Tarek Assaad wears Algebra Capital’s investment thesis on his sleeve — and on his face. “No, I prefer to smile, if you don’t mind,” Assaad (LinkedIn) told us when agreeing to pose for the shot you see above. Assaad, partners Karim Hussein and Ziad Mokhtar and the team at Algebra embody a sunny optimism about what’s possible in Egypt, the region and emerging markets at large when the entrepreneurs (both the tech-focused and the tech-enabled) get the financial and organizational backing they need. The company has become synonymous with VC and tech culture here in Egypt, having led or joined funding rounds for companies that are budding household names, among them Eventtus, Elmenus, FilKhedma and La Reina. He’s also opened our eyes to the immense potential of core tech in Egypt, embodied by scrappy startups such as the ridiculously cool Si-Ware. Tarek is an engineer and veteran of America’s West Coast tech scene, but he’s not one to fetish-ize the Valley. On the eve of a recent trip to California for a high-profile industry event, we asked Assaad whether he was looking forward to rubbing shoulders with America’s tech elite. “Naw. You know, I go because I get to meet VCs from other emerging markets. We have so much more in common with people in Argentina or Southeast Asia — it’s a totally different game here.”

A few years ago, friends would ask me, “When are you going to get a real job?” The momentum that exists now at the mass market level just wasn’t there even a couple of years ago — people thought the whole ecosystem was something that happens in the US, but would never be successful here. But then Uber, Careem, Facebook, and the likes entered the market. Now, people are asking me how they can become angel investors. The number of introductions I make between people from brick and mortar industries who are interested in getting their feet wet with this type of investment has increased significantly compared to a few years ago.

Look, the industry is nascent — you can count the players on one hand at the moment. But there is more than enough activity to keep us busy, and we are seeing regional investments coming in and signing agreements — like Swvl — that are increasingly becoming larger.

There is a lot more capital coming into the industry. Sawari Ventures just closed the USD 35 mn North African fund, for example. There are a couple of others who are raising capital, and there is a lot more interest from regional funds looking Egypt. There’s different stages of venture investment and I think there is more money coming in.

A few years back, the typical round for an Egyptian tech startup would raise USD 1-2 mn; today, you’re seeing rounds of USD 5-10 mn and, more recently, rounds raising USD 15-20 mn. We’re seeing more money coming in as companies are maturing, and the sources of funding are also changing — a lot of the money has been coming in from the region or internationally, but we’re starting to see more involvement from local players.

It’s fine to start small. There’s a significant opportunity in alignment for future rounds once the first introduction is made. Once someone gets an investment of USD 50k in the first round from a connection I made, they’ll come to me in the next round when they need a USD 1 mn investment.

2018? Well, it was the year of ramp up for us, for the fund. We closed in late 2016, we had a few transactions in 2017, but the investment pace really picked up in 2018. We close the year having committed almost twice the capital to just about twice as many transactions as the year before.

For Algebra, 2019 will be the year of follow-on investments, from us and from other people / investors. The investments we made in 2017 and 2018 are maturing enough that these companies are going out and looking for subsequent funding. We’re going to continue backing these companies, but we’re also going to invite other investors to participate in subsequent funding rounds. This could mean bringing in other limited partners from outside our fund structure.

Bringing the right talent to portfolio companies is going to be the biggest challenge for us this year. We’ve been focusing over the past few years on just making sure we have an engine that works and can then bring in senior and technical talent. We have senior talent, but a lot of companies are struggling to retain technical talent because so many developers are going abroad, especially to places like Germany.

How can we keep people here? Give them exciting opportunities and give them ownership within the opportunities. We’ve seen companies that have very strong cultures (which can be hard to build) thrive when they can clearly describe the value of the stock options that they offer. This is a shift from the mentality, particularly among younger developers, that compensation is only calculated with salaries and bonuses, and with zero value placed on stock options because they’re illiquid. Some companies are doing a better job now at explaining the value there and showing that adding stock options to the equation makes the outcome more attractive than leaving. Lifestyles abroad may be different, but there’s no question that the upside potential here is different.

Fintech is clearly one of the biggest opportunities in 2019, but we haven’t seen the pipeline that we would have hoped for. A lot of that is because starting a successful fintech company requires having earned some exposure to it in a previous life, as opposed to e-commerce, for example, where all you need is to be a consumer who identifies an inefficiency and tries to solve it.

The chance to move the needle here in Egypt is significantly greater than in more developed markets, because there’s so much potential here in everything that hasn’t been done yet. Technology can play a big role in that. Fintech is a buzzword everywhere, but Egypt’s credit card penetration rate is 3% — fundamentals like that scream for more things to be done.

How do I see the wider economy faring in 2019? The real answer is I don’t really care, because we went through three constitutions and just as many presidents, a huge slump in the economy — and people are still looking at tech startups. That’s how it always is, unless there’s a catastrophe or a huge shock. If the economy is growing at 3% or 6%, our companies are still growing 100%.

Approach to compensation in 2019 budget: We’re a very small team. We select people based on their skills and the impression they make, and we want to make sure they are well-rewarded, so the compensation will reflect that. We work hard to bring in the right people, and once they’re in, we’ll compensate them well. We are planning on giving raises for 2018 performance.

