THIS MORNING: Meltdown on Planet Startup + FinMin ends fixed customs exchange rate
Good morning, friends, and welcome to a very busy Sunday in which the apparent meltdown of Capiter is the only thing most people are talking about. The board of the high-profile B2B e-commerce startup said it had fired the company’s two co-founders — who are also its CEO and COO — alleging the two brothers had failed to show up for meetings with representatives of the board.
The news comes as Capiter’s meltdown has been chronicled in near-real time through social media posts that have included allegations both conceivable and outlandish. Business failure is messy, but it doesn’t mean that everyone is a crook (until proven otherwise).
It is becoming a pile-on, and we’d ask you to remember this: Building (or investing in, or working at) a new business is risky. All the more so if you’re chasing scale, as the venture capital growth model demands. Businesses were failing long before VC investing was the “thing.” Consider the stats from the US of A: One in five new businesses fail in their first year. Half of all new businesses disappear from the face of the earth by year five. And about 70% of businesses fail to make it to their 10th birthday. And that is in a country that has enough experience with entrepreneurism to have real small business funding products, experienced founders, and meaningful bankruptcy protection laws.
Presuming there has been no financial impropriety on the part of the Nouh brothers (a presumption we have to make until the contrary is proven): “This would not even be a story in Silicon Valley — it would just be another Friday,” venture investor Aly El Shalakany told us over the weekend.
Capiter is the first high-profile Egyptian startup to publicly implode — it won’t be the last. More companies will fail in the coming 6-12 months. Many of them are great businesses in the making, but will choke because of current market conditions in Egypt. Because they miss KPIs that would trigger new tranches of cash from VCs. And because funding for startups is drying up: VCs themselves have less money to invest because their limited partners are looking at much less risky assets. Others will fail because they were simply never good businesses to start with — companies with incompetent founders or dumb business models, for example.
What should you do if you’re running a startup now? First, don’t panic. Second, think about what your staff, your investors, and your partners (suppliers and the like) need to hear. Write out a script for each, then have an all staff. Call all your investors. Reach out to your partners — in person if you can.
Second, huddle with your core team and ask yourselves: What can we do to slash the “burn rate”? Do we have a path to profitability? To becoming cashflow positive? It will mean growing much slower in the coming year — hell, it probably means getting smaller — but it will also mean you’ll have a chance of reaching the other side, where you’ll find yourself stronger (and with much less competition). We previously looked at how local startups are tightening their belts by revisiting their growth trajectories, marketing activities and customer acquisition efforts.
Lamees El Hadidi got it right last night: “This isn’t the first company to collapse and won’t be the last … especially in the current economic circumstances,” adding that it would be a shame if others in the startup community were tarred as a result.
The last word goes to serial founder Mohamed Nagaty, who says he thinks just 10-15% of startups survive. “It’s okay for a company to collapse, and it’s okay to see problems on the condition that this doesn’t affect the entrepreneurship climate, which has brought in the USD equivalent of more than EGP 50 bn in the past 10 years,” he told Amr Adib (watch, runtime: 5:36).
^^ We have more in this morning’s news well, below.
Are we about to have an EEDC-ish gathering? Prime Minister Moustafa Madbouly will hold a meeting this week with the cabinet economic team, consultants and other experts, we’re told. The PM is preparing for what state-owned Al Akhbar Al Youm says will be an economic conference at the end of this month.
President Abdel Fattah El Sisi called for the economic conference last week, saying in a televised speech (watch, runtime: 4:32) that “there is a pressing need for an economic conference at which economic experts, business leaders, and investors can participate and exchange views. … I know that the National Dialogue has already formed a committee to discuss a host of economic issues, but I think we as a state are in need of a conference in which we can discuss pressing economic issues.”
MEANWHILE- There’s no longer a fixed customs exchange rate, Finance Minister Mohamed Maait clarified to Bloomberg Asharq last week after the Customs Authority announced that the USD would change hands at the border at EGP 19.31 from EGP 18.65 in June. From now on, the customs USD price will fluctuate in line with the official exchange rate, the minister said, ending a six-month period of fixed rates introduced following the devaluation of the EGP in March.
