Monday, 7 June 2021

EnterprisePM — How US-based Openner is looking to grow in Egypt.

TL;DR

WHAT WE’RE TRACKING TONIGHT

It’s a capital markets-heavy issue today, ladies and gentlemen, with VCs and private equity news abound. We also have a touch of science fiction-comes-to-life stories as well.

THE BIG STORY TODAY- Why Egypt needs more venture builders: US-based VC firm Openner, which announced yesterday a six-figure investment in tejarra.com, is planning to make venture building a thing in Egypt. Don’t know what that is? Look to our Spotlight interview with Egypt MD Ahmed Elsherif to find out.

** CATCH UP QUICK on the top stories from today’s EnterpriseAM:

  • Made In Egypt Sinovac™ coming 15 June: The first batch of locally-manufactured Sinovac vaccines will be ready two weeks earlier than expected, and will undergo a final analysis before being dispatched to clinics, Health Minister Hala Zayed said.
  • We’re going to pay 14% VAT on online deliveries by restaurants and shops: All restaurants and businesses with more than EGP 500k in annual revenues will have to charge and remit VAT on online delivery services under an amendment to the VAT act.
  • Egypt Post’s private equity arm could be heading to the EGX: Market conditions and appetite from foreign investors will determine the timing and size of the offering, while preparations for the IPO should wrap up by the end of this fiscal year.

THE BIG STORY ABROAD-

The Bank of England (BOE) is warming up to the idea of rolling out a digital currency, publishing a discussion paper that outlines the risks and benefits of launching a central bank digital currency (CBDC) and how to do it effectively, according to a press release. The BOE is open to CBDC’s in the event that they boost financial inclusion, create a competitive CBDC ecosystem, safeguard user privacy, and “do no harm” to the Bank’s ability to meet monetary and financial stability. The bank will be accepting feedback from stakeholders on the discussion paper till September, and responses will inform how it decides to move forward.

However, the BOE will still explore whether payment innovations could deliver the same benefits of a digital currency: The bank has raised a number of concerns that are under consideration, including public confidence in the financial system, banking sector liquidity resilience, credit conditions, money market functioning, and the implementation and transmission of monetary policy. To mitigate these risks, the BOE suggests that a transition period would be necessary for a rollout of CBDC to limit the pace of migration. A number of countries worldwide are considering the introduction of digital currencies, including Egypt who back in April changed regulations to allow commercial banks to issue e-currencies. If you’re still unsure what a digital currency could mean for the economy, check out our explainer on the topic.

🗓 CIRCLE YOUR CALENDAR-

The Entering African Markets exporter training program is ongoing till 10 June to strengthen and enhance the capacity of Egyptian exporters, according to a press release (pdf). The program was launched by the International Islamic Trade Finance Corporation in cooperation with the Egyptian Export Development Authority.

Egypt is hosting the first forum of the heads of African investment promotion agencies from 11-14 June in Sharm El Sheikh under the theme “Integration for Growth,” according to a cabinet statement. Ministers and heads of investment agencies from 34 African countries are expected to attend in efforts to boost coordination and integration among the continent’s investment bodies and support foreign direct investment.

Entrepreneurs in the tourism sector have until 20 June to apply for the six-month Tourism Recovery Program launched by enpact and the TUI Care Foundation and supported by GIZ, according to a press release (pdf). Under the program, 100 tourism startups will be chosen to receive dedicated mentoring, training, and direct financial support of up to EUR 9k per business. The program also aims to create an international network of tourism business to expand cooperation between Egypt, Germany, and other European countries. You can apply for the program using this link.

🚙 FOR YOUR COMMUTE-

The consumption bounceback in China has fallen short of expectations despite the economy having long reopened, hinting at a subdued recovery for other countries that have recently reopened, according to Bloomberg. Economists attribute the lack of a V-shaped recovery to an unequal distribution of savings from the pandemic as well as lingering virus worries prompting conservative spending habits, especially on services. But as vaccine rollouts pick up steam and uncertainty in the future begins to subside, China’s consumption is expected to pick up, with Bloomberg forecasting boosted spending levels by the end of 2021.