Inflation in general slows everything down and we feel that sometimes, but it’s interest rates that matter to our portfolio companies. There are a few things that come into play here: We’re a USD-denominated fund, so after the devaluation, we expected inflation to keep picking up and we’ve seen that happening for a while. We’re keeping an eye on inflation and FX rates and how these will affect our returns. FX rates shifting within the 10% range won’t really hurt us too badly, but a sharp drop like the EGP float eats out all the gains you’ve made, so that’s something that worries us. None of our companies will go take a bank loan, but high interest rates correlate with high inflation. With high inflation, people will spend less on fewer things, and companies will be hindered.

There could be a few exits by venture capital in our industry this year, but it won’t be the year of exits. Companies are still maturing, so we’re probably still two or three years away from seeing that happening in Egypt. Maybe in the rest of the region, things will start happening a bit earlier just because funds entered earlier. Systematic exits will happen when the companies that we’ve been funding, as an industry, for the past few years achieve either significant traction on the user level or significant financial performance.

Who will buy at exit? If you have financial performance, you can attract the PE guys, who are looking for interesting tech plays. If you have enough of a market presence, even if you don’t have the financials, you’ll attract strategic players. Both these scenarios can happen but I don’t see many companies ready to get to that phase this year.

You’re not going to see tech IPOs in Egypt anytime soon. A lot of businesses that have been built in the past few decades have grown and become attractive, but almost none of them are tech businesses. It’s almost the exact opposite in developed markets: Many of the companies that have been built in the past 20 years are in tech. International asset managers will be ready to come into Egypt, but they’ll ask their local counterparts about their tech allocation, and the answer is, “We don’t have any because there are no publicly traded tech companies.” IPOs will eventually happen, but right now it’s less risky and less of a headache for the entrepreneur to let PE or strategic investors come in and make the business more attractive, rather than go to market. I’m not sure who will go the distance, but there’s a hump to overcome, after which you’re in a really good position where there’s a lot of money chasing fewer opportunities.

There will be a lot more capital coming to the market in 2019, whether in the form of LPs supporting funds or direct investments or some organizations playing both roles. I see the IFC and EBRD both supporting funds. The EBRD is an LP currently supporting Algebra, and the IFC didn’t make a direct investment in this space last year but put USD 6 mn in Nigerian logistics startup Kobo360. As the ecosystem develops and companies make more money and attract more capital, it will stop being a dual bottom-line game: The purely for-profit guys are becoming a lot more interested and are coming here because they see opportunity.

Any sector driven by technology will outperform this year. Software will eat the world.

Industries that are being disrupted by technology and can’t adapt fast enough will probably underperform.

Regulation counts a lot, but it’s more of an issue for the portfolio companies. Transport companies will be regulated by the Ride-Hailing Apps Act, for example. Regulation for others, like fintech companies, is unclear. Regulation isn’t quite breaking investments, but it’s certainly an area of concern and a risk consideration. I don’t care about the economy’s growth rate, but I do care about regulation, and so far regulation is structured in a way that favors larger companies or stifles innovation, or requires a lot of hoop-jumping that startups aren’t capable of. These are the kind of things that can scale back a lot of the momentum that’s already been building up. Regulation for VCs is different, because all VC funds, including Algebra, are domiciled elsewhere because of difficult local regulations. But the bottom line is that the money is still coming into Egypt, so it’s not the end of the world.

Egypt stands out among its regional peers for the size of its economy and the quality of talent that makes a tech play doable. In other countries, you’ll see large markets but not enough depth of technical or commercial talent, or strong talent but a small market. If you start in one of these countries, like Jordan, you have to start locally and then try to think of how to expand to another country, like Saudi. But Saudi and Jordan are two different countries and typical consumers are dealing with different issues in each of them, so it’s difficult to scale outwards. But in Egypt, the market is big enough with a strong enough talent pool to build a strong tech startup and scale inwards to the domestic market and reach a decent enough scale. That makes Egypt attractive and make the most sense for our business.

Outside parties frequently ask us about the holding period and follow-on capital. Nobody really knows how long it will take to exit tech startups in this part of the world and how much more capital you will need to deploy. You could look at other structurally similar markets like South America and South East Asia and try to guess, but we’re cautious about follow-on capital and we’re dedicating a very significant part of the fund for that. There’s a lot of capital coming in, which is great, but we know that we will need to shoulder these investments for quite some time until someone new comes in and wants to invest in the company.

It’s exciting to see the quality of talent that is willing to leave or forgo very attractive opportunities and come to the world of startups. We’re seeing people leaving fast-track corporate careers that could have them in a VP position at a large multinational and instead decide to become the VP of marketing or operations at a tech startup, and that’s exciting for us. Once you have USD 1 mn in funding and a strong CEO — someone who can articulate the vision and tell someone who’s qualified come build this with us it works. Algebra tries to play a role in that — connecting someone who may have comfort and security but is bored and wants to be part of something different to ventures that we see potential in. The level of energy and engagement there is phenomenal, and that’s something we want to double down on this year.