Anghami co-founder Elie Habib on SPAC listing and growing the Middle East music industry: Business Extra

Anghami, Spotify’s rival in the Arab world, will be the first regional technology start-up to list in New York by merging with a blank-cheque company in the second quarter of 2021.

Anghami co-founder and chief technology officer Elie Habib tells The National's Mustafa Alrawi and Kelsey Warner how the streaming service is changing the music scene in the Middle East. He also talks about Anghami's plans to use its SPAC listing to propel its next phase of growth and that moving to Abu Dhabi is a natural part of its technology-led evolution.

Anghami sign on Raouche, Pigeons' Rock. In Beirut, Lebanon. Courtesy Anghami

Transcript edited and condensed.

Mustafa Alrawi: I'd like to hear a little bit about the story of the company. I'm always interested to know why co-founders decide to jump into capital markets, whether it's through a special purpose acquisition company or otherwise, because you've spent so many years building up a business going for growth. Can you frame it for us where did Anghami come from? And where is it going?

Elie Habib: Roughly 10 years ago me and Eddy [Maroun], my partner, were on a ski trip. And we were simply amazed how complicated it was to listen to music and to get the latest songs and to transfer them to an iPod and all of that, because there was no legal way to really get music. And that's how we got started. I'm a techie. That's what I do. I like to work on products and to create stuff out of thin air. And for me, I was intrigued. We got into it simply believing we needed to scratch an itch. A year after that ski trip we launched Anghami.

Then we realised that mobile is going to be the growth [area] and so we started from mobile. We started really small, and we did not have such big ambitions. And then our user base, our customers really taught us that there's a lot of opportunities so we really jumped straight in.

We started with just a million dollars of investment, which in this current times is really insignificant. Many years later, we grew significantly. Today we have roughly 50 per cent of the market in the region, those numbers come from various industry sources, not from our end.

We have a lot of growth opportunities. And we believe that nothing has been scratched in terms of music streaming across the region. Why am I saying that? Because honestly, the first competitor, the second, the third, are piracy, nothing but piracy. I think we have roughly around 7 per cent of the [total] market, in the region in terms of penetration, and that is nothing. The odds are still in many people's favour, right? And we lead the way, but there's still a lot to be done.

So why a SPAC? This is a very important question. This is the first time I try to explain it publicly, actually. We need to grow. Anghami has raised, quote unquote, 'only' $26 million since we started. We've [not] been very frivolous in spending. We don't spend much. We spend only what we need to and we really invest in engineering and our talent. We've invested in marketing but not that much relatively because we really like our users to tell about our product, this, we think is the best way that we can grow our company.

Over the past few years, especially in Covid, I mean, we noticed that VCs started becoming opportunistic while we were actually starting a raise [a fundraising round].

Our tour was supposed to start the 16 of March 2020. And that happens to be almost exactly when UK closed down. Our tour was starting from London. We realise it was going to be weird doing all of that over Zoom. But we started doing that and we met with a lot of interesting VCs. Everybody was hyped and interested with our story and wanted to invest. But the terms did not make sense to us. At the same time, in parallel, we were viewing other capital markets, in the States especially, where a lot of companies were actually using Covid times as an opportunity to take on debt, and buy companies and consolidate and grow. So from one end, companies who had access to the capital markets had access to the most liquid market ever, which is the US, were actually investing more and more and actually using the same techniques of the VCs, which is like being opportunistic, trying to push prices down, and investing more and acquiring.

We've seen also several acquisitions at the same time in the Middle East, because it makes sense when the markets are down to actually invest for the upside. All of that got us thinking whether there is a way for us to grow besides the VC route, which we were going through, and it just happened that we bumped into VMAC which happened to be the SPAC sponsors. They have a mandate on media. They were looking at several media companies and their SPAC was $100m, which just happens to be a number that we're interested in and very close to what we're seeking.

So suddenly, without us originally having a plan for it, we just realised that SPAC is an option, it's an innovation in fundraising. And it's an innovation that allows companies to tap into public markets before maybe they would be mature enough but they help us grow significantly.

It's an innovation to be able to suddenly say we're giving our VCs [investors] an exit if they want to. Most of the VCs won't be exiting at all, actually, they're very much interested in getting into the public market, but they have that option. And at the same time, we as a company, as founders, as management, still have the biggest controlling stake in the company, and are able to take the company on what I'm calling chapter two.

Kelsey Warner: So chapter two, an inflection point for growth. I want to talk about this growth momentum that you're speaking to. But first, I want to talk about the deal with the Vistas Media Acquisition Company, which targeted you guys, and has since valued your company at $220 million, about two and a half times your estimated revenue for 2022. SPACs have more room in valuing the businesses they buy - as opposed to how companies typically get valued through an IPO, where financial results are more in focus, SPACs can base deals on projections of future growth. How was Anghami valued?

EH: So for us, we believe that there's a lot of opportunity. We've built a product, we've built a platform across the lot of devices, across a lot of countries and tapping into a special payment network that we've implemented. We've developed an advertising platform that we implemented, a recommendation system that's based on understanding Arabic music that is way different than others.

