An Insider’s Guide to Egypt’s 2021 Investment Trends

An Insider’s Guide to Egypt’s 2021 Investment Trends

Two thousand and twenty has been, to put it mildly, an eventful year for VC investing in Egypt. COVID-19 has had a drastic, and wildly varied impact on tech startups. While some companies have seen their revenues plummet or even vanish altogether, other startups have experienced unprecedented customer adoption and growth.

If the last quarter of 2020 is anything to go by, 2021 will witness strong investment momentum and increased appetite from local and international investors, who see unique opportunities in the market. Below are some thoughts on three of these opportunity areas:

Embedded Finance

In 2020, Fawry became Egypt’s first fintech company to reach a market cap of $1 billion. The success of Fawry, which largely remains a single-country play, has shown both entrepreneurs and investors that fintech companies in Egypt can achieve significant scale and investment returns. An influx of startups has entered the market in 2020 addressing sizeable opportunities such as SME lending, consumer credit and savings. Many of these companies are experimenting with different models, gaining traction, and thinking about differentiation as competition intensifies. 

Embedded fintech, integrating a financial offering with a traditionally non-financial service or product, is well positioned for growth in 2021. Companies that already process transactions (such as two-sided industry marketplaces and e-commerce players) are well-positioned to better assess the credit need and worthiness of its customers (be they buyers or suppliers) and to offer the most relevant credit solution to these customers. Additionally, these companies are meaningfully differentiated in operations, access to data and customer relationship. Embedded finance has picked up traction in developing markets in 2020 and is a promising opportunity for tech companies in 2021, particularly ones that have already gained traction.

Deep(er) Tech

Uniquely to the region, Egyptian startups have been able to create globally competitive technology. In semiconductor, companies like Siware and Silicon Vision have a long-established track record. AveLabs in embedded auto tech, for example, has built on that trend in more recent years. All these companies leverage the capabilities of a relatively small pool of highly qualified engineers and scientists, that graduate mostly from public universities in Egypt. 

That pool of talent is now joining startups that focus on AI and other technologies. Creating differentiation through technology, not just business model innovations and replicating models that have succeeded in other geographies, will set apart the winners from the laggers. Looking back, one of the best decisions Fawry made early on was to build its own proprietary platform. That enabled it to quickly develop product functionality that is precisely customized to local requirements and to quickly gain traction in the market. It was also a clear differentiator in discussions with potential partners, especially international players. 

As high-potential segments become more competitive, investors will seek startups who have a stronger tech moat. We have seen that clearly when Algebra’s portfolio companies engage with later stage investors. Discussions around tech spend as a percent of total spend, the impact of tech on operational KPIs and share of technical team in the cap table help investors assess the startup’s focus on tech. That trend is likely to grow next year and beyond.

Bottom of the Pyramid

Egypt has its fair share of inefficiencies and underserved market segments. Agriculture, for instance, has long suffered from structural inefficiencies: small farms that lack access to large buyers, multiple layers of middlemen who stack trade margins, price opaqueness, small contractors mistreating workers, and the list goes on. 

Such large fragmented markets are ideal for tech-driven disruption. A new wave of remarkable entrepreneurs is addressing these markets. Domain expertise, technology and operational efficiency are coming together to serve low-value customers in an unprecedented way. 

Halan has been a learning experience, fulfilling millions of rides per month in rural areas and low socio-economic segments of the Egyptian population. It demonstrated that technology adoption in places like a small village in Upper Egypt, has reached the tipping point. Trella followed suit in trucking and Brimore in social commerce.  

In addition to the three areas of opportunities I have outlined above, startups in agriculture, healthcare, education, and other industries have tremendous potential to create economic value, improve people’s lives and build great businesses. “Service inclusion”, as my partner Karim Hussein calls it, is a large opportunity in Egypt that will continue to attract investors this year.

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