Venture Capital Firms Are Flooding Back To North Africa

Venture Capital Firms Are Flooding Back To North Africa

It was merely six years ago that the Arab Spring swept parts of the Middle East and North Africa, resulting in the resignation of long-serving Egyptian president Hosni Mubarak.

The new president, Mohamed Morsi, lasted less than a year, and political turmoil reigned in the country. This took its toll on investment, as potential backers were scared off by the uncertainty. The Egyptian tech scene was one of the many casualties.

Things are changing, however. Elected president in 2014, Abdel Fattah El-Sisi is overseeing Egypt’s transition into a democracy. His government has put information and communication technology at the centre of its growth strategy, and hopes to attract over $18 billion in investment in the next six years.

Venture capital firms are flooding back into the country, from 500 Startups to the IFC to Algebra Ventures, and after years of being denied access to funds, Egyptian tech startups are now swimming in them again.

In the last two months alone, food discovery platform elmenus, ridesharing startup Swvl, e-courier app Bosta, and food delivery startup Mumm have secured rounds, while Orange and Flat6Labs have announced their intention to invest in Egyptian startups. The future looks bright.

Growth has been significant. Eight Egyptian tech startups secured investment over the course of 2016, making it the fourth most popular African country in terms of the number of startups that raised capital, with the total amount raised jumping 105 percent to $9.7 million.

The data, from Disrupt Africa’s annual African startup funding report, rates Egypt as the fastest growing country on the continent when it comes to investment in tech startups, and that is likely to be the