Egypt is banking on a number of key advantages to become a regional and global centre for tech start-ups. The country benefits from a young, increasingly urbanised and tech-minded population, and around 250,000 engineering and tech graduates enter the job market every year. The costs of establishing and registering a business in cities like Cairo are low – averaging $1500, compared to anywhere between $6500 and $7100 in Dubai, for example. In addition, the government offers modern infrastructure and a range of tax incentives in a growing number of tech parks, as it attempts to nurture the country’s budding start-up ecosystem.
Although some challenges still need to be addressed, the tech start-up industry has gone from strength to strength in recent years, and 2018 marked a record year in terms of the value of funding secured. “Egypt has a competitive advantage in ICT due to the size of the consumer base, the level of mobile penetration and the technological literacy of the growing youth population. Educated and experienced talent is available for industry players, so now it is a matter of capitalising on this to drive growth,” Khalid Hammouda, managing director of Teradata, told OBG.
Record Funding
Egyptian tech start-ups secured record amounts of funding in 2018, attracting $58.9m in equity investments from local, regional and international venture capitalists (VCs) and angel investors. This far exceeded funding levels in 2017, when Egyptian start-ups raised a total of $9.3m in financing. The sector compares favourably to regional peers, and in 2018 Egypt ranked fourth in Africa in terms of start-up funding, behind Nigeria, South Africa and Kenya. However, it still has some way to go to catch up with the UAE, which remains the most attractive funding destination for tech start-ups in the Middle East, having raised $625m in investment in 2018.
Prior to 2018 the largest single amount of funding secured by an Egyptian tech start-up was $5m; in 2018, three companies surpassed this. Additionally, there are numerous other tech start-ups attracting both local and international interest, including companies working on medical, retail, education, recruitment, real estate, and social network apps and platforms.
Ecosystem
Part of the recent surge in funding for Egyptian tech start-ups is attributable to an increasingly dynamic funding and support ecosystem comprising a number of local VCs and angel investors. In terms of local angel investors, Cairo Angels leads the pack and has invested $2.3m in 24 start-ups since its establishment in 2012. Cairo Angels frequently runs zero-equity incubator programmes and in early 2018 teamed up with Egypt’s EG Bank to offer a three-month intensive programme for early-stage start-ups. Algebra Ventures is the largest local VC fund, with $50m in capital, and its ticket size is usually $500,000 or more, larger than most of the VCs currently active in Egypt.
Support from these and other firms has been vital in supporting the early, seed-funding stages of development, and has allowed many Egyptian tech start-ups to get off the ground and start attracting larger investments from abroad. Collaboration between local VCs and international partners is also a key factor behind growth. In August 2018 the American University in Cairo announced that its financial technology-focused accelerator programme would partner with global banking software company Temenos to provide Egyptian start-ups with a sandbox – a testing environment for new software – to integrate their solutions with banking data and functionality.
Foreign Investment
There were 13 Egyptian startups featured in the Forbes “Top 100 Start-ups in the Middle East 2018” report, underlining the local industry’s growing international appeal. This is reflected in the increasing number of regional and international VCs that have invested in Egypt in recent years. In 2018 regional VCs like Saudi Arabia’s STV Capital and the UAE’s BECO Capital made record funding investments in Egypt’s tech start-ups. Although they make smaller investments, some international VCs like 500 Startups, a US early-stage venture fund and accelerator, are also playing a vital role in developing the sector.
Private Accelerators
In the last few years Egypt has become home to several prominent incubators intent on supporting a diverse set of tech start-ups. Flat6Labs launched in 2011 offering LE70,000-100,000 ($3934-5620) in seed money. In 2015 Ebni entered the market providing up to LE50,000 ($2810) for start-ups developing hardware for the internet of things. The following year 1864 Accelerator began accepting applications of up to LE150,000 ($8430) to back firms working with financial technology. Lastly, in February 2018 EdVentures started its first cycle as the region’s first accelerator helping education technology start-ups.
State Support
Egypt’s government has upped its support for the industry by providing infrastructure investment, state-run incubator and accelerator programmes, and tax incentives. It began funding start-ups in 2004 through the Technology Innovation and Entrepreneurship Centre, an affiliate of the Ministry of Communications and Information Technology (MCIT), which was one of the first initiatives of its kind in the region. More recently, the Ministry of Investment and International Cooperation (MIIC) launched Fekratek Sherkatek, which translates to “Your Idea, Your Project”, a start-up incubator that by end-2017 helped found 42 local startups with LE100,000-500,000 ($5620-28,100) each.
“The Egyptian government played a pioneering role early on in developing the tech start-up industry; now private VCs have also stepped in,” Tarek Assaad, managing partner at Algebra Ventures, an Egyptian venture capitalist firm, told OBG. In 2018 the government offered additional support measures to start-ups as part of wider efforts to grow the country’s digital economy. In August 2018 the MCIT and the MIIC signed a cooperation agreement aimed at further stimulating investments in local tech start-ups.
Challenges
Although Egypt’s tech start-up industry is on a clear upward trajectory, several regulatory and funding challenges remain. An initial downside to conducting business in Egypt resides in state bureaucracy, particularly with regard to obtaining permits. While the average costs of starting a business in cities like Cairo are relatively low, obtaining the required permits is often a difficult and time-consuming process, particularly for small start-ups. However, the MCIT has moved to meet with the start-up community regularly in order to facilitate their development.
Other challenges facing tech start-ups include government restrictions on getting money in and out of the country. Meanwhile, although VC funding for startups has increased significantly in recent years, Egypt, along with other MENA countries, suffers from a lack of significant investors providing funding that is halfway between seed-funding ($100,000-200,000) and funding from so-called Series A VCs (more than $1m). This lacuna can often have the effect of holding back tech start-ups, and preventing them from commercialising their technology and expanding into foreign markets.
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