Google will pay a USD 270 mn settlement fee to French regulators in an antitrust case that alleged the tech company had abused its leading role in the digital advertising sector, the Wall Street Journal reports. Google also pledged to make it easier for competitors to use its online advertising tools, a commitment that will be legally binding in France for three years. Google could look to take a similar approach to settling other legislative battles, such as an ongoing antitrust probe in Germany.

📺 ON THE TUBE TONIGHT-

Another Netflix doc on the complexities of being human: Human: The World Within explains the biological systems that define us as a species and influence every individual’s life, passions and goals. The six episodes focus on the nervous system, the heart, food and eating, adaptation, our senses, and the birth process. The documentary uses real people and situations to illustrate the scientific information it conveys, making the episodes more relatable. For the episode on food and eating, the documentary introduces us to a distance runner preparing for a trek who explains how different foods will affect him. In the adaptation episode on the other hand, a woman who lives in the desert explains how her immune system has adapted to the harsh environment. Ready Steady Cut are out with a review.

🎤 OUT AND ABOUT-

Don’t miss out on a Abdel Halim Hafez concert (you heard right): After 2Pac made a posthumous hologram cameo at Coachella (watch, runtime: 5:00) a couple of years back, Egyptian singing legend Abdel Halim Hafez will be making his hologram debut concert later this month: The 90-minute concerts will be held on 17 and 18 June and you can buy tickets through TicketsMarche.

💡 UNDER THE LAMPLIGHT-

How to navigate the technological world with the least amount of stress: Digital Minimalism by Cal Newport introduces a 30-day moratorium on digital noise and instructs readers on how to conduct a “digital declutter” to combat the overuse of technology. The book is filled with anecdotes on how getting off screens can allow for new passions and goals to emerge. While a lot of Newport’s arguments against technology-filled days have been said time and again, it's the approach he takes to changing the new normal, and the steps he outlines to getting there, that make it easier to accomplish.

☀️ TOMORROW’S WEATHER- Expect daytime highs of 38°C and nighttime lows of 21°C tomorrow, our favorite weather app says.

SPEED ROUND: INVESTMENT WATCH

Hey there, Opontia (wink, wink)

Egypt could receive some of the USD 20 mn Riyadh-based consumer holding startup Opontia has earmarked for regional acquisitions. The company plans to open up offices in Egypt, Nigeria and Turkey in the coming months after raising USD 20 mn in a seed funding round that will finance future acquisitions of e-commerce brands, as well as recruitment, according to a statement.

The seed round was led by Raed Ventures, Global Founders Capital, Presight Capital, and Kingsway Capital. Angel investors include Razor Group CEO Tushar Ahluwalia, Jumia Nigeria former Managing Director Jonathan Doerr, and UAE-based payment plan provider Tabby CEO Hosam Arab.

Who is Opontia? Launched in March 2021, Opontia acquires and operates e-commerce brands in the Middle East and Africa. The company has made acquisitions and sales in the UAE, Saudi Arabia, Bahrain, and Kuwait so far.

SPEED ROUND: CAPITAL MARKETS

JUFO signals to the market that its financials are sound

Juhayna Food Industries (JUFO) has released a snapshot of its unaudited FY2020 earnings (pdf) in a move likely meant to reassure investors and express confidence in their numbers. The move comes after the company was placed on the EGX’ ‘D-list’ of non-compliant companies last week for failing to report their FY2020 by 1 June, catching the market off guard.

What’s holding up the audited financials? In a nutshell, the auditor. The company has two auditors: KPMG and Grant Thornton. One is more or less finished with its review and the other has asked for a final two-week extension, which would take us until mid-June, Investor Relations Director Khaled Daader told us last week.

All should be good once the auditors sign off: Once the auditors sign off on the deadline, JUFO would then go before an EGX committee that meets each week and be bumped back to the “A” list, Daader had said.

