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Egypt’s thriving startup scene becomes the gateway to MENA

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In recent years, Egypt’s startup ecosystem has become one of the most vibrant on the continent, with rapid growth potential for the foreseeable future. According to a recent report by Boot genomeCairo, the country’s bustling capital, marked an overall 60% increase in VC funding rounds over the past five years, and 2021 saw a 156% increase in overall VC funding rounds compared to 2020.

Walking the streets of Cairo these days, you often see colorful billboards with the distinct logo of Fawry, an e-payment platform that has been awarded enough money to achieve unicorn status. Other startups such as Vezeeta and Swvl not only provide seamless essential services to a broad customer base, but also attract large investments that boost Egypt’s track record of tech startups.

According to Walid Faza, Chief Operating Officer at MSA Capital, Egypt is now seen as the tech center of Africa, and many products coming out of the country could scale to the rest of the continent with sufficient funding.

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“Over the past two or three years, we have seen exponential growth in Egypt,” he says, speaking at the recent Hangout with VCs event, organized by the Egyptian Information Technology Industry Development Agency (ITIDA) and TNW. “Companies in the country are solving real problems and tackling the bottom of the pyramid — they have innovation that can really scale and make an impact.”

Here we’ll take a look at Egypt’s burgeoning startup ecosystem and many key takeaways for VCs looking to invest in emerging markets and entrepreneurs considering launching their startup in the country.

Egypt’s supercharged startup scene

According to Disrupt Africa’s 2021 Egyptian Startup Ecosystem Report, there were 562 tech startups operating across Egypt as of September 2021, making it the fourth largest startup ecosystem on the continent. Of those, at least 318 Egyptian startups have raised nearly $800 million in funding since 2015.

Unlike most African countries where financial platforms are leading the tech ecosystem, Egyptian fintech startups are second only to e-commerce. However, each of the 65 active startups here has grown at a rapid pace, making Egypt the fourth largest country in fintech investment in Africa and the second largest in the Middle East and North Africa (MENA). The Egypt Fintech Landscape Report 2021 shows that 24 of these startups have expanded inside and outside the country and are now based in the Gulf Cooperation Council and in Europe.

Before 2017, there were only six active telehealth start-ups in operation, but as the demand for digital health services grows, Egypt’s telehealth sector has grown to more than 53 enterprises, providing solutions for bookings, virtual healthcare, diagnostics, health insurance and emergency assistance. But as the Startup Ecosystem report explains, all these startups are based in Cairo, proving that there is room for more investment in this sector.

Artificial intelligence (AI) and the Internet of Things (IoT) have also found a thriving place in Egypt’s ecosystem. The startups in these sub-sectors cover different areas such as building bots, business intelligence, big data solutions, and AI solutions in cybersecurity and queue management. The Egyptian government is now taking advantage of this burgeoning sector to refocus on its once thriving offshoring industry, which offers remarkable growth potential for the country.

Egypt’s fourth fast-growing sector is educational technology, with 42 startups making up 7.5% of the tech ecosystem. These startups are a mix of online learning platforms, learning management systems for educational institutions and value-added learning solutions. Along with branches in other key sectors such as transportation, logistics, marketing and real estate, about 39% of Egyptian startups have participated in an acceleration or incubation program, including renowned international accelerators such as Y Combinator and 500 Global.

The Age of Financing

From 2015 to 2021, 318 startups from Egypt raised a total of $791 million across 447 different rounds. According to the startup analytics platform Disrupt Africa, investments in the country’s startup ecosystem really took off in 2017, with a 139% growth in the number of companies funded. This steady growth continued into 2019, when more Egypt-based startups were supported than any other on the continent, including the traditional ‘big three’ of South Africa, Kenya and Nigeria.

The early stages of investment in tech startups in Egypt may have been dominated by e-commerce and telehealth, but in recent years there has been a greater investor interest in the fintech space. Funding in this sector boomed last year and now accounts for more than a third of the total raised by Egyptian startups in the first nine months of 2021.

The number of active investors in the country is also increasing. Of the 122 investors named so far, most each year are international accelerators such as Flat6Labs and Y Combinator. However, Egypt’s startup scene also has a strong local VC presence, providing funding from companies such as Algebra Ventures, Kepple Africa Ventures and Sawari Ventures.

In September 2021, Plug and Play and ITIDA announced the opening of an accelerator and incubator to develop Egyptian startups. The three-year agreement outlined an accelerator program that will run two cycles per year, targeting a total of 60 companies. The incubator will support 60 start-ups each year, spread over two cycles.

What is behind the current investor interest in Egypt’s startup scene?

In just a few years, Egypt turned into a fast-growing hub for startups in the MENA region. With a population of over 100 million people and one of the fastest growing economies in the region, Egypt is a teeming market for companies providing digital solutions for everyday needs.

“The current global economic slowdown has led to a shift towards investing in startups with sustainable business models that are filling a technology gap in the market,” said Ahmed Mahmoud, founder and CEO of AI-driven software company DXwand, at the Hangout with VCs event. This offers an important opportunity for isolation and market penetration.” This is one of the strengths of the Egyptian ecosystem.

According to Mahmoud, the Egyptian government is also increasing the country’s appeal as an investment destination by making significant efforts to support tech startups. “In addition, there is an exposure to talent and training on a global scale (at the Egyptian startups), and we are also exposing our talent and our experiences to other perspectives,” he says. “There is also more access to talent as universities are starting to partner with startups and laws are being made to protect startups.”

In fact, fellow panelist Oscar Ramos, general partner at SOSV’s Orbit Startups, decided to invest in DXwand last year. According to Ramos, “They built one of the most advanced NLP engines for Arabic languages.”

Working for a Chinese investment company, an important message Ramos had for entrepreneurs growing their startup in Egypt was to look for investment opportunities outside of traditional markets.

“We are now seeing investors from Asia are also increasingly looking to Africa, North Africa and the Middle East for investment opportunities. And that can be a very big opportunity for entrepreneurs, while they traditionally view the US as the most relevant market. Obviously the US is huge in creation and highly relevant to everyone, but it’s also worth considering other options.”

What the future holds for Egypt’s startup ecosystem

Egypt’s technology industry was the only sector to continue to grow during the pandemic, with experts predicting more records to be broken in the coming years. According to Magnitt’s 2022 Egypt Venture Investment Report, the ecosystem saw a 168% year-over-year increase in capital investment to hit a new all-time high of $491 million. As Egypt takes on other African ecosystems to compete for more investment funds, it is clear that the country will maintain a strategic position in the growing startup market.

The Egyptian government has become proactive when it comes to supporting the local tech startup market. This support is evident in several government-backed initiatives, such as the IPR Protection Guide for Startups, the Central Bank’s $64 million fintech fund, scholarship programs for tech entrepreneurs, and the launch of the Creativa Innovation Hubs in partnership. with public universities, to support students and startups to meet, access resources and develop digital solutions. With government support in this growing ecosystem, Egypt is on track to become one of the most advanced engineering ecosystems in Africa.

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