Egyptian startups pull trigger on layoffs amid growing uncertainty and funding crunch
The year 2022 has been nothing but a mixed bag for Egypt’s technology and startup sector. On the one hand, the local ecosystem has seen marked progress in terms of year-on-year funding growth rate. Funding in Egyptian startups touched $317 million during the first half of 2022, a 135 per cent increase when compared to the first half of 2021. Yet, as is the case with global markets, local business founders continue to grapple with an uneven ride and are left to deal with a great deal of uncertainty arising from increasing inflationary pressures, import restrictions and dwindling purchasing power. As a result, layoffs, salary cutbacks and even business shutdowns are becoming more widespread across the startup ecosystem in Egypt.
"The market was due for a course correction; this should have happened three years ago. The excess cash and shortage of tech talent made it much faster than expected. Albeit tough, it is a healthy and much-needed correction for the entire ecosystem, ultimately enabling it to become more resilient," says Mohamed Abolnaga, founder of mergers and acquisitions advisory firm PiE, expecting a rise in corporate venture building activity, as family businesses show heightened interest in starting new ventures with entrepreneurs from the family or trusted circles.
The current turbulent economic situation has impacted startups across different sectors and stages, however, it seems that the startups who declared soaring valuations last year, are the ones that have been disproportionately affected.
"When startups raise at high valuations, they usually turn to overhiring and overspending on customer acquisition to meet growth targets. Therefore, founders are left with little to no choice but to find ways to cut costs, be it through creating product promotions, cutting back on their marketing spending, or imposing layoffs," Abolnaga explains.
Egypt-founded and UAE-headquartered transport startup SWVL, remains the only startup to publicly announce plans to slash jobs by 32 per cent, with layoffs happening typically across engineering, product and support departments. But SWVL is not alone, several other Egyptian startups have laid off significant chunks of their workforce.
They include healthtech startup Vezeeta, which raised $40 million a couple of years ago; Careem-backed foodtech elmenus; B2B e-commerce retail platform Capiter, which last year raised $33 million; trucking startup Trella, which recently raised $44 million in its Series A round; and e-commerce enabler platform ExpandCart. These startups in particular experienced tremendous growth during the pandemic after raising multiple funding rounds.
"The waterfall effect was in full swing due to the global downturn; growth projections have altered and so has investor appetite. That's why similar actions were simultaneously adopted by startups, whose growth targets were already very aggressive," says Amir Allam, CEO and founder of elmenus, adding that layoffs at his startup mostly impacted operations and customer support teams.
With founders being repeatedly advised to go frugal on spending, Allam says that the current market correction presents an opportunity for startups to focus on strengthening unit economics and push cash generation.
"We are seeing positive trends worldwide in online selling, with many global startups achieving Q2 results. This will give massive confidence to investors that the market is correcting in the right direction,” he adds.
A former employee at ExpandCart recounted to Wamda that the rapid headcount growth was one of the main reasons behind the startup's general business slowdown.
ExpandCart is said to have laid off around 90 per cent of its staff after exhausting funds they just raised earlier this year. The startup did not respond to Wamda’s request for comment.
"I joined the company around four years ago. It was very promising; things started to get tough after it had closed its first round and accordingly stretched its growth targets," a former employee at ExpandCart tells Wamda, speaking on the condition of anonymity.
After raising its first round of funding, the company's team quickly swelled from 12 to 150, according to the source.
"Things were not looking up at the company even before the recession struck. Clients were already complaining about the level of the service. More attention was given to customer acquisition, not retention. It was like trying to add more floors to a building whose foundation is already fragile," they add.
This level of overhiring was also evident at Capiter according to a former employee who also cited a lack of clarity in structure and misalignment across departments.
"By the time I joined the company, the team was doubled if not tripled over the span of a month, to the point that there were not enough chairs for all of us. In many cases, people were assigned tasks they are not supposed to do or don't match their job description."
Capiter did not respond to Wamda’s request for comment.
A crucible moment
While some founders might find it hard to retain staff or put brakes on their hiring drives, companies with larger cash cushions are vying to capitalise on the opportunity to grow their workforce with new talent.
"The employment landscape has not been dramatically affected; the market is showing signs of leveling off," says Ayman Bazaraa, founder of Sprints, a tech-focused edtech platform. "The war on tech talent remains unabated. Startups that just closed rounds and those that recently expanded to the local market are hiring extensively. This is in addition to IT companies that export their solutions beyond Egypt.”
For Bazaraa, this temporary downturn represents a crucible moment for startups, potentially marking an end to the "growth at all costs'' strategies long adopted by startups.
"The market is still immature and there are a lot of learnings along the way. Eventually, startups will learn how to best manage their runaway, and conduct better business forecasting," he says.
"Also, there's a widening gap in communication between employers and employees at startups. On one side, employers think less of the quality of the talent in the market; on the other side, employees think they are being taken advantage of. It is now important more than ever to ensure that both parties are on the same wavelength, which can be fostered through two-way dialogue," Bazaraa concludes.