How much did JUFO make last year: The company’s consolidated bottom line grew 34% to EGP 440 mn in 2020, up from EGP 329 mn the previous year. Revenues were unchanged over 2019, staying put at a little over EGP 7.64 bn.

MORE EARNINGS TO WATCH OUT FOR-

MM Group posted a 22% y-o-y increase in its bottom line to EGP 130.24 mn in 1Q2021, up from EGP 106.64 mn in 1Q2020, the company said in its quarterly financials (pdf). The company’s sales also grew to EGP 2.5 bn in 1Q2021 from the EGP 2.2 bn recorded in the prior-year quarter

SPOTLIGHT

Openner’s Ahmed Elsherif on venture building, what the newest VC firm has under its sleeve for Egypt, and what makes a startup “venture-backable”

How US-based Openner is making venture-building a thing in Egypt: Openner, a VC firm with an eye for the region but based in Washington DC, announced last October it’s on the lookout for stakes in as many as 50 tech startups, with USD 5 mn earmarked for Egypt at an initial stage. Yesterday, Openner made its first public announcement of a six-figure USD investment it closed for tejarra.com, to which it plans to provide technical support, expertise, and other resources alongside the VC funding. The Middle East and Africa-focused VC firm is led by Egyptian American founder and general partner Ash Rofail (LinkedIn) and Egypt Managing Director Ahmed Elsherif (LinkedIn).

At the heart of its investing model in Egypt is a VC track that barely gets a mention known as venture building.” We sat down with Elsherif, the man helping Openner bring this new model to Egypt. The newly-tapped MD spoke to us about how Openner does what it does, what it has in store for Egypt, and how the “venture building” model might be just what’s needed to unlock massive potential in a nascent VC industry.

Key takeaways from our discussion include:

  • How venture building, a systematic process to create and grow new businesses, has a proven track record of increasing the likelihood of success in startups.
  • Openner will operate in Egypt as a dedicated venture builder, after some tweaks and adjustments it made to its business model before setting up shop here.
  • The VC firm is aiming to expand its fund to USD 30 mn in a long-term plan that will see it commit an initial USD 5 mn to up to 50 startups in the next two years.
  • Egypt still needs a lot more early-stage investors and backers, and investors in this area need to be more bullish on backing startups from an early stage in order to grow and scale more businesses that can eventually become the next Fawry.

ENTERPRISE: What is venture building?

Ahmed Elsherif: We select an idea or product that resonates with an existing market need and is led by great entrepreneurs, who we take on board from day zero. Together, we validate the idea, build, and test the product, and acquire first customers. When they are ready, we accelerate the market launch, help hire a founding team, and give the founders access to company-building resources including backing from our in-house staff and help with other secondary functions in areas covering legal, financial, and HR, as well as design, marketing, and branding advice. This is alongside the VC financing itself. Venture builders generate in-house ideas that they could then introduce to the market through the startups they select.

E: How is this different from what regular incubators and VC firms do?

A: In traditional early-stage investing, a fund invests a significant amount of funding across a large number of startups, in the hope of making high returns on a few of them. Typically, the non-venture builder provides little or no support beyond capital. This support is often limited to some form of early-stage mentorship and occasional help tapping markets, but rarely goes beyond that. By contrast, venture builders focus only on a handful of carefully selected startups that are at the early stage and work closely with their founders.

E: Why does Egypt need the venture building model?

A: We believe that there is still a considerable gap in early-stage financing, and a lot of talented founders with market-relevant ideas and solutions and a market that is very ripe with digitization potential. Most founders struggle due to limited funding. And when funding is available, they struggle with allocating resources into the right company-building activities. Venture-building helps startups bridge this gap, dramatically increasing their chances of success. A recent report by Global Startup Studio Network (pdf) showed that the average internal rate of return (IRR) of startups created through venture building goes up considerably. Startups that go through the process have an average IRR of 53%, as opposed to 21.3% if they take the traditional route, and the time they need to get to series A from launch is cut down to only 25.2 months from 56 months.

