CAIRO: As young, bright entrepreneurs have gathered this year at events such as the NexGen IT Bootcamp, Startup Weekend Cairo, and the Egypt Entrepreneurship Delegation, more and more Egyptians are sharing in the excitement of starting their own companies.
There’s unmistakable talent, contagious enthusiasm, and growing numbers. What they need next is money.
Venture capital, particularly early-stage investment, is an industry that often goes hand in hand with start-up companies. But as VC funds, public and private, have held off on investments in the post-revolutionary instability, the scene is sparse to say the least.
“There’s this kind of gap in angel and seed funding,” said Ahmed Laiali, manager of the government-run Technology Incubation Program (TIP).
TIP, which once gave up to $250,000 in funding to its incubated companies, now focuses on services and consultancy instead.
“There are lots of people who will give you mentorship and connections,” said Hany Al-Sonbaty, co-founder and managing partner of Sawari Ventures. “But they will not give you money.”
Sawari Ventures is trying to change that with its launch of Flat 6 Labs, an incubator created in conjunction with the American University in Cairo. Flat 6 Labs provides state-of-the-art facilities, seed funding and mentorship, in addition to the potential of later-stage VC investment from Sawari.
“I want to lower the barrier of entry,” Al-Sonbaty said. “I also want to reduce the cost of failure. I want to lead [entrepreneurs] to believe that their future successes would stem from their past failures.”
Failure is an important concept for entrepreneurs, and one that has often been linked with a healthy start-up environment.
“You have to have the mentality that you are doing something, you might fail and you might succeed,” said Mostafa El-Khouly, CEO of the start-up company SilMinds.
But in Egypt, especially for entrepreneurs considering borrowing from banks or friends and family, failure is an uncomfortable idea, El-Khouly explained. The idea that one learns from failure, although crucial to entrepreneurship, is not part of the culture.
“Your family asks why you are quitting your job at Google or Microsoft, where it’s stable and has a good salary,” El-Khouly said, “Especially if you have a wife or kids or something. It kills your entrepreneurial career.”
But as VCs like Al-Sonbaty’s help eliminate these barriers of fear, they unlock a vast potential of entrepreneurial activity.
“We have human capital, local markets and easier access to international markets, and we have a young population,” Al-Sonbaty said. “I have been fighting, telling people there is talent. It will take time for people to realize that this is a profitable asset class.”
Sawari is leading the charge in providing a full spectrum of funding, working in everything from seed-stage investments in Flat 6 Labs to later-stage VC investments of $250,000–$2 million in the main offices.
“We’re building [a community] and we’re going to create a critical mass,” Al-Sonbaty said. “If there [are] more of us we’ll spread the message better.”
The two communities, entrepreneurs and VCs, feed off of each other, and as the VC industry expands entrepreneurs will experience a much-needed freedom.
“At the end of the day, I need money, and [the VC] knows that I will sign,” El-Khouly explained. “This is not the case if there are 10 or 15 VCs.”
“There are more entrepreneurs than there are VCs and that is unhealthy,” Al-Sonbaty added. “I don’t think you can have innovation without a healthy venture capitalist community.”
In the meantime, not every entrepreneur faces good options. Those lucky enough to get a spot at Flat 6 Labs enjoy healthy investment possibilities, but the program cannot support more than a dozen companies.
Others may find space at PlugAndPlayEgypt.com in the Smart Village, or in one of five TIP incubation centers.
Meanwhile, many will simply be left without the investment and experienced mentorship they need.
“We need industry experts and financial advisors,” El-Khouly said, “Entrepreneurs in Egypt don’t have the financial advisors that allow them to address finance problems.”
More important than mentors is a network of “seasonal CEOs,” Laiali argued. Taking a more active role in the company, serial entrepreneurs can temporarily provide startups with the networks, knowledge, and energy they need.
But financing through the various stages of growth remains the most pressing obstacle, and although the Sawari Ventures/Flat 6 Labs team provides wide flexibility in investment size, entrepreneurs need more options.
“We need people like Sawari to come and bridge this gap,” Laiali said. “We need four or five Sawaris.”
The entrepreneurs, for their part, must come to terms with the risk associated with venture capital.
“The only way to create a sustainable venture capital industry is to create success stories,” El-Khouly said.
Encouraged by the successes of others, he added, more prospective entrepreneurs will be willing to take the risk of accepting VC investment.
