Modern Day Pyramids: On the Egyptian Venture Space
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It has been a particularly interesting quarter for the startup ecosystem in Egypt as it observes uptrends in capital deployment, local and global VC interest, and return on investment across industries. As observed in our Egypt Q3 2021 Venture Investment Report, an uptick in deal flow was complemented by a large influx of funds, ranking Egypt the first across MENA by number of deals and second by volume of funding after the UAE, raising 50% of all capital deployed in MENA.
Measuring Egypt’s gradual yet consistent growth, Egypt-based startups made great strides compared to their peers in UAE, the top-funded ecosystem in MENA by Q3 2021. In just 4 years, Egypt-based startups closed the funding gap between their UAE counterparts from 85% in 2018, to 58% by Q3 2021. While Egypt kept a consistent deal flow to rank amongst the top 3 ecosystems in MENA since 2018, Egypt-based startups observed a slighter overall drop in deal count since FY’ 2021 (14%) compared to the UAE (34%), while KSA was the only geography to observe a 4% YoY increase.
As we explore the intricacies of Emerging Venture Ecosystems, searching for cross-market growth opportunities, we learn from top regional investors driving similar initiatives. Continuing our thought series with Global Ventures. Leading and participating in major rounds this year funding anticipated startups like Tabby, Arrow Labs, Minly, and Yodawy Global Ventures have built a portfolio of unique regional startups with international potential. we take a deep dive into the Egyptian market with General Partner Basil Moftah as they prepare to expand their offices to Egypt, matching growth potential with capital and support.;
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Until recently, startups in Egypt have had relatively lower access to funding, pushing them to adapt with inventive cost-saving strategies to maximize cash runway. With far less capital required to build the same product in Egypt (versus other countries in the region), these startups are well-positioned to leverage their lean business models to accelerate the path to profitability. We find the FinTech, EdTech, and HealthTech sectors to be the most attractive currently. These technologies haven’t yet fully integrated or set themselves into a lot of traditional businesses - which are still doing things the old-fashioned way. There is a huge opportunity for transformative digitization in a number of industries.
In the near term, Global Ventures will be one of the largest investors in the region, deploying tens of millions of capital into more start-ups. We already have a portfolio of [9] companies but expect this to grow to over 20 companies by the end of 2022. This will give us an even stronger relationship with both the market and the founders of these companies. As we expand and open our biggest office outside of the UAE in Egypt by the end of 2021, we’re utilizing our hands-on approach along with our market expertise, to tailor impactful opportunities specifically to this booming market.
We think of our founders as our partners and work closely with them and their teams to support their journey in building successful and impactful businesses. The team’s past experiences as operators, entrepreneurs, and investors - combined with common themes and challenges we have identified across the ecosystem - have allowed us to build a value creation program supporting the entrepreneurs at every stage and milestone of the business, be that expansion into new markets, building brand awareness, recruiting talent or raising funds.
We have a dedicated team on the ground in Cairo, with an extensive background, experience, and expertise in the Egyptian market. They work closely with our existing portfolio founders. It is critical for the team to be close to the founders, so they can provide real-time support via regular check-ins and cultivate deeper relationships. Having a personal relationship through the General Partners, and the Partners of the firm at large, with the founders, is crucial and we ensure there is a dialogue on a regular basis.
While Egypt emerged with leading industries by Q3 2021 raising major rounds in FinTech, E-commerce, and Food & Beverage, Egypt-based startups have been equally successful at raising early-stage deals filled with unprecedented innovations. More interestingly, Egypt saw more early-stage transactions in Q3 YTD 2021 than any other MENA geography. Where deals under $500K accounted for over half (52%) of all venture activity in Egypt in Q3 YTD 2021, this proportion stood at 18% in the UAE and 26% in KSA.
Egypt is definitely coming of age in the technology scene in the Middle East and Africa. You can consider it a bit of a late bloomer but one that’s going to provide a very attractive and competitive space. Whether you consider GDP growth or population size, there is a wide range of opportunities for start-ups to work on. Egyptian start-ups cater to a wide range of distinct consumers, due to the size and diversity of their home market. However, these start-ups are better equipped to cater to a wider group of potential consumers/users. When you look at the number of new startups in Egypt by sector, you realize that given the size of the country and the cost of opportunity, the market still has its limitations. Hence, working with and/or seeding new ideas at an early stage is very important to creating a wider ecosystem of businesses and start-ups. Unlike what we do in the UAE, we will be spending more time on the earlier stage. That said, for our existing portfolio and the companies that have been around for several years, they’re coming of age in terms of raising mega-rounds/$50+ million rounds. Attracting global investors through our network at Global Ventures of relationship with VCs internationally may make us well-positioned to help those start-ups and bring some much-needed capital.
Egypt's founder pool is growing from strength to strength. We're seeing exceptional and talented founders executing on cutting-edge tech solutions across sectors and verticals. We expect to see more and more innovations originating from Egypt and heading to regional and global markets. The government is supporting the country's burgeoning tech ecosystem via favorable regulation and initiatives, and exciting opportunities are multiplying across the FinTech, logistics, EdTech, and digital health sectors. New legislation and regulatory changes are boosting FinTech investment and changing how Egypt’s largely unbanked population is accessing financial services. Over 70% of Egypt’s fast-growing population of over 100 million is financially undeserved, despite mobile penetration exceeding 90%. Over half of the population is also under 30 years old. This huge unbanked, young population and cash-dominated economy offer strong opportunities for FinTech companies and investors.
While the Venture Space in Egypt reaches new heights, breaking Quarterly, Half-Yearly, and Yearly records by Q3 2021, local and global investments have been also driving the growth of the ecosystem's baseline investing in Early-stage startups. Creating Egypt's newest Pyramid, in the shape of a healthy VC ecosystem. Data sets developed in this thought piece were based on Egypt Q3 2021 Venture Investment Report & MENA Q3 2021 Venture Investment Report, available for full access.
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