E: What does Openner have in mind for Egypt

A: We’re looking to initially deploy USD 5 mn and scale early-stage companies through venture-building. We’ve so far invested capital and resources in five startups in the following sectors: end to end healthcare, financial technology and peer to peer money transfer, sports, electronics-focused e-commerce, and educational technology, and are currently studying four other prospects.

Our future plan for Egypt is to expand this USD 5 mn into a USD 30 mn fund that will focus on startups we can support through the entire early-stage value chain, taking them from idea to market. The expanded fund will also make follow-on rounds in a few select portfolio companies, but this is more of a long-term plan.

E: Why should entrepreneurs in Egypt choose to work with Openner?

A: We have invested USD 25 mn in 100 portfolio companies since 4Q2016, now worth an aggregate USD 2.95 bn. Aggregate capital raised by those companies is upward of USD 1 bn. We also have a strong and proven track-record in building companies that have exited or became leaders in their respective industries. Those companies received follow-up investments from the likes of ExxonMobil, Mastercard, CitiVentures and other multinationals, as well as from dozens of tier-one, US-based VCs. In terms of what we do, we provide those companies with everything they need – whether UX / UI design, engineering, branding, marketing, recruiting, legal, or financial expertise. That way, the entrepreneurs can focus on what is most important: building their business and growing their customer base. The process for each company is also customized based on its needs.

E: What will an average-single ticket investment be?

A: We provide up to USD 250K for a variable equity stake (case by case depending on the startup, its progress, and how much support it needs).

E: Which sectors in Egypt pique the most interest, specifically out of your co-investors?

A: We’re sector agnostic but the main themes that we find compelling are fintech, insurtech, property tech (proptech), govtech, digital health, media and entertainment, e-commerce, enterprise software, and AI and blockchain.

E: Talk to us a little bit about your exit strategy. What plans do you have to ensure the firm sees strong exits moving forward?

A: Our exit strategy is straight-forward. When they prove themselves we aim to double down through follow-ons; accordingly, we believe that the more we do that, the more we amplify the chances of success and the returns that we generate for our investors will most certainly be higher than normal. An exit trigger for us would be an acquisition, an IPO, or hitting a certain level of return, or a follow-on investment, which is the typical exit format.

E: What else do you do that we should be aware of?

A: We have three streams of business in which we operate. We have Openner Innovate — where we partner with leading corporations to co-create, launch, and scale a continuously evolving pipeline of tech startups. We have Openner Build and Openner Invest, which we discuss above, are part of the venture building model.

E: Are there any names in the tech business you’d pencil in for a Fawry-like story?

A: My hunch tells me that the next big success story will also be a fintech one. But I cannot confidently claim a specific company at this point, the existing companies definitely need time to flourish, and today’s environment is becoming a lot more conducive.

E: Why do you think startups in Egypt don’t go public?

A: We need a lot more early-stage investors and backers. What’s even more important is that we need to create more venture backable stories that can attract more funding. This means we need to focus on increasing the relevance of the solutions that we fund and build, and accordingly build high-return portfolios. There are so many gaps in the landscape that are yet to be addressed, and there should be a lot more focus on backing startups and ideas that are solving localized and very market-relevant problems. The VC market, in Egypt and the larger region, is still at a stage where it is yet to see sizable returns, but recently this industry has been booming and growing. It’s been getting a lot of attention over the past two years.

E: Have entrepreneurs you’ve worked with been mapping out IPOs later in their growth stories?

A: We are a lot more focused right now on proving our model, given that we have only recently entered the Egyptian market. But part of what we do with founders is to focus on educating them about the life-cycle of building a company and taking it to an exit scenario. Sooner down the line, we could focus a lot more on exploring this topic with founders.

E: What makes a successful, investible VC-backed startup?

A: Founders need to have stellar domain expertise. Their ideas have to have potential to reshape value chains at an industry-wide scale, while their business models need to have a clear and big impact on the economy and culture and a potential to enhance the livelihoods of mns.

GO WITH THE FLOW

Go with the flow on 7 June

The EGX30 fell 0.2% at today’s close on turnover of EGP 1.71 bn (24.2% above the 90-day average). Foreign investors were net sellers. The index is down 6.8% YTD.

