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Wed 20 Jan 2016 03:19 PM

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What has caused the renaissance of a can-do attitude among Egyptian entrepreneurs?

In the midst of terror attacks and economic upheaval, Egypt is on the rise and many young start-ups are confident about the future

What has caused the renaissance of a can-do attitude among Egyptian entrepreneurs?
Ahmed El Alfi, founder of The GrEEK Campus.

It’s barely a four-minute walk from Cairo’s famous Tahrir Square to The GrEEK Campus – Egypt’s first technology and innovation park situated within the grounds of the former American University of Cairo (AUC).

Following the early days of the Arab Spring, which ignited the region in January 2011, many a young Tahrir Square protestor has gone back to their desks at the campus – the name alluding to a label for tech-guru; ‘geek’ – and continued working on their start-up ventures with renewed energy and optimism.

“Some living and working experiences can be very superficial, but Cairo generates very deep and intense relationship with people,” says Ahmed El Alfi, founder of The GrEEK Campus, which covers 25,000 sqm and provides open office space housing for approximately 120 companies.

“Not always wonderful feelings, but very deep and intense, so the joy and happiness there can be amazing.”

Much has changed since El Alfi, a former investment banker on Wall Street, returned to his native Egypt in 2006.

Apart from The GrEEK Campus, he set up Sawari Ventures, a Cairo-based venture capital firm; Flat6Labs, a network of start-up accelerators with locations in Cairo, Jeddah, and Abu Dhabi; and Nafham, an educational portal which complements Egyptian, Saudi and Syrian educational curriculums.

“Before the revolution the ecosystem was very nascent,” says Con O’Donnell, angel investor and co-founder of the RiseUp Summit, a few days ahead of the third edition of this annual event that gathers entrepreneurs and start-up stakeholders from across the MENA region.

“Then it became more of a spirit because people stopped being apathetic and started believing that: ‘If I work with you and we come together, we can change things’.”

The Irishman, who is fluent in Arabic and has lived in Cairo for nearly two decades, is best known for Sarmady Communications, a company for mobile internet and apps innovation, which was successfully acquired by Vodafone Egypt in 2011.

“There was no point in being a start-up before, you couldn’t get any money,” he adds, explaining what caused the surge in start-ups after the 2011 revolution.

“There was a whole new optimism and many new ventures started up, and simultaneously people who had a lot of experience started coming back to the country and setting up organisations like Cairo Angels [a Cairo-based angel investment group], Flat6Labs, and so on.

“So it was a combination of things. There was a movement before and then there was a jump in the sense of the number of activities and the number of start-ups and the number of places for them to get funded.”

Despite political uncertainty and disruptions in governance since the revolution, the Egyptian government has invested substantially in reform.

In 2013 alone, Egypt has managed to implement 19 business reforms and set up or strengthen 47 institutions supporting growth-focused entrepreneurs in the country, according to a Wamda Research Lab report published in September 2015.

However, Egyptian entrepreneurs and business owners still face numerous hurdles and operate in a weak business environment.

Political instability and public disorder, administrative inefficiency, restrained access to finance, and reliance on informal contracts are some of the major disincentives to productive entrepreneurship in Egypt, according to a recent article published for the Center for International Private Enterprise (CIPE)  by Amr Adly, a Stanford University fellow.

“The registration in the UK took us 15 minutes. In Cairo it took us like a month,” explains Ezz El-Din, a 27-year-old Egyptian who first registered Tennra – a Cairo-based gamified crowdfunding platform –  in the UK due to the lack of familiarity of the local market with the crowdfunding concept.

Teaming up with Emily Renny, a 28-year-old British student of French and Arabic, El-Din launched the crowdfunding platform to help inject seed funds into the ecosystem for entrepreneurs whose ventures suffered from Egypt’s less-developed start-up funding mechanism.

In less than a year, Tennra successfully won the support of more than 300 ‘backers’ to six innovative start-up projects, with funding amounts ranging from $3,000 to $5,000.

The two co-founders completed the venture’s business registration in Egypt after winning this year’s INJAZ StartUp competition.

“I think [that] entrepreneurs here are far more able to find their way around non-regulated spaces or heavily-regulated spaces to find solutions,” O’Donnell says. “They are much more street-wise in terms of getting what they need in terms of resources.

“Resources are scarce, capital is short, and there are lots of roadblocks in the way. But they are very good at finding a way around them and not letting that stop them.”

The Wamda Research Lab’s findings show that a typical entrepreneur in Egypt is male – 82 percent of surveyed founders – with at least a university level education and with some experience abroad.

Egypt and its capital, Cairo, are also traditionally home to some of the best engineering talent in the MENA region, which was recently recognised by both Forbes magazine and the MENA Talent Competitiveness Index 2015 of INSEAD and Centre for Economic Growth.

