In recent years, there has been a significant point of inflection in the Egyptian entrepreneurial ecosystem specifically in terms of increased venture capital investment, especially in the deep technology-related, early seed-stage start-ups. Nevertheless, the entrepreneurial deep technology space in Egypt is still operating at the nascent level and requires a lot more maturity. Start-up valuation, establishing proper criteria for start-up selection, and recognizing the prospects of start-up exits are all critical matters considered by investors and venture capitalists.

These are some of the key issues addressed in the first roundtable of the 2022 AUC Business Forum held on March 14, 2022, entitled “Investing in Tech Startups: The Road Ahead”. This roundtable was moderated by Ayman Ismail, Adul Latif Jameel endowed chair of entrepreneurship, founding director of AUC Venture Lab, and associate professor at AUC School of Business. The roundtable featured a diverse panel of experts in the start-up funding and investment field.

The reasoning behind the increased valuation of start-ups

As Ismail explained, many traditional business owners are dumbfounded when start-up companies with little-to-no profits and negative cash flows get valuated at much higher levels than their well-established, profitable businesses.

Chairman and Co-Founder of Sawari Ventures and Founder of Flat6Labs Ahmed Alfi illustrated his thoughts on this matter: “Investing in a well-established industrial company will never give you this level of return on investment as early stage startups. This is why valuations of start-ups are usually higher.” He added: “When one invests small amounts of capital in an early stage of a business venture, it will eventually grow to 200 or more times one’s initial capital investment. When investing at later stages of a start-up venture, one should expect to make around five to ten times one’s initial investment.”

Alfi further elaborated: “Another reason for the growth in valuations is that the talent pool that is participating as management in startups and high growth companies is tremendously stronger than it previously was.”

Basil Moftah, a general partner at Global Ventures, also shared his thoughts on this matter. “The question of valuation relates to how much return an investor expects and we [referring to venture capitalists] target incredibly high returns. Egypt is not digitized enough, therefore, a lot of opportunities in the fintech area exist,” highlighted Moftah, adding: “Digitizing processes in Egypt serves as a business opportunity with huge potential of growth and substantial returns.”

Investment analysis and criteria for the selection process of investors

Investing large sums of money into new businesses is accompanied by considerable risk. Therefore, for investors, it is important to conduct a thorough selection process when comparing investment options.

“In the selection process, we look at early product-market fit and there needs to be a good indication of that. As investors, we like companies that are solving an acute problem that is addressing the masses and a real need in the country,” explained Rafeh Saleh, founding partner at Cubit Ventures. “We need to see actual customer validation towards the business idea,” he continued.

Moftah also illustrated factors venture capitalists consider when investing in new business ventures. “It’s important to see what type of help the entrepreneur needs and whether we [referring to venture capital] have the bandwidth to take this project on and the skills and capabilities to aid the entrepreneurs in their journey. If we are not doing that, then we are setting false expectations for entrepreneurs.”

Moftah also highlighted another point, which entails the importance of considering the need for a level of profitability, not only the potential growth of start-up ventures, as some businesses continue growing without showing any signs of profitability and continue to have bad unit economics, which would be a loss for investors who injected capital into those businesses.

Prospects of start-up venture exits

Many start-up founders’ main goal is to create and grow businesses to eventually cash this business venture out by selling its ownership, this is formally known as an exit. Shehab Marzban, CEO and founder of DFin Holding and Camel Ventures, discussed exit possibilities in the Egyptian entrepreneurial ecosystem. “I believe the majority of exits in the local market will come mainly from strategic acquisitions, mainly from conventional players in the Egyptian market,” said Marzban “However, very substantial exits will probably need to be more on a regional or global scale, as in these cases the local market might not be able to absorb the exits,” he added.

On a similar note, Chief Investment Officer at AUC and Founder and Managing Partner at Lotus Capital Amal Enan expressed her perspective on exit prospects. “It excites me to see the role that both local and international corporations in Egypt are starting to play in helping business ventures exit.” She reiterated: “I think corporates are increasingly starting to become good exit vehicles for businesses as they provide diverse exit avenues.”

Other topics discussed in the roundtable included the change in the deep tech space in Egypt, challenges of female entrepreneurship and sustainability-related entrepreneurial concerns. To summarize, start-ups are valued based on their reward-potentiality, several aspects must be considered by investors who choose new ventures to inject capital into and the prospect of start-up exits in Egypt has improved.

Click here to watch the full roundtable discussion.

Five students from the AUC School of Business won first place in the national 2022 Map the System competition in late April, competing against six other teams comprising 30 undergraduate and graduate students. Their project was also named an Excellent Undergraduate Project in the global competition, which took place in the UK this spring.

Map the System is a global competition of the Skoll Centre for Social Entrepreneurship, delivered in partnership with educational institutions around the world, including AUC.

Reem El Saka, Jessica Botros, Alia El Soudany, Hana Hassan and Laila El Gindy took first place with their project, “The Social and Economic Challenges Affecting the Livelihood of Women in the Informal Sector in Cairo". 

The competition challenges participants to explore social or environmental issues using systems thinking as a guiding approach.

“Map the System provided us with a mix of thrilling and exceptional learning experiences,” El Saka commented. “We were given the opportunity to research and systematically think of a challenge hindering our environment.” 

Systems thinking itself involves analyzing issues by examining the interconnectedness of different factors within an issue, rather than focusing on a single factor. 

Examining the experiences and perspectives of Egyptian women participating in the country’s informal sector, the group’s project identifies possible gaps and areas in need of improvement.

With limited data and literature available on the topic, the team was “eager to go the extra mile to grasp the elemental dynamics in the Egyptian system elevating this problem, by connecting with influential stakeholders and governmental entities,” said El Gindy.

“We wanted to approach the problem of the informal sector from an objective standpoint — one that does not antagonize women for causing spillover issues in society,” explained Hassan. “We trusted that digging deeper into the causes of such a problem could be more profound than what general research shows.”

Each group member echoed satisfaction with their experience with Map the System, from conducting research to presenting their findings.

“What was attractive about this specific competition was not the ultimate goal of reaching solutions, but rather interpreting the complexity of a broken system and portraying the absent evidence-based interventions which led to the failure of previous efforts combating the informal sector and inequality,” added Botros. 

El Soudany was pleased that the competition prompted her to think deeply and critically about societal problems.

When the winners were announced, the group was overcome with joy. “All the sleepless nights paid off when we won first place,” a team statement read. “It was this moment where we felt like stepping into what a real milestone feels like.”

The team will move on to the global competition in June, where they will compete against 64 other finalist teams at the University of Oxford.

“Winning first place locally does not mean that our learning journey in the competition has ended, because a different, enlightening phase will follow,” said the statement. “We expect to live a remarkable experience under the true sense of responsibility of representing AUC.”

The team encouraged other AUC students to join major competitions such as Map the System. 

“Just as we thought we couldn’t make it to where we are now, seizing every chance to grow personally and professionally is always worth the chaotic frustration of stepping out of your comfort zone. One must have the resilience and spirit to explore what is given and hidden — this will give you the key to making any new experience as fruitful as it could be.”

The competition encompasses the efforts of the AUC School of Business to create generations of sustainability-oriented market leaders to instigate change across markets.

This year, it was hosted by the John D. Gerhart Center for Philanthropy, Civic Engagement and Responsible Business of the AUC School of Business in coordination with the Assistant Provost Office for Innovative Learning Experience. 

Learn more about the competition here.