EGP WATCH- The EGP continued to slip on Thursday, hitting EGP 19.36 against the greenback from EGP 19.31 a day earlier. The currency has now fallen 22.7% against the USD since the devaluation in March.
HAPPENING THIS WEEK-
Our friend Dr. Mahmoud Mohieldin will join the good folks at AmCham for a luncheon tomorrow (Monday, 12 September) from 1-4pm CLT. Dr. Mahmoud will by speaking in his capacity as UN climate change high-level champion for Egypt. The special luncheon meeting at the Nile Ritz Carlton is open to AmCham members and their guests. Non-members can register to watch here.
Consoleya and Cairo Angels will host a business meet-up tomorrow focusing on Nigeria’s tech ecosystem and how it compares with Egypt’s startup scene. Tarek Shahin (CI Capital’s chief investment officer), Biola Alabi Media CEO Biola Alabi, and Ibrahim Sagna (Afreximbank’s global head of advisory and capital markets) and take part in a panel discussion moderated by Aly El Shalakany, CEO of the Cairo Angels Syndicate Fund.
Domty deadline day: Shareholders in cheesemaker Domty have until Wednesday to sell their shares to Expedition Investments, as part of its mandatory tender offer for 34% of the company. Expedition sweetened the deal by upping its offer price by 10% last week, which we cover in more detail in this morning’s news well, below.
B Investments is going to have to make up its mind over TotalEnergies Egypt by Thursday: The private equity player has the right to preempt a bid by Abu Dhabi energy giant Adnoc to acquire a 50% stake in the company, which expires on Thursday.
Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.
SIGN OF THE TIMES- Food nationalism isn’t over: India has imposed a 20% tax on various grades of rice exports, putting further pressure on countries in Asia and Africa already struggling with food insecurity caused by the war in Ukraine, according to Bloomberg.
This isn’t great news for Egypt: India, which accounts for around 40% of the global rice trade, is one of Egypt’s major rice suppliers and provided more than a quarter of the country’s imports in 2020.
IT’S OFFICIAL- We’re in talks with Saudi Arabia to host the 2030 World Cup. Egypt and Saudi Arabia are in discussions on mounting a joint bid for the tournament, Youth and Sports Ministry spokesman Mohamed Fawzy told local sports website FilGoal, confirming a report by the UK Times that was published after weeks of rumors in the local press. Fawzy made no mention of Greece, which was reported to be joining Egypt and Saudi Arabia in the bid.
Things will look different the next time you visit the Giza Pyramids: The Tourism Ministry and Orascom Pyramids Entertainment — an Orascom Investment Holding subsidiary — have launched trial operations for the Giza Pyramids’ new main entrance on Fayoum Road, along with seven visitors’ centers, a restaurant complex, and an electric bus system, according to a cabinet statement. Some 1k electric cars and buses will offer tours on a trial basis, it read. The overhaul of the Pyramids Plateau area aims to boost tourism traffic to the pyramids to over 8 mn visitors annually. Check out our deep dive on the project here.
THE BIG STORY ABROAD- Queen Elizabeth II — the UK’s longest-serving monarch — died aged 96 on Thursday afternoon. The Queen saw 16 prime ministers come and go during her 70-year reign — during which time the country lost its empire, went through wars and economic crises, and both entered and left the EU. Her son, Charles, was officially proclaimed King Charles III yesterday, though his coronation ceremony is unlikely to happen before next year. The Queen’s state funeral will be held on Monday, 19 September, at Westminster Abbey. It will also be a bank holiday. News of the Queen’s death and reflections on her legacy have been everywhere in the global press for the past couple of days: Bloomberg | FT | BBC | AP | Reuters | WSJ | Washington Post | TIME | the Guardian.
President Abdel Fattah El Sisi offered his condolences to the UK in a tweet, where he also expressed his confidence in King Charles’ ability to “fill the void” left by the Queen’s passing.
Ukraine is making gains on the battlefield: A major Ukrainian offensive has caused thousands of Russian troops to withdraw from the Kharkiv region, with Russia confirming the retreat of its soldiers. (AP | Reuters)
** What’s Next, our weekly deep dive into the trends and companies that are shaping the future of the business community, is on hiatus this week. Look for it to return next Sunday.