model, the team would not say more than claim­ing they are “al­most there.”

But present op­er­a­tional prof­its should mo­men­tar­ily be a re­ward of very mi­nor con­cern for the founders and NetSila’s two lo­cal fi­nan­cial in­vestors, Mid­dle East Ven­ture Part­ners (MEVP) and the Build­ing Block Eq­uity Fund. By far the most dra­matic growth ra­tio in the ven­ture’s short his­tory is its in­crease in val­u­a­tion when you com­pare the $13.5 mil­lion sale price cited by MEVP to the val­u­a­tion in 2012 when MEVP and the Build­ing Block Eq­uity Fund in­jected $500,000 ($250,000 each) into the com­pany.

Ac­cord­ing to Walid Hanna, man­ag­ing part­ner at MEVP, the two fi­nan­cial in­vestors each took an 11.1 per­cent stake at the time, im­ply­ing a val­u­a­tion of $ 2.25 mil­lion. This trans­lates into, for Le­banese stan­dards, an al­most in­cred­i­ble val­u­a­tion leap of 500 per­cent in un­der three years. It also means that the two funds each walk away with close to $ 1.5 mil­lion and the co­founders with over $ 10 mil­lion shared be­tween them. Labaki, how­ever, would not go into those de­tails and says the quar­tet did not wish to dis­close the shareholding struc­ture at the time of the exit.

For Shahiya, hav­ing no prior ties to Cook­pad, it was a bit of a sur­prise when their ea­ger Ja­panese col­leagues con­tacted them via LinkedIn. Labaki ac­knowl­edges that while they hadn’t an­tic­i­pated an exit so soon, when build­ing a com­pany that re­sem­bles com­pa­nies in other more ma­ture coun­tries, the idea of an exit was not en­tirely far fetched. “You al­ways think about what is the global player that can ac­quire you, be­cause this is a big part of the game. You’re not ob­sessed about it, but you’re aware,” she says.

For Cook­pad, the com­pany had been wait­ing to sink its teeth into an Ara­bic lan­guage food por­tal. Af­ter in­vest­ing in In­done­sian recipe ser­vice Da­purMasak in 2014 and ac­quir­ing Amer­i­can recipe apps provider Allthe­cooks and Span­ish recipe provider Mis Re­c­etas in 2014, the Shahiya ac­qui­si­tion was Cook­pad’s fourth in­stall­ment in their cho­sen quest of vir­tu­ally con­quer­ing the food world.

While food ap­pre­ci­a­tion re­mains a hu­man sta­ple, one thing the dig­i­tal age has brought on is the ap­petite for user-based com­pa­nies to ex­pand glob­ally. To­moya Ya­suda, head of in­ter­na­tional busi­ness devel­op­ment at Cook­pad, had been busy scour­ing mar­kets for po­ten­tial buys, and set­tled on Shahiya be­cause he claims they were the “largest in the re­gion” in the domain of food. When


Ex­ec­u­tive jok­ingly asked Ya­suda if Cook­pad was seek­ing world dom­i­na­tion, his an­swer was short and to the point: “Yes.”


Cook­pad is listed on the Tokyo Stock Ex­change ( TSE) and has seen its share price grow by over 250 per­cent in the past two years, tak­ing the closing of the NetSila deal on Jan­uary 28, 2015 as a ref­er­ence date at which the value of the Cook­pad stock was JPY 5,000 ( ap­prox­i­mately $ 42). Com­ing af­ter years when the Ja­panese stock mar­ket had been in slow- cook mode, the stock’s rise came in con­text of Ja­panese Prime Min­is­ter Shinzo Abe’s eco­nomic re­form pol­icy — coined Abe­nomics — ini­ti­ated in 2012, which has con­sisted of fis­cal stim­u­lus, mon­e­tary eas­ing and struc­tural re­forms that have led to a boom in the Ja­panese stock mar­ket over­all.

How­ever, Cook­pad’s share price growth was un­usual even when tak­ing this pos­i­tive en­vi­ron­ment into ac­count as the stock out­per­formed the TSE’s broad­est in­dex — the TOPIX gen­eral in­dex — al­most four times over the same two year ref­er­ence pe­riod.