So if a VC or a partner or a SPAC that understands and sees the potential and the business realises that actually there's a lot of upsides and a lot of opportunity. So it's not exactly about the valuation, but it's about what we will do with the capital, with what I call supercharging the fuel that we're having to grow. For us, having the 2.5x on 2021 revenues might be on the low side. For us, the SPAC gave us a way to actually raise funds relatively fast, and we value time much more than anything else. So having access to that much capital that we will be able to deploy within two months from now, as well as debt you can take because you are on the capital market, trumps any sort of valuation discussion. So for us, that's the big thing.

KW: Your pride in the products that you've built over the last decade as the CTO is strongly felt in that answer. VMAC said in its investor presentation that they absolutely, of course, agree with you that Anghami is at an inflection point for growth. Can you dig into where you see that growth happening? Does it happen geographically? Does it happen in product development? Does it happen in advertising, marketing? How are you going to tap into growth in a way that you have never done so before?

EH: We will grow first in innovation and in R&D. And in my Twitter thread I actually mentioned, finally, we will be able to invest in R&D. I stress finally because with a team of 60 engineers we created Anghami. Everything that was done was created with only 60 engineers and that is called discipline for me, being able to do all of that, have a vision, implement it, grow it with a relatively very small number of engineers. I mean, if I compared to any closest company, you know, they have like, at least five times more engineers. So innovation means what we're going to do with that investment is R&D innovation on the product, we believe that is a lot that we will be doing over there. Two, we're going to be investing much more in going deeper into territories that are important for us into this region. On Saudi and Egypt, we're going to be doubling, tripling investments over there. We're going to be investing for the first time in the Arab diaspora. There are roughly 600 million people across the world. We've not talked to them ever, even though that though they actively use us, we need to invest in the diaspora. Three, we've got to be going through other emerging markets outside of the region that are relevant to us that have the same modus operandi that we've got good at. Some of them might be surprising, but for us, we think we have a lot of interest in going to that. And then we're going to be investing a lot in content.

Let me give you two numbers. 1 per cent. That's the percentage of our catalogue that is Arabic music. So basically we have 57 million songs available right now on Anghami but 1 per cent of those is Arabic. That's the number. Hold on to it. 50 per cent is the second number. 50 per cent of the usage is in Arabic. So basically 50 per cent of our usage comes in from just 1 per cent of the catalogue. That's a very weird number. So clearly, we want to invest in growing the 1 per cent. We want to invest in the young across the region that want to create music. But that can't create music, because there aren't a lot of labels or a lot of opportunities to create music in the region. We believe Arab music can grow, can have a global hit and we're banking on that.

MA: Earlier, you talked about your competition in this region being piracy. And if I look back at the history of digital platforms and music, then I go back to Napster. And I think about Apple Music and Spotify now and now Anghami. There's been a lot of antagonistic relationships between the artists, the labels and the digital platforms. This change of control over the last two and a half decades. But in this region, how do you compete with piracy? How do you compete with a tradition of people paying nothing or paying very little for their music? You just said you're almost going to become a label in your own right, as well. So you're very much on that side. How do you beat the pirates?

EH: That's a $1 billion question. When we started, we said piracy is our target. We started by saying that we want to pirate the pirates. That was our motto. To do that one, we are providing a very simple user experience, we want to be everywhere where the users are.

Two, we want to have a comprehensive content catalogue, and we want to understand the behaviour of the users because it does not matter if you have a lot of data about your user in London, or Paris, or LA, or wherever. It matters what the users in the region listen to and how they connect to certain music and what do they expect of music in the morning and the evening or whatever.

So the data is very important for us to be able to create proper models of people in the region, which honestly are very different. So someone in Tunis listens to music very differently than someone in Kuwait or for someone in Abu Dhabi, or Dubai, or Beirut. That is very important.

Three, it has to be very affordable. It has to be also free. So we want to pirate the pirates by also offering something that is free. And we want to be accessible and available across the region for everyone.

MA: Maybe even the pirates hope you beat them on some level. We all love our music. But does that down the line at some point, all that work, you're doing all that infrastructure, you're putting in place, the educating? Essentially, what it does is it prepares the ground for a number of rivals to spring up in the region. If you look at the equivalent in the TV streaming, the video streaming, how many players there are in the region now? So how will you defend your position?

EH: For us, we know we are leading but we welcome competition. It just validates what we're doing. How do we defend it? By localisation. We're the local people, we have boots on the ground in all the cities in the region. We understand our user base, we have data that is incomparable to anybody, because we have roughly 70 or 80 billion data points that we've collected on usage in the region that is incomparable. Nobody knows as much as us about the taste of the people in this region. And we're using that data to build content that is unique to us. And that is exactly how I define localisation. It's not about writing stuff in Arabic. It's understanding the users. Last time we raised capital was in 2016. That tells you that we must have been doing something very right.

Transcript edited and condensed.

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