“I think that the other answer is a tinkering culture,” says Dr Ayman Ismail, assistant professor and Abdul Latif Jameel Endowed Chair of Entrepreneurship at the AUC School of Business, and the founder and director of AUC Venture Lab, a rare university-affiliated start-up incubator in the MENA region.

“Tinkering is the idea of trying to play with things, figuring out how things work, making mistakes until you get something to work.

“That tinkering culture, I think, is very pervasive in Egypt. Part of it is because people actually have to be creative and innovative because problems are there and you have to survive. So maybe it’s a little bit of a survival culture, but it’s a traditional thing here and I find it a lot among youth.”

Educated at Harvard University and the Massachusetts Institute of Technology (MIT), Dr Ismail spent 14 years in the US working as a consultant at McKinsey & Co, the World Bank, UNCTAD, and multiple US government agencies.

Four weeks before the 2011 revolution, he tells StartUp during a phone interview, he returned to Cairo. In the course of the last two and a half years, he has helped 46 start-ups get off the ground through incubation at AUC Venture Lab.

“They learn a lot through it [tinkering] and that’s kind of the essence of innovation. Exploration, testing, experimenting, curiosity,” he adds.

“These values around tinkering ideas actually generate entrepreneurs, innovators, who are good at starting something and tinkering with it until they figure out how to get something to work.”

After half a decade of political turmoil and economic uncertainty, the revival of the Egyptian economy has begun with a number of unpopular, but necessary economic reforms. In the World Bank 2015 Doing Business report Egypt ranked 112th out of 189 countries, a one point improvement from 2014.

However, a year earlier Transparency International ranked Egypt 94th out of 175 countries, which is a significant improvement from 2013 when the country ranked 114th.

Recently, the World Bank predicted that the country’s economy could see a five percent growth in GDP by 2016/2017, explaining that key sectors, such as tourism and manufacturing, were expected to witness a “strong recovery”.

A more confident image of Egypt has been projected to the world with the inauguration of the massive enlargement of the Suez Canal during the summer of 2015.

Its growing entrepreneurship scene, which aims to make the most of a domestic market of a huge 90 million people, has also been sending a strong message of hope.

Dr Ismail describes it in three ways: young, private sector-led and highly collaborative.

“[We have] a high level of innovation and a big market that provide an excellent start,” Dr Ismail adds. “What I like about the entrepreneurship scene in Egypt is that it is extremely connected.

“At the end of the day the collective success is more important and you need to have enough scale for everyone to benefit. That scale comes from a lot of collaboration.”

O’Donnell agrees and says: “I think that the Egyptian ecosystem is the most collaborative [in the region], much more collaborative than Lebanon, for example.

“In Lebanon, a lot of times it depends on which family you are from or which side of the fence you’re on politically whether people are going to talk to you or work with you.

“So it’s a real struggle for Lebanese to gather together in the way it is in Egypt.

“Here, even competing organisations will work much closer together than I have seen anywhere else. I really think that this is a very distinctive feature of our ecosystem.”

The RiseUp Summit, the country’s first major entrepreneurship event launched in 2013, has become another symbol of Cairo’s start-up scene.

Traditionally taking place at the GrEEK Campus in downtown Cairo, the two-day summit’s third edition in December last year attracted more than 4,000 attendees, and featured Mike Butcher, editor-at-large of TechCrunch, and Jared Friedman, partner at Y Combinator, as guest speakers.

O’Donnell, who co-founded the event with Abdelhameed Sharara, explains that this year’s theme Quantum Leap aimed to explore whether the start-up scene in Egypt had evolved enough to prove that it could produce ‘unicorns’ – the tech-industry term for start-ups that have soared to a $1 billion valuation.

“They have sensed that there’s a movement happening here which is attractive and compelling to have a look at,” he says about this year’s participation of well-known investors such as Dave McClure, a venture capitalist and founding partner at 500 Startups.

“In Egypt we still have a seasonal ecosystem,” says El-Din. “What I mean by that is that it has ups and downs in timing like now [when] we have a lot of opportunities because of the RiseUp.

“But after few months, I’m sure, we will witness some downfall in terms of the speed of the ecosystem, and the opportunities will be declining.”

Renny adds: “It’s about breadth as well as depth. I think we have decentralised organisations like RiseUp LLC [the organisers of the RiseUp Summit] or the GrEEK Campus that have shown that they are very strong, but they are still largely alone in what they do.

“So at the moment everybody is excited because of the RiseUp Summit, but during the rest of the year the breadth is still lacking I think.”