Ac­cord­ing to Cook­pad’s lat­est fi­nan­cial dis­clo­sures, the com­pany achieved sales of JPY 6.7 bil­lion ($ 56.4 mil­lion at cur­rent ex­change rates) and net in­come of JPY 1.52 bil­lion ($ 12.8 mil­lion at cur­rent ex­change rates) in an eight month pe­riod end­ing on De­cem­ber 31, 2014. The com­pany did not cal­cu­late per­cent­age changes as the re­port­ing pe­riod re­flected a change in the fi­nan­cial year from April to De­cem­ber.

Ac­cord­ing to its full year fi­nan­cial state­ments for 2013 ( end­ing in April 2014), sales in­creased 30.5 per­cent be­tween 2012 and 2013 from JPY 5 bil­lion ($ 42 mil­lion at cur­rent ex­change rates) to JPY 6.5 bil­lion ($ 54.7 mil­lion at cur­rent ex­change rates). Their largest rev­enue is in pre­mium ser­vices, which make up over half of their sales, with most of the re­main­der in ad­ver­tis­ing. By the end of Q4 they had 44.04 mil­lion monthly unique users, with 1,300,000 paid mem­bers for their pre­mium ser­vices busi­ness, served by 181 em­ploy­ees. In ad­di­tion to their ac­qui­si­tions of the other food com­pa­nies, they also ac­quired Coach United, a Ja­panese mar­ket­place of pri­vate lessons, to di­ver­sify their busi­ness in Ja­pan.


NetSila will be­come Cook­pad MENA, which is wholly owned by Cook­pad and reg­is­tered in Le­banon. The Shahiya team will stay on board as man­agers to guide the growth of Cook­pad MENA.

Both par­ties are un­der­stand­ably ex­cited about the amal­ga­ma­tion. “Cook­pad only gives us more means to grow faster and more ag­gres­sively in our strat­egy,” says Labaki. “More tech­nol­ogy, more ex­pe­ri­ence in a lot of things: data, tech­nol­ogy, user be­hav­ior, [ user in­ter­face]. They have maybe one of the best [ spe­cial­ists] in [ user in­ter­face/ user ex­pe­ri­ence] in Ja­pan.” Both com­pa­nies spoke of staff ex­changes be­tween the MENA team and the Ja­panese team, though Ya­suda, when asked how that will be af­fected by the se­cu­rity sit­u­a­tion, ac­knowl­edged “I don’t know, to be hon­est.”

Cook­pad is set on the steady growth of Cook­pad MENA. An in­vest­ment from the par­ent com­pany will help fuel Cook­pad MENA’s growth in the re­gion. While the Shahiya founders would not dis­close the amount, Neuwirth said “it’s eas­ily at par with [ ven­ture cap­i­tal] fund­ing.” He adds, “We al­ways had am­bi­tions about grow­ing much larger than we are to­day but the dif­fer­ence now is that the part­ner­ship with Cook­pad just came to the ta­ble and it came out that with Cook­pad, we will be grow­ing faster.”

Cook­pad MENA is to turn into a sub­scrip­tion based busi­ness in line with its Ja­panese par­ent, whose man­agers are staunch believ­ers in that model. “In terms of fi­nan­cials, as of to­day, sub­scrip­tion busi­ness [ brings] ma­jor re­sources, and I think that’s what we should do … whether we can de­liver enough value for the users, that’s the key,” says Ya­suda. Sub­scrip­tion is the most prof­itable line of busi­ness for Cook­pad in Ja­pan.

For the Cook­pad MENA team, as well as their Ja­panese par­ent com­pany, re­gional ex­pan­sion is the way for­ward. But this begs the ques­tion: since Le­banon and the Mid­dle East have so many ob­sta­cles sti­fling busi­ness — the lack of cred­i­ble cap­i­tal mar­kets, for one — would the kind of growth that Cook­pad MENA is look­ing for be pos­si­ble with­out the help of a larger, par­ent com­pany? While Labaki has seen her fair share of ob­sta­cles, she was con­fi­dent in the ca­pa­bil­ity of Le­banese bred busi­ness. “With the right fi­nanc­ing we could have be­come a very se­ri­ous and an­noy­ing player,” she says.


The team be­hind NetSila will con­tinue to man­age op­er­a­tions un­der Cook­pad MENA

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