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Sunday, 23 October 2022

What’s next for deep tech in Egypt?

The status of Egypt’s deep tech sector: Globally, the deep tech sector has been growing exponentially over the past 20 years, with European-founded deep tech startups jumping almost 270% between 2010 and 2020, according to a report (pdf) by European Startups. In Egypt, the story is a little bit different — although the country has some competitive advantages for deep tech players, the sector remains quite nascent, due primarily to the high cost and highly skilled employees required to set up a company, local industry players tell us.

What is deep tech? Deep tech refers to technology solutions for end users that rely on innovative engineering, using tools like AI, machine learning, big data, robotics, blockchain, or even biotech and quantum computing. It can be used across industries, including energy, healthcare and defense to provide better services and products, as well as help understand customer behavior more efficiently.

There are a few startups in Egypt that focus on deep tech — but not necessarily enough. In MENA, 31 deep tech-focused startups raised over USD 32.5 mn of investment in the first nine months of 2021 — 10 of which were based in Egypt, according to Wamda. Last October, local VC outfit Sequence Ventures established a EGP 500 mn deep tech fund, looking to invest in healtech, fintech, edtech, proptech, logistics and development and operations (DevOps) startups, which focus on using deep tech. While there is no specific data about how many local deep tech startups currently exist, we know that Sequence Ventures’ fund has invested USD 10 mn in local deep tech startups, and currently has around 20 deep tech startups in the pipeline.

The main issue at play: The sector is expensive and complex… Deep tech is very costly, our sources tell us. It’s capital-intensive given the hardware and equipment it requires to develop solutions and because it is difficult to monetize and create returns, co-founder and CEO of Aim Technologies, John Saad (LinkedIn) told Enterprise. Founded in 2018, the search-tech platform helps break down and decrypt the Arabic language, providing a multilingual text analytics solution.

…Although it is still cheaper in Egypt than abroad. One advantage in Egypt is that it is less costly to launch and operate a deep tech company here than it is to do so abroad, Rology Chief Strategist Amr Abodraiaa (LinkedIn) tells us. The devaluation of the EGP means that in some ways, the cost of operating from a USD perspective is getting less expensive in Egypt, general partner at fintech fund Nclude Basil Moftah previously told us. However, startup revenues are worth less because of the USD-EGP exchange rate, which requires these deep tech companies to rein in revenues from abroad to make good returns.

It also requires very advanced, expensive tech talent that’s hard to find and retain: The engineering talent required to come up with and create these solutions is expensive and not always available. “Most deep tech companies face the same issue of finding qualified talent,” founder and CEO of AI startup Synapse Analytics Ahmed Abaza (LinkedIn) tells us. Synapse Analytics, which is deep tech-focused, has been operating for over five years and secured more than USD 2 mn from local and international investors. Salaries for said talent are becoming incredibly competitive, Abaza says, pointing to foreign companies that hire Egyptian talent for USD 3k-4k (EGP 57.3 – 76.5k) a month. “It’s very, very tough to find the right talents and what’s tougher than finding the talent is keeping this talent,” Amr Abodraiaa Chief Strategist at Rology (LinkedIn) said.

… as is competing with more established foreign companies: “It is very hard for Egyptian companies to prove themselves when their Western counterparts are [out there],” Abaza said, adding that there is a general bias towards foreign AI companies. “You have to prove yourself because this region isn't known for software.”

What Egypt needs is a functioning, credible deep tech ecosystem. “We need to create a full ecosystem for deep tech, not just in terms of funding,” Abaza says. Universities need to be working with the government and private companies to help grow deep tech companies and talent in Egypt. Additionally, “the government needs to build trust in local tech companies by using their services rather than picking their foreign counterparts,” Abodraiaa says. Nurturing such an ecosystem will feed into other sectors, Saad believes.

Your top stories on future trends for the week:

  • The EBRD and EIB could invest EUR 35 mn in Malta-based impact investor Mediterrania Capital Partners fourth fund, which will invest in mid-cap companies in Egypt, Morocco and Tunisia.
  • B2B logistics marketplace Trella has secured USD 6 mn in debt financing from global debt platform ALMA Sustainable Finance and the US government’s DFC.
  • E-commerce startup Kenzz raised USD 3.5 mn in a seed funding round led by Outliers Venture Capital, with the funds set to be used for expanding its team and product range, and launching a new app.
  • Fintech startup Nexta has closed a USD 3 mn round led by EGX-listed e-payments giant e-Finance.
  • Impact investor Catalyst Partners has launched a corporate VC arm under a plan to acquire minority stakes primarily in the fintech and digital lending sectors.
  • Edtech platform iSchool is reportedly looking to raise a USD 4.5 mn round by the end of year to enter Saudi Arabia and the UAE.
  • Digital payments firm PaySky plans to launch its payments superapp Yalla Super App in the UAE next month as part of its USD 50 mn expansion to several countries in the region.

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