Who is investing in Egypt’s fintech startups? 2021 was a bumper year for fintech funding in Egypt, we wrote earlier this year, as per the Central Bank of Egypt’s (CBE) fintech data, which were released by CBE-backed initiative Fintech Egypt. Total investments in the sector more than quadrupled to USD 159 mn last year, up from USD 37.1 mn in 2020. Now, Fintech Egypt released its Fintech Investment-Focused Landscape Review (pdf), which looks at what went down in the first half of this year — and boy, did Egypt do well.

The value of investments in Egypt’s fintech startups reached an all-time high of USD 167 mn across 31 transactions in 1H2022, according to the report. This includes five investment rounds that surpassed USD 10 mn each, while series A and B funding accounted for some 90% of total investments. The biggest rounds we heard of in the sector were Paymob’s USD 50 mn series B, Khazna’s USD 38 mn series A, and Lucky’s USD 25 mn series A.

There are several factors driving this growth: The report attributes the growth to the regulatory reforms implemented over the last few years, coupled with the increase in the total number of investors who started to invest in Egypt over the last few years. The report also points to a large ripe domestic market given our population size and a vast reservoir of young talent and tech calibers as key driving factors. Lastly, there’s mega initiatives in place to support the sector, such as the CBE’s Regulatory Sandbox, fintech fund “Nclude,” and fintech innovation hub “Grid” that will open its doors in 2022.

Bootstrapping is still the most common source of funding for fintechs, with some 42% of surveyed startups finding it to be the easiest route, the report finds. However, their growth from one stage to the next compels them to seek VC funding, which 37% state is the second-easiest and common source of funding. This is followed by angel investors (29%), PE (27%), incubators and accelerators (16%), debt financing (4%), banks and asset management (4%), and M&A (2%).

So which sub-sectors dominated VC fintech investments in 1H2022? Mainly payments and remittances, the data says. Some 58% (USD 96.8 mn) of the funding amount was directed to startups operating in the payments and remittance sphere, according to the report. This was followed by lending and alternative finance (26%) and wealth management and savings (12%). The remaining 6% were distributed among other sub-sectors, including B2B marketplaces, data analytics, insurtech, and payroll and benefits.

And who is investing in them? Among the 26 surveyed fintech investors, 69% were VCs, 23% were accelerators, and 8% were angel investors. Some 27% of them have a fintech-focused fund or program, and just over a quarter of the portfolio of 19 investors consists of fintech or fintech-enabled startups, the report adds.

More regional and international investors have started funding Egyptian fintechs. While 53% of fintech investors of 1H 2022 are headquartered in Egypt, 19% are based in the US, 8% in Saudi Arabia, 4% in Jordan, and 4% in China, according to the study.

What are those investors looking for? A solid team, unanimously. All surveyed investors named a startup’s team as the main priority when making investment decisions. Unit economics and post-revenue generation came in second place (86%), and investment thesis fit and impact both came in third (71% each). Other key areas of focus included founders’ leadership ability, revenue model, and innovative product (57% each), as well as track record, sector-specificity, serviceable obtainable market, and reasonable money burn rate (29% each).

And what are startups looking for when approaching VCs? Almost half of those surveyed cited connection and expertise, followed by the name and reputation of the VC (46%). Previous track record and past transactions came in a close third at 42%, with support services (besides funding) coming in fourth at 39%. Those were followed by terms of agreement (33%), industry focus of the VC (26%), alignment (22%), financing amount (21%), startup autonomy (6%), and location of the VC (1%).

Funding is far and away the most-needed support area fintechs and fintech-enabled startups seek from investors, with 86% citing it as their top priority. This is followed by networking (44%), mentorship (22%), and PR and marketing (13%). Other areas include talent management (5%), coworking space (1%), and domain expertise (1%).

So what’s next for fintech startups seeking funding? Some 70% of investors have pre-set future plans for fintech or fintech-enabled investments in the next three years in Egypt, according to the report. Of those, 29% want to invest USD 10-20 mn and 24% are looking to invest more than USD 50 mn. Ticket sizes of up to USD 5 mn and between USD 20-50 mn come tied in third place (18% each), and 11% are planning to write USD 5-10 mn checks.

Currently, 108 startups are seeking over USD 600 mn in funding — with the vast majority seeking early-stage funding, the report states. Almost half of them are seeking to raise funding in the next 12 months. Some 45% are approaching VCs now, and 7% are looking to join an acceleration program. More than half (55%) are looking for seed rounds, 21% are looking at pre-seed, and the remainder is divided between series A (19%), series B (4%), and series C (1%).

EGX IPOs are seen as a future potential exit strategy for startups, according to 53% of surveyed investors and 26% of startups. Investment firm Foundation Ventures is quoted as saying that even “dual-listing between the EGX and other global stock exchanges are hopefully going to become more prevalent in the future.”

Investors are keeping an eye on the open banking trend, the survey suggests. Open banking is the idea that financial institutions and ins. companies open up their APIs for fintech companies to capture and pass data. Three-quarter of the surveyed investors believe that the open banking and infrastructure sub-sector has a high growth potential in the near future in Egypt.

Lending and alternative finance, B2B marketplaces, and insurtech are a close second at 70%. They are followed by payments and remittance (65%) and agritech (45%). 40% of the investors see high growth potential in payroll and benefits, personal finance management and financial literacy, and data analytics and AI. The trends to watch out for also include proptech (35%), accounting and expense management (30%), wealth management and savings (30%), regtech (25%), and rotating savings and credit associations (ROSCA) — think “gameya” (25%).

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Your top stories on future trends for the week:

• MNT–Halan has acquired Cairo-based B2B e-commerce platform Talabeyah for an undisclosed amount.
• Furniture and home goods marketplace Homzmart will open two showrooms in New Cairo and Sheikh Zayed next month. (Al Mal)
• Local AI tech startup Synapse Analytics has raised over USD 2 mn in a pre-series A round led by Egypt Ventures.