In the green: Oriental Weavers (+6.2%), TMG Holding (+5.2%) and Telecom Egypt (+4.0%).

In the red: Fawry (-3.3%), CIB (-1.8%) and GB Auto (-1.8%).

SCIENCE & TECH

This is sounding eerily like Jurassic park, but with fuzzier cuter monsters

To save animals from extinction, Russian scientists are turning to Spielberg for inspiration: Arctic ecologists Nikita and Sergey Zimov are attempting to recreate the Pleistocene-era grassland Mammoth Steppe — where bison, caribou, muskox, and of course woolly mammoths roamed and grazed — by reintroducing and maintaining the species that used to inhabit the area. With their Pleistocene Park project in Siberia, the scientists hope to mitigate climate change in several ways, the BBC reports (watch, runtime 07:27).

But first, what is the Mammoth Steppe? Roughly 15k years ago, the mammoth steppe, the world’s largest biome before the most recent ice age, spanned from France eastward to Canada, and from the Arctic to China. It was made up of millions of large herbivores, including mammoths, bison, and woolly rhinoceros which fed on abundant grasslands. This grassland played a vital role in climate control, but has deteriorated significantly over time along with the wild populations of these herbivores.

The modern arctic ecosystem has roughly 100 times fewer animals than it did in the Pleistocene. With the end of the Pleistocene era, the climate warmed, and humans migrated to Siberia and the Americas. The introduction of humans as predators in these regions led to the extinction of most large animals, and the further degradation of the steppes.

How has this affected climate change? As fewer large herbivores grazed and trampled the land, grasslands were replaced with mossy forests and wetlands, which are significantly less effective at absorbing carbon and coping with climate change.

Pleistocene park is hoping it can turn back the environmental clock some 15k years: By reintroducing megafauna (read: large animals) Nikita hopes to promote grassland expansion. The trampling of the animals will expose the permafrost layer, enabling it to freeze better during the winter, thereby slowing down the process of its melting, which is a major contributor to carbon dioxide emissions. Grasslands will also be better than forests at maintaining an open layer of snow with direct exposure to sunlight, thereby reflecting back more of the sun’s radiation.

So are they actually planning to bring back wooly mammoths? The short answer, yes. While mammoths are long extinct, CRISPR DNA technology may be able to facilitate the “de-extinction” or “genome engineering” of a modern day mammoth. The Woolly Mammoth Revival project at Harvard University has been working on copying DNA from existing mammoth genomes into modern day elephant cells, thereby attempting to create a new cold resistant elephant species that could inhabit an environment like Pleistocene Park. The process depends on restoring a number of cold resistance genes, of which scientists have already managed two, and are working on several dozen more.

But wait, is that ethical? Other than the “we shouldn’t play god” argument, some researchers have expressed concern that the process of resurrecting a mammoth could pose dangers to the Asian elephant surrogates that would birth these new creatures. Others argue that increased genetic modification of animals could lead to increased animal cruelty, with whole generations of modified animals bred explicitly for testing. Others have raised concerns about the threat creating new species may pose to human health, while some others find it just plain weird.

Our take? We’re going to put ourselves in the “all in the name of science camp,” in large part because we really, really want to see a mammoth in our lifetimes. We’ll leave you with the words of renowned UK biologist Richard Dawkins in response to those who ask why we should bother with this whole de-extinction business.

CALENDAR

7 June (Monday): British Egyptian Business Association hosts an event featuring Oil Minister Tarek El Molla.

7-9 June (Monday-Wednesday): A delegation of 18 French companies will meet with international financial institutions and Egyptian private partners in an event organized by Business France The event will take place at Sofitel Gezirah.

11-14 June (Friday-Monday): Egypt is hosting the first forum of the heads of African investment promotion agencies from under the theme Integration for Growth.

14 June (Monday): Egypt Green Economy Forum.

17 June (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

17-20 June (Thursday-Sunday): The International Exhibition of Materials and Technologies for Finishing and Construction (Turnkey Expo), Cairo International Conference Center.

