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First-year failures prompt Virtuzone to invest in start-ups

Virtuzone works to make companies in the free zone more competitive following the failure of companies.

About two years after setting up Virtuzone, its bosses noticed something alarming about the numbers.

Almost 40 per cent of companies in the Fujairah-based free zone had not renewed their contracts after a year.

"I was thinking 'are they going to my competitors'?" says Neil Petch, the chairman of Virtuzone.

But what he discovered was even more alarming. Almost all of the companies simply ceased to exist.

"That's a necessary evil of targeting start-up businesses because year one is the hardest year. It's the year where you have a lot of your costs and much less revenues than you would going forward," he says.

The free zone appointed a head of business partnerships who was tasked with making companies in the free zone more competitive.

"We are now in a position where we can negotiate on 2,500 companies' behalf. We are going to Dubai Insurance and saying for example, give us a sensational Bupa-type coverage at the sort of price you would expect to get at a bargain basement type of insurance," he says.

And it is now launching a company to invest in ventures based in Virtuzone. The company has already identified six firms it is interested in, including a cigarette manufacturer with rights to distribute its brand in Africa.

The company cannot build a factory on the continent for political and security reasons, but it needs access to the east coast.

"Obviously Fujairah is on the Indian Ocean and can ship to Mombasa and there are existing cigarette factories in Fujairah already so it's an example where we can not only invest in a company that we know where there is a potential for a high profit margin but we can actually add to the business plan of that company and get them in profit faster," says Mr Petch.

Virtuzone plans to invest in young ventures in two ways. It will either buy a stake in the business, complete with a couple of seats on the board, or lend them money.

"Every day I am sitting there listening to brilliant business plans, and some pretty awful ones as well, but some brilliant ones, and we are getting quite good at (deciding) which are going to work and which aren't," says Mr Petch.

"The six companies we have identified are brilliant. Of those six maybe one or two of them might not want to be invested in and maybe we will change our mind after digging a little bit deeper.

"We will probably invest in 20 companies over the next five years."

gduncan@thenational.ae

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