In July 2013, an Egyptian computer systems engineer, Mohamed Elwazer invented a device which translates sign language into audible words and text in real time. Only two months later, Elwazer moved from Cairo to Dubai to set up his hardware start-up Kintrans.

“I tried to find the support from an accelerator there [Egypt] but at that time it was just starting,” he says. “It was not as popular as it is now. I couldn’t find the right support there because what we were doing was totally new and at that time Egypt followed the copycat model.

“That’s one of the main reasons that made me think of going outside.”

The Wamda Research Lab’s report states that the majority of start-ups in the Levant intend to open offices in the Gulf in order to become ‘scale-ups’ – businesses looking to grow or expand in terms of market access, revenues, added value or number of employees.

El Alfi explains that entrepreneurs across the region have lately changed their perception of the UAE market. “People who now want to start their business here used to look at this place as not big enough market to come and start a business,” he says.

“Now they look at this place as a great place to start a business to attack local, regional and international markets.

“Volatility, which is the quick movement of everything, allows businesses to grow. The volatility of money and activity here [the UAE] adds to the success opportunities here.

“It’s when things turn very slowly, as in Egypt currently, that it is more difficult to make things succeed.”

Settling in the emirate, Elwazer was part of the first batch of tech entrepreneurs who graduated from the Dubai-based TURN8 Accelerator Programme in January 2014.

Since then, however, it has been only his family and friends’ money of that he relied on to develop his platform for hearing-impaired people.

Speaking about the current funding round of $700,000 they are raising, which he describes as a high seed round, Elwazer says that Dubai-based investors are less interested in genuine technology.

However, he sees an advantage in the emirate’s ability to attract international investors.

“As much as Dubai is good and we have a different mentality of investors, there is another problem here,” he says.

“That is that investors don’t usually invest in technology companies because they think that technology companies will burn a lot of money until they reach success or provide a high return.

“So they prefer to invest in mobile apps and dot.com companies because these companies can show traction much faster than a technology company.”

O’Donnell says that entrepreneurs from the region assume that a lot of capital is available in the UAE, but points to the high cost of living and hiring staff in the emirate.

“In the end I think that most people experience that unless they can make it in Dubai or find a marketplace out of Dubai, then the Dubai experience is good, but can be very expensive,” he says.

“So what you get in terms of investment doesn’t go as far. It’s a bit of Catch 22 and unless you can see Dubai as an entry gate to other markets, like Saudi or the GCC market in general, then it doesn’t make that much sense to be there.

“But what Dubai has in abundance are big corporates. A lot of regional budgets for advertising are spent there so if you want to be on anyone’s radar in terms of content-related work, then you definitely need to have relationships in Dubai.“

El Alfi believes that one of the best ways to evaluate an ecosystem is to look at whether it attracts the attention of foreign investors.

“Very few professional investors are going to travel cross-border to make a $200,000 investment. It’s not worth their time,” he says.

“Without international investors you [then] have to depend on local investors and there weren’t enough successful local entrepreneurs 20 years ago, who would now be like the guys in Silicon Valley who fund start-up companies.

“The next stage, when they [start-ups] get to venture capital, [the problem is that] there isn’t enough availability of big money. Also the speed at which it can be accessed is very important.

“You get inexperienced people expecting high valuations. So money deployed professionally, like in Silicon Valley, is very important.”

From the acquisition of Maktoob by Yahoo! in 2009 for $165 million to this year’s acquisition of Kuwait’s Talabat.com by the German e-commerce group Rocket Internet for $170 million, the entrepreneurial scene in the Arab region has slowly been receiving more and more attention of international investors. In Egypt, the bar has been raised by Yaoota’s ability to raise $2.7 million in funding from the Abu Dhabi-based KBBO Group and Wuzzuf’s closure of its Series A round of $1.7 million from Sweden-based Vostok New Ventures and UK-based Piton Capital.

Talking about the prospects for regional start-up scenes to maintain the momentum, O’Donnell says: “I think it’s better to combine Cairo, Beirut, Amman and Dubai, as ABCD. Then you can say that the region itself is becoming a very fertile ground for high-end technology solutions.

“I think that people are starting to realise that what’s coming out of the region is as good as elsewhere.”

Standing united for hope is the most suitable approach for the region, explains Dr Ayman. “If we think at a country level, we are not going to get very far because we are a region behind in many aspects. We need to think collectively as a region,” he says.

“You have talent areas, market areas, capital areas, and if you put them together, you have something to sell. If everyone tries to play on their own, they are not going to get there regardless of the resources that they have.

“So by putting the talent, the market and the capital together you get very strong regional dynamic that is going to go global. Trying to take a niche for each country, I think, it’s doomed to failure.

“Second, I think that with all that’s happening around us you need something that triggers hope, and which is not state-led, but youth-led.”