20 June (Sunday): Ismailia Economic Court to hold hearing on Ever Given compensation case.

20 June (Sunday): Deadline to apply for enpact and the TUI Care Foundation’s Tourism Recovery Programme. You can apply using this link.

22-27 June (Tuesday-Sunday): The CIB PSA World Tour Finals for 2020-2021 will take place in Cairo.

24 June (Thursday): End of the 2020-2021 academic year (public schools).

26-29 June (Saturday-Tuesday): The Big 5 Construct Egypt, Cairo International Convention Center, Cairo, Egypt. The Big 5 Egypt Impact Awards will also be taking place at the event on 27 June.

28 June – 2 July (Monday-Friday): The European Bank for Reconstruction and Development will virtually hold its 30th annual meeting and business forum.

30 June (Wednesday): The IMF will complete a second review of targets set under the USD 5.2 bn standby loan approved in June 2020 (proposed date).

30 June (Wednesday): 30 June Revolution Day.

30 June- 15 July: National Book Fair.

July + August: Thanaweya Amma exams take place.

1 July: (Thursday): National holiday in observance of 30 June Revolution.

1 July (Thursday): Large taxpayers that have not yet signed on to the e-invoicing platform will suffer a host of penalties, including removal from large taxpayer classification, losing access to government services and business, and losing subsidies.

1 July (Thursday): Businesses importing goods at seaports will need to file shipping documents and cargo data digitally to the Advance Cargo Information (ACI) system.

15 June (Saturday): EGX-listed will have to complete filing their financial disclosures for the period ended 31 March.

19 July (Monday): Arafat Day (national holiday).

20-23 July (Tuesday-Friday): Eid Al Adha (national holiday).

23 July (Friday): Revolution Day (national holiday).

2-4 August (Monday-Wednesday): Egypt is hosting the Africa Food Manufacturing exhibition at the Egypt International Exhibition Center.

5 August (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

9 August (Monday): Islamic New Year.

12 August (Thursday): National holiday in observance of the Islamic New Year.

12-15 September (Sunday-Wednesday): Sahara Expo: the 33rd International Agricultural Exhibition for Africa and the Middle East.

16 September (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

30 September-2 October (Thursday-Saturday): Egypt Projects 2021 expo, Egypt International Exhibition Center, Cairo, Egypt.

30 September-8 October (Thursday-Friday): The Cairo International Fair, Cairo International Conference Center, Cairo, Egypt.

1 October (Friday): Expo 2020 Dubai opens.

6 October (Wednesday): Armed Forces Day.

7 October (Thursday): National holiday in observance of Armed Forces Day.

12-14 October (Tuesday-Thursday): Mediterranean Offshore Conference, Alexandria, Egypt.

18 October (Monday): Prophet’s Birthday.

21 October (Thursday): National holiday in observance of the Prophet’s Birthday.

28 October (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

1-3 November (Monday-Wednesday): Egypt Energy exhibition on power and renewable energy, Egypt International Exhibition Center, Cairo, Egypt.

1-12 November (Monday-Friday): 2021 United Nations Climate Change Conference (COP26), Glasgow, United Kingdom.

29 November-2 December (Monday-Thursday): Egypt Defense Expo.

13-17 December: United Nations Convention against Corruption, Sharm El Sheikh, Egypt.

16 December (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

14-16 February 2022 (Monday-Wednesday): Egypt Petroleum Show, Egypt International Exhibition Center, New Cairo, Egypt.

1H2022: The World Economic Forum annual meeting, location TBD.

May 2022: Investment in Logistics Conference, Cairo, Egypt.

27 June-3 July 2022 (Monday-Sunday): World University Squash Championships, New Giza.

**Note to readers: Some national holidays may appear twice above. Since 2020, Egypt has observed most mid-week holidays on Thursdays regardless of the day on which they fall and may also move those days to Sundays. We distinguish below between the actual holiday and its observance.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2021 Enterprise Ventures LLC.