It was an eventful year for StartupLand to say the least: Startups and venture capitalists alike have faced a slew of challenges this year — from a global VC squeeze, to two EGP devaluations, to the downfall of one high-profile startup. The funding slowdown fueled the rise of new trends in the market, like the emergence of new financing tools, and led many startups down the daunting road of restructuring and cost-cutting. But it’s not all doom and gloom — much of it was healthy and symbolic of a large-scale “market correction,” industry insiders tell us.
In context: VCs have been tightening their belts since the start of the year as interest rates rose, tech assets were sold off, and sky-high valuations came back down to earth. The squeeze has been even more pronounced here in Egypt, as the local economy faced soaring inflation, two EGP floats and the Central Bank of Egypt (CBE) hiking rates by 500 bps. This all comes after a record couple of years for startup land that saw mega rounds and exaggerated valuations.
VCs managed to stay active despite the turbulence: Several VC outfits launched new funds, including impact investor Catalyst Private Equity, Modus Capital, and Egypt’s Micro, Small and Medium Enterprise Development Agency. Other funds reached their targeted close (and even surpassed fundraising targets) by — smartly — targeting LPs like development finance institutions (DFIs) and Gulf family offices. DFIs, particularly those in Europe, have a clear mandate to invest in our part of the world — that hasn’t changed despite turmoil on the continent and in the UK. The Gulf also has an additional USD 1.3 tn in excess liquidity sloshing around over the next four years thanks to high oil prices, meaning they’re going to be allocating to a wide range of assets for the foreseeable future.
VCs + investors also tapped into new funding models, including:
#1- Corporate venture capital: Impact investor Catalyst Partners launched a corporate VC arm, Serv Startup, to acquire minority stakes primarily in the fintech and digital lending sectors. Corporate VC is what it sounds like — when established companies invest in startups. They often invest in startups that complement the investing companies’ operations, writes Harvard Business Review. Among the first to jump on the trend in Egypt was CIB’s CVentures.
#2- Venture building: Modus Capital launched a venture builder in Egypt and Berlin-based corporate venture builder FoundersLane launched operations here after its acquisition by Creative Dock. Venture builders help build startups from scratch and position themselves as going beyond the provision of finance. Their role usually lies in staffing a startup, testing its product, and preparing it before launching it into the market. Venture builders usually focus on a small handful of early-stage startups, rather than building large portfolios.
#3- Search funds: There are two searchers in Egypt right now: Ahmed Raafat’s Giza Capital Partners and searcher Aly Taha. Search funds are investment outfits that raise funds from investors to acquire a small- or medium-sized business (SME) that is already operating well in the market, to then grow it and ensure return for their investors. Through the acquisition, the CEO of the company is replaced with a seasoned entrepreneur to lead the company for 6-10 years, providing investors with safe, high returns, and entrepreneurs with a business to run without struggling with the pains of building a company from scratch.
Startups also got creative with fundraising: B2B logistics marketplace Trella managed to secure USD 6 mn in debt financing from global debt platform ALMA Sustainable Finance and the US government’s US International Development Finance Corporation (DFC). Otherwise known as “venture debt,” debt financing typically combines the traditional features of a loan with some aspects of VC financing. We have more in our recent explainer, but generally, it’s pretty new to Egyptian startups.
And followed through with a lot of consolidations: From fintech to cosmetics and pharma, several startups — both local and foreign — have made moves on local startups this past year. Some of the biggest acquisitions:
On the downside: We had a meltdown on planet startup: The high-profile downfall of local startup Capiter took the ecosystem by storm, with many declaring it a time of reckoning for Egyptian startups who have been aggressive and who were pushed to “grow at any cost.” The firing of the startup’s management following reports that the company has been laying off staff and has failed to pay salaries sounded a wake-up call in the market and triggered talk of an imminent market correction, which could see some startups take on down rounds and flat rounds and begin to see their valuations fall from — often exaggerated — highs.
And waves of layoffs: Besides Capiter, a lot of other startups announced layoffs and plans to restructure. Social commerce startup Brimore said it would restructure and cut costs in a bid to reach profitability. Separately, Swvl went through two massive rounds of layoffs as it looks to turn to the black and raise its share value on the Nasdaq, which took a nosedive following its debut in April. The startup is now facing a potential delisting after its shares have traded below the exchange’s USD 1 minimum threshold since the third week of September. Other startups who hopped on the cost-cutting bandwagon: Mobile payments platform TPay Mobile and digital healthcare platform Vezeeta.
Your top stories on future trends for the week:
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