“The companies that are performing well in our portfolio are growing at 15–20 percent per month, not per year,” said Tarek Assaad, another managing partner at Algebra Ventures. “This is creating a lot of traction and a lot of growth, and this is part of the rationale for why we want to launch a new fund.”
In 2016, Algebra Ventures launched a $54-million venture-capital fund that has since invested in early-stage technology companies in Egypt and the MENA region. The fund’s limited partners include Cisco, the Egyptian American Enterprise Fund, the European Bank for Reconstruction and Development, the International Financial Corporation and private family offices.
Assaad contends that the Egyptian startup market has expanded significantly in recent years, which will encourage more local and international investors to come onboard. He points to the number of companies now growing at 15 to 20 percent. “A few years back, it was only Fawry that was growing at that rate. [Today], it is a general trend.”
In recent years, Egypt has emerged as the region’s second major hub for entrepreneurship, after the United Arab Emirates. In 2020, Egyptian startups secured a total of $179 million across 120 deals, according to Magnitt. In the first quarter of 2021, Egypt attracted $22 million in investments and closed a total of 34 deals, according to regional venture capital firm Wamda.
Assaad said that Algebra Ventures’ analysis shows a tenfold increase in the last five years of “investments, the amount of money going to startups, the valuation of the top 10 startups companies, the number of deals, etc.”
To accommodate this prolific market development, Assaad has urged the government to launch a new SME-listing platform alongside the existing Nile Stock Exchange (NILEX). “Today, there are companies that generate millions of dollars in sales per month. These companies are very interesting to a broad range of investors, not just to VCs,” he said.
“Currently, the NILEX does not have enough liquidity to attract companies that have reached a certain scale that could make them interesting to a broader base of investors. That is one area where the government can give a push to the startup ecosystem in Egypt,” he added.
Algebra Ventures is hoping to secure $50 million of the targeted $90 million for its second fund by the third quarter of 2021. Given the first fund’s remarkable record, Assaad added that new strategic investors, private capital companies, development finance institutions and government organizations might be interested in backing Algebra’s new endeavor.
The new fund will be mostly devoted to supporting new startups, with a small window for follow-on investments to already-existing portfolio companies. The initial ticket size will range from $500,000 to $3 million, the managing partners said.
“The majority of our investments are going to be in Series A, and we will also continue to support the companies through later stages,” said Hussein. “We have done that with Algebra fund 1, and we will continue to do that with fund 2, with maybe a little bit more exposure to seed-stage investments.”
One of the sectors that the new fund is expected to focus on is agritech, a field that the partners believe is underexplored. “[Agriculture] is an industry that is a very big part of the economy and has tremendous operational and financial inefficiencies,” said Assaad. “Even on the labor side, there is a lot of opportunity to create value.”
Although Egypt has seen the rise of many fintech companies in recent years, the partners believe that some subsectors are still rich with opportunities. “If you look at financial services, there is a lot that has been done in payment right now in Egypt,” said Hussein. However, insurance and financing remain underserved, he added.
Edutech is another sector where the new fund is expected to allocate some of its investments. “In Egypt in particular, the gap between the availability of high-quality schools and the number of students that are coming to the market on an annual basis is very large,” said Hussein. “Obviously there is a high demand for quality education services across the board, and in some areas, technology can be helpful and a good complementary solution.”
(Writing by Noha El Hennawy; editing by Seban Scaria)
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© ZAWYA 2021