Out of Africa: the Egyptians are coming

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Egyptian healthcare startup Vezeeta is expanding into the Levant, the latest of a series of companies from Egypt to start leaving home.

The last year has seen five startups leave for different climes, and four others are making their push out of Egypt in the next six months.

But startups from Egypt have a reputation among investors in the wider Middle East for rarely expanding out of the country. In the post-2011 cohort of startups we could only find 19 that had managed to establish themselves outside Egypt.

It’s easy to name a handful - Yaoota, Crowd Analyzer, Eventtus, Instabug and Integreight - but a perception that few startups successfully scaled out of Egypt is one reason regional investors have given Wamda for not investing there.

They may need to come up with a new line.

Finally thinking regional

The reason for the efflux could be that Egyptian entrepreneurs have started thinking regionally, rather than locally.

“I think Egyptians are used to having such a big market so they don’t think regionally,” said Omar Sati, whose VC fund Dash Ventures is based out of Jordan. “Egyptian startups are very Egyptian. They’re so local, so unique, so into their bubble of solving their own things that it’s hard for someone out of the bubble to get the gist of it.”

In the last year, online therapy platform Shezlong, digital platform Kijamii, and customer engagement software Performly have scaled to the UAE; ecommerce logistics play Edfa3ly to Kuwait; and Industrial Internet of Things startup Spimesense Labs began product trials in Italy and Mexico.

In April, group savings provider Moneyfellows, which is waiting on regulatory approval to access the Abu Dhabi fintech sandbox, and ‘real life helpers’ Elves will follow.

Everyone loves Dubai

The UAE is the most popular location for Egyptian entrepreneurs to scale into, closely followed by Saudi Arabia, according to the Wamda Research Lab.

However, the 2015 Country Insights report showed there was more of a desire to scale than actual achievement.

MENA's most favoured. (Image via Wamda)

Fast forward two years and the GCC broadly is still the market of choice.

“[In the same way London is the fintech capital of Europe, the UAE is also the fintech hub [of the Middle East],” said Moneyfellows CEO Ahmed Nabil as his reason for choosing the Emirates. “The UAE has a lot of space… to test our product [and a diverse market].”

Elves CEO Karim Elsahy said half of their 15,000-20,000 users were in Egypt but the GCC and the US had a quarter each, while Edfa3ly opened its GCC campaign in July last year. It was forced to do so because the failing Egyptian economy was wrecking their bottom line.

Crowd Analyzer CEO Ahmed Saad thought it was just a better market to target. “No one is excited about leaving their home country to start somewhere else, but Dubai is really open to innovation…[and] decision makers decide promptly.”

Breaking into the Levant

Amir Barsoum (Image via Amir Barsoum)

Vezeeta, founded in 2012, is taking an alternate route, identifying the Levant and French-speaking Maghreb as the low hanging fruit.

CEO Amir Barsoum has plans to be in Tunisia and Morocco by June, and “maybe” the Gulf by the end of the year.

The regional expansion strategy was decided in mid-2016, ahead of closing a 
$5 million Series B round, but the choice of country depends mainly on finding the right person to lead the expansion there. The Levant plan will be led by Rami Adwan, and the Maghreb team is still to be confirmed.

Scaling requires money

It’s not that startups from Egypt don’t want to scale out of the country - many do - but money is a factor.

Ousta, the locally born ride-hailing company, blasted into the ecosystem in March last year, but plans for a quick leap into Saudi Arabia and beyond were stalled by a lack of forthcoming investment.

“Ousta achieved great results in less than a year by attracting more than 300,000 customers and 10,000 drivers, expanding to 14 cities in Egypt and achieving a weekly growth rate of 30 percent,” cofounder Nader El-Batrawi told Wamda. “Yet, we could not sustain this growth rate because all investors were reluctant to invest in Ousta and compete with Uber and Careem, so we started to decline in Egypt and could not expand more.”

Ousta indicates how risky expansion plans based on securing funding can be.

Delivery startup Bosta, which only fully launched in January, has a UAE-Saudi Arabia-Turkey trifecta planned to start within the next six months, subject to stabilizing their product in Egypt and - again - securing investment.

Taqalid CEO Yousef el Samaa, who presides over online death notice website El Wafeyat and funeral crowdfunding website In Memory Of, said they were planning a push into Saudi Arabia, and Lebanon and Jordan within the next three to six months, also depending on whether they can raise the funding.

El Wafeyat has an established business in Egypt.
(Image via Angellist)

Age over beauty

However, unlike Ousta and Bosta, both of which wanted to realize a regional takeover within months of launch, Taqalid is several years old and faces very little competition in its prospective markets.

Egypt is more than twice as large as its closest population-neighbor in MENA, Saudi Arabia, and takes longer to dominate and therefore longer to leave. For example, Vezeeta and Eventtus both migrated once they’d achieved solid footholds in Egypt.

Vezeeta’s CEO said bookings growth was at 20 percent month-on-month and they had 1.5 million registered users. While competitors are readily available (Dabadoc in North Africa, Doctoruna in the UAE, Meddy in Qatar, Sihatech in Saudi Arabia, and Allotabib in Tunisia), Barsoum does not consider these startups to be in the same league.

Few coming out, no one looking in

If the shortage of startups scaling into their backyards is a turnoff for foreign investors, the fact that Egypt can be a black box of mystery is another.

Sati, from his position in Jordan, said Egypt had never hit the sweet spot for them partly because of its “uniqueness”, and partly because Egyptian investors didn’t tend to reach out to their regional peers to brag about their portfolio companies, or just to touch base (he admitted he had not made the effort to go to Egypt either, however).

“The Egyptian market is extremely unique and we don’t fully understand it,” he said. “Egypt has its own uniqueness, its own culture and behaviour, [and you must understand it] to feel comfortable to make an investment.”

Wamda’s database of the disclosed startup investments in MENA indicates that since 2010, 128 Egyptian companies have received some level of formal investment in 161 separate investment rounds.

Discounting the rounds where investors were individuals or weren’t disclosed, Flat6labs is Egypt’s most prolific investor, making about a third of all investments. In total, two thirds of those disclosed investments were almost excusively by Egyptian accelerators (including Flat6labs), funds, corporations or institutions, without international involvement.

Since 2010 regional investors, be they funds or corporations, have been involved in about 15 percent of the disclosed investments tracked in the Wamda database.

Whether the latest spate of Egyptian entrepreneurs venturing abroad will be enough to tempt regional investors into putting their money where their regional mandate is, will be seen over the coming years. And whether this is the long anticipated, long heralded emergence of the Egyptian startup story in the Middle East, well, we'll have to wait for that too.

Feature image via Skyword.

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