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Wednesday, 20 June 2018

Is Egypt becoming a hotbed for local and regional VCs?

Is Egypt becoming a hotbed for local and regional VCs? By all counts, this appears to be the case — at least as far as early stage investing is concerned, according to Wamda’s Omar Barakat. 2018 has seen Egyptian startups score record funding, with a total of ten disclosed investments amounting to USD 17.8 mn in 2018 already, up 21.4% y-o-y over 2017. The growth can largely been attributed to a maturing entrepreneurial ecosystem and investment climate, says our friend Khaled Ismail, the high-profile angel investor. This growth, however, appears largely concentrated in early stage seed rounds. Vezeeta’s 2016 Series B round held the record in Egypt at USD 5 mn until Wuzzuf and Forasna’s USD 6 mn Series B funding last month. “The country still has a significant gap in growth funding, Series B, C and D stage investors that can write USD 5 mn checks and above,” he says.

Later stage funding heavily dependent on regional players: This funding gap appears to being filled by regional investors, typically led by a syndicate of larger funds, says Ismail. Egypt’s startup investment climate has not yet matured to a point where the ratio of investors has not caught up with the emergence of later stage startups, he added. “Regional investors understand the Egyptian market and they know what it needs…they also help startups go to their markets,” said Swvl cofounder Mahmoud Nouh. “In this sense, regional investors are fulfilling two vital needs for growth stage startups: access to capital and access to new markets.”

What’s next for the VC scene? Later stage will have its day in Egypt, as it remains one of the best places in the region for startups to break out. This is thanks to a large and complex market, where it is easier to build in Egypt and expand regionally than the other way around, says Vezeeta CEO Amir Barsoum. Ismail sees later stage investor to develop in a model very different from the buyout model in the US. “We need a different path of funds that takes less risk and play a more vital role in mentorship with the companies as opposed to the high risk hands of and hope for 50x return in 5 years,” he added.

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