As COVID-19 continues to drive economic uncertainty around the globe, Egypt’s investors are holding off on new ventures in the hope that the future holds better opportunities.
“We won’t commit to any new investments for at least a month or two. We will focus on stabilizing our existing companies,” said Khaled Ismail, the chairman and founder of HIMangel, a $5 million Egypt-based fund with a portfolio of 17 companies that cover several tech subsectors, including health-tech, e-entertainment and e-commerce.
Ismail, one of Egypt’s most prominent startup investors, explained that at least six of his fund’s companies are reaping the benefits of a recent 30-percent increase in internet traffic in Egypt. “For these startups, it is not just business as usual, but it is even bigger business opportunities,” said Ismail.
However, Ismail added that the coronavirus-related lockdown has taken its toll on HIMangel’s other companies, specifically those whose business models rely on customer interface or manufacturing.
So far, Egypt has recorded more than 4,782 coronavirus cases, including 337 deaths. To curb the spread of the virus, the Egyptian government has imposed a partial lockdown that resulted in an economic slowdown.
“For investors, the first order of business these days is their existing investments,” said Ziad Mokhtar, a managing partner with Algebra Ventures, an Egypt-based venture capital. “They want to make sure that no company with high potential is hit by this unexpected, and hopefully not very long, crisis.”
Mokhtar’s venture capital has recently announced a relief package of $2.5 million aimed at supporting at least six of the fund’s 17 companies during the pandemic. Mokhtar ruled out the idea that his $54-million fund will hold off on new investments for long, amidst expectations that the entrepreneurial ecosystem may still benefit from the COVID-19 crisis.
“As we speak, we are looking at new investments. We anticipate a much higher quality of opportunities to come in the near future,” he said. “Despite the very negative aspects of this crisis, I think the best advantage that is coming out of it is basically that digital economy will get a boost. The digital infrastructure and migration to digital platforms will be accelerated.”
Mokhtar believes that the corporate world, hard hit by COVID-19, will witness a migration of talent, that will eventually land in the tech start-up sector. Meanwhile, the recent changes in consumer behavior will make the market more receptive to tech products “because everyone has been trained during these months and will continue to be trained to use tech way more than they did before.”
These changes will eventually reflect on investments: “The rate of investments will actually accelerate rather than decelerate,” Mokhtar said.
AUC Angels, a network of 60 investors based at the American University in Cairo, has already sensed a growing interest in startups. Mariam Kamel, the AUC Angels manager said that the size of their network increased by 15 percent after the Coronavirus pandemic hit.
“People are looking to explore new opportunities, and they are realizing that a new world order is coming,” she said. “A lot of people believe that startups will be a big part of what is to come. In many ways, these [startup] companies are much smaller, more agile, more tech-savvy, so they are quick to adapt to market gaps.”
In recent years, Egypt has risen as the region’s second major hub for entrepreneurship after the UAE.
In its 2019 MENA Venture report, Magnitt showed that Egypt-based startups had closed 142 deals, with a total funding of $ 95 million. The startup data platform showed that Egypt secured a 25-percent share of the total number of deals in the region.
According to Kamel, the COVID-19 has left many investors with “a stronger appetite” for specific tech sectors. “Fintech is still definitely one of the top picks, and the appetite for it remains strong,” said Kamel, citing people’s recent aversion to the use of cash as a precaution to curb germs.
A Magnitt 2019 report showed that fintech startups accounted for the highest number of deals in Egypt, which allowed the industry to increase three-fold since 2018.
“Now the idea of telehealth is also a lot more attractive,” Kamel said, adding that tech health companies need to focus more on products geared towards patients rather than health providers. The pandemic, she noted, has shown that there is a larger need for online consultations, especially for aches that do not require an actual travel to medical facilities.
Kamel also believes that there will also be more opportunities in business-to-business (B2B) software solutions. “What we can see clearly now is the change in consumer behavior, but later on we will see changes in how businesses interact with each other and with their employees. Team collaboration and inter-company interactions have to become more online, either because people cannot go to their offices or because they are getting laid off. Startups can fill in the gap with B2B solutions.”
However, HIMangel’s Ismail remains cautious about future business opportunities. “For us, COVID-19 is nothing more than a phenomenon. It will definitely impact [the business,] but we still do not know which way. It remains to be seen.”
(Reporting by Noha El Hennawy, editing by Seban Scaria)
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