Why should investors consider funding Tunisian startups? [Q&A]

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Intilaq, a Tunisian incubator and fund officially started in 2014 in a partnership between Microsoft, Ooredoo, and other funding partners. Few years later, Intilaq became a leading Tunisian startup investor, and invested 12 millions Tunisian dinars (US$ 5 millions) in 26 startups that operate in various sectors such as education, health, agriculture, and ecommerce.

Bassem Bouguerra, an ex-Yahoo and a Tunisian entrepreneur took the lead of Intilaq’s Tunis office in April 2017. He spoke to Wamda about the impact of the investments Intilaq made and shared his opinion about the Tunisian entrepreneurial ecosystem.

Wamda: To which stages the startups you invested in belong to?

BB: 18 percent of the startups we funded are still developing their product, while 35 percent are ready to enter the market and are looking for clients. 25 percent are in the traction phase, and 21 percent are at the growth stage, making a recurring revenue of over $100,000. These are also working on scaling and going international. For example, Roamsmart, one of our startups, is close to making $1 million in recurring revenue and has clients in 37 countries. Another indie gaming startup we funded, Polysmart, is getting the attention of big game publishers for their Veterans Online game.

Bassem Bouguerra

Wamda: Do you think it is crucial to increase the amount of funding a startup is eligible to at seed stage?

BB: Yes, especially in Tunisia. Seed funding in the country just ranges between $4,000 and $20,000, which is a small amount. Thus, the startup will shortly after require another round of funding. If they do not manage to secure another round of funding, they won’t be able to sustain, and eventually will fail. One additional issue in Tunisia is that funding networks are not aware enough about all the early stage startups in the country. Thus, they are not able to provide them with the funding they need.  

Wamda: What role do business angels play?

BB: Unlike in the US, business angels in Tunisia are not numerous. Two reasons hold us back from blaming those who have money for not investing in Tunisian startups: First, they haven’t seen many successful stories of ones who invested in a Tunisian IT company [as IT is a growing sector in the country] that generated remarkable profits. For them, it is kind of insecure to invest in such startups and it is more profitable to invest in real-estate or construction. The second reason is the legislation. Funding startups is a very complicated process, especially that the startups don’t have any insurance. We cannot blame angels for not investing because the system does not encourage them to do so.

Wamda: What are the main problems that prevent startups from developing themselves?

BB: To me, the main issue is still legislation. The Tunisian legal systems punish those who become entrepreneurs and fail. If you fail as a startup founder, you will face a lot of negative implications: You will be banned from getting any bank loans, and you won’t be able to create another company for some time... so it is very painful to fail. The second issue is related to preferred shares, which is not available in Tunisia. So every time we make an investment, the startups need to go through a long administrative cycle to be able to use the money. This long process can scare away investors and especially angel investors. Also, when the startup gets our funding approval, the time it takes to get the actual money transferred to its bank account can extend to four months, due to the long paperwork procedures, which is a long period for a startup to wait for.

Wamda: Why do some startups still lack visibility in Tunisia despite their success?

BB: The problem is that you might get to know five or 10 startups, while the rest remain unknown even if they were growing. The startup scene in Tunisia is no different than the ones you see in other parts of the world. People know about the startups whose founders make a lot of media noise, while those who don’t invest in their marketing and branding remain unknown, even if they develop good products. It is our task to find a solution of this because it is one of the main burdens that prevent startups from growing.

Wamda: Why do you think there is still no Tunisian success story?

BB: I think it is just a matter of time. A large number of startups will be failing before we have a successful concept or a unicorn. It is part of the process. The most important part now is that more people are interested in investing in startups, and we have to keep our eyes focused on this.

Wamda: How is the Tunisian ecosystem evolving?

BB: I think that it’s known that the Tunisian ecosystem cannot compete with countries such as India or China since they have the cheapest and most available labor force. Tourism and agriculture, which are main economy pillars, are in crisis. I think the only sector that could save the ecosystem and make it thrive would be IT because it does not require a huge infrastructure. It just needs some investors, a culture of entrepreneurship, and some governmental support. This includes providing entrepreneurs with more convenient work conditions, lighten the procedures, and remove the numerous permits. Additionally, it is extremely hard for businesses in Tunisia to convert their local currency to foreign ones in order to use online services like Amazon and Google. This puts Tunisian startups in a disadvantageous position compared to other startups in different parts of the world. This also makes going international more difficult to achieve. The central bank needs to act fast and remove all these obstacles.

Wamda: Why do you believe IT would ‘save’ the Tunisian ecosystem?

BB: First, we have a lot of telco, software, and electronic engineers. Second, Tunisia is a small market where testing a new product is easy. We are also close to Europe so we can easily access the European market with the advantage of having less labor and operation expenses than European startups. Investing in technology is very rewarding and we’ve seen it in countries like South Korea and Estonia. I believe Tunisia could win big if we focus on an innovative niche such as IoT or Artificial Intelligence and build our local expertise and products in such fields. At Intilaq, we encourage entrepreneurs to add high value to their startups, in addition to disruptive and innovative components to because it would be the only way to compete internationally.

Wamda: Is the country suffering from brain drain?  

BB: Yes, that is another issue. We need to try retaining the highest percentage of talents but we cannot keep them away from traveling to France or to Germany. However, if you look at the bigger picture, it is not just a matter of brain drain, but also a mismatch between the supply and the industry needs. France and Silicon Valley are also lacking for good engineers because, in the last five years, technology underwent a lot of changes and there is a little gap between what the industry needs and how the people are trained.

Feature Image via Bassem Bouguerra

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