Startups in Egypt are getting stronger after a year of correction
2022…a year full of work for startups for sure: Both start-ups and venture capital funds have faced a range of challenges this year, from the slump in global venture capital to the pound’s double depreciation against the dollar and the collapse of a highly valued company. The funding slowdown has created new trends in the market, such as new funding instruments, and led many startups to struggle with restructuring and cost cutting. But it wasn’t all dark: Many times over the past year have been healthy and nuanced for a major “market correction,” industry insiders told the Enterprise.
in this context: Venture capital firms have been shrinking since the start of the year as interest rates rise, tech assets sell off, and skyrocketing valuations return to the scene. The pressures were most pronounced in Egypt, where the local economy faced high inflation, a double devaluation of the pound, and the central bank of Egypt raised interest rates by 500 basis points. All of this comes after a record two years for the startup industry, which have seen massive funding rounds and overvalued valuations.
Venture capital firms managed to survive the turmoil: Several venture capital firms have launched new funds, including investment firm Catalyst Private Equity, Modus Capital and the Egyptian Authority for the Development of Small and Medium Enterprises. Other funds have achieved their target closings (and even exceeded their fundraising goals) by wisely targeting potential partners, such as development finance institutions and Gulf family offices. Development financial institutions, especially European ones, have a clear interest in investing in our region and this has not changed despite the turmoil on the continent. The Gulf region also has an additional $1.3 trillion in spare cash to invest over the next four years thanks to higher oil prices, meaning it will make huge investments in the near term.
Investors and venture capital funds have also benefited from new financing models, including:
#1- Corporate risk investment: Impact investment firm Catalyst Partners has launched a corporate venture capital arm, Serv Startup, to take minority stakes in the fintech and digital lending sectors. The definition of corporate venture capital is exactly what the name reflects when established companies invest in startups. According to the Harvard Business Review, corporate venture capital typically invests in startups that integrate the businesses of the investors’ companies. Among the first to follow this trend in Egypt was C Ventures, a subsidiary of Commercial International Bank.
#2- Business acceleration programs: Modus Capital has launched an acceleration program in Egypt, and Berlin-based accelerator Founders Lane has launched its operations in Egypt following its acquisition by Creative Doc. Accelerators help build startups from scratch, positioning themselves as more than just a funding provider. Their role is usually in recruiting employees for the startup company, testing and preparing the product before going to market. These accelerators typically focus on a small group of early-stage startups, rather than building large portfolios.
#3- Search boxes: Venture funds are investment funds that raise money from investors for the purpose of buying a small or medium-sized company that is already doing well in the market, and then work to develop it to ensure a return to investors. Through this acquisition, the CEO of the company is usually changed to be replaced by an experienced entrepreneur who has been running the company for 6-10 years, providing investors with safe and high returns and offering entrepreneurs a company that can work without the hassle of building a company from scratch. This concept is starting to appear on the startup scene in Egypt.
Startups are also getting more creative in fundraising: Trella, a business-to-business logistics platform, has secured $6 million in funding from global debt platform Alma Sustainable Finance and the US International Development Finance Corporation. Debt financing, also known as “venture debt,” typically combines the traditional features of loans with some aspects of venture capital financing. You can read more details in the Enterprise section that explains, but in general it is a very new type of financing for Egyptian startups.
Many mergers and acquisitions followed: From financial technology to cosmetics and pharmaceuticals, many startups – domestic and foreign – have taken steps to merge with local startups in the past year. Here are some of the biggest deals:
The downside: the startup suffered a market crash. The major crash of local startup Capiter has rocked the sector, as many saw it as a time of correction for the once fast-growing Egyptian startups focused on “growth at any cost.” The startup’s management ouster amid reports that the company has laid off employees and failed to pay salaries has prompted calls for market sobriety and talk of an imminent correction, which could see some startups hit low prices before I see their largely overvalued turnaround.
Waves of layoffs have risen: Besides Capiter, many other startups have announced layoffs and restructuring plans. Social commerce startup Brimore said it will restructure and cut costs in a bid to achieve profitability. Separately, Swvl has gone through two major waves of layoffs as it looks to become profitable and boost the value of its Nasdaq shares, which have fallen since an initial public offering in April. The startup now faces a possible delisting after its shares traded below the exchange’s minimum of $1 since the third week of September. Other startups have caught on to the cost-cutting wave: mobile payment platform TPay Mobile and digital healthcare platform Vezeeta.
The most prominent startup news of the week:
- “appetiteand “my sentence” merge into one whole: Egyptian grocery delivery startup Appetito has merged with Saudi Arabia’s Jomlaty into a single company called Nomo, in a bid to become the leading food tech supply chain platform in the region.
- The Edam platform gets new collaborators: BTS Projects, the Egyptian arm of BTS Investment Holding, has acquired a minority stake in Egyptian healthcare startup Edam for a six-figure dollar sum, a first for the local market.
- Financial technology company “Payment” will develop an internal financial payment system for the Egyptian Commodity Exchangeaccording to the protocol on cooperation between startups and the commodity exchange.