Last week saw the launch of two new venture capital funds in Egypt – Sawari Ventures closed its $71 million fund while Algebra Ventures launched its second fund, targeting $90 million with a first close expected in the third quarter of this year.
It comes at a time when deal flow and investment in the country is rising. In the first quarter of this year, 34 Egyptian startups raised $22 million, double the amount raised by 24 startups in the fourth quarter of 2020. These two new funds are likely to further invigorate the ecosystem by providing much-needed investment for the country's startups.
“We are super excited about the growth of the entrepreneurship space in Egypt,” says Karim Hussein, managing partner at Algebra Ventures. “We've made 21 investments out of the initial fund and we're seeing remarkable growth with some of our more portfolio businesses reaching significant market caps and significant recurring revenues. As we see today, in our pipeline of entrepreneurs and opportunities, we realised that we need to double down more on more similar opportunities.”
These opportunities are now “better” according to Ahmed El Alfi, founder and chairman of Sawari Ventures.
“The quality of entrepreneurship is better than it was, there are more experienced entrepreneurs who are now starting companies. The funding has been improved as well; because more investors from outside Egypt are acknowledging the talent and opportunities in Egypt,” he says.
Sawari Venture’s limited partners include several Egypt-based banks as well as France’s Proparco, the Dutch Good Growth Fund and South Africa’s Sango Capital, something that Alfi highlights as the growing interest of foreign investors in the country’s startups.
One sector that has attracted much of this interest is financial technology (fintech). So far this year, healthtech, fintech and e-commerce have dominated the number of deals, but it is fintech that accounts for almost 60 per cent of the amount raised so far thanks primarily to digital payments provider Paymob, which last week announced the close of its $18.5 million Series A round, the country’s largest Series A investment to date. Other notable fintech investments this year include Dayra and NowPay, both of which joined the latest batch of the US-based Y Combinator accelerator programme.
“Fintech is probably the hottest sector right now, because of the support and the desire of the government for the sector to be digitised and streamlined,” says Alfi. The government has been very supportive. The Central Bank of Egypt has done a very good job in promoting fintech innovation and creating a sandbox and the Financial Regulatory Authority [FRA] of Egypt has also done a fantastic job regulating and issuing new regulations for non-banking financial startups.”
The FRA and Central Bank are both quick to create guidelines and regulations in response to market demand according to Alfi which has helped fintech startups thrive in the country. The establishment of the Central Bank’s $57 million fund dedicated to fintech startups in 2019 has also boosted the sector, alongside the establishment of a $25 million fintech focused VC fund from Disruptech. The country also has the Middle East's largest unbanked population, providing fertile ground and need for innovation in this sector, particularly in financial inclusion.
“The government has streamlined a lot of the regulations and has become flexible. It has focused more on promoting the startup ecosystem and promoting innovation. In my opinion, launching a startup in Egypt is easier than in any country in the Arab world,” says Alfi.
Fintech is also a focus area for Algebra Ventures, under its mandate to “address the needs of underserved communities” according to Hussein.
“We have a term that we call service inclusion, which means giving the broader mass of people market access to the same level of services aimed at upper classes,” he says. “In Egypt, as well as in most emerging markets, there are a lot of challenges to address whether they be in logistics, distribution, healthcare, education, etc. So these are the areas which excite us because we have a broad range of challenges and problems to address.”
While both of these new funds will benefit Egypt’s ecosystem, there are still funding gaps, at the seed stage and Series B.
“There will always be some funding gaps at the seed stage and then we also see a gap, probably at the Series B stage, it's the middle ticket, somewhere in between the range of $10-15 million,” says Hussein. “Those are the areas where we see some gaps, where we have to then syndicate multiple funds, and they may be opportunities that are a little too small for the larger global funds.”
The lack of Series B was not an issue before according to Tarek Assaad, managing partner at Algebra Ventures as most startups in the country typically raised $2-3 million.
“Now with the current level of growth and attraction, the funding requirements have increased; this is where these gaps transpired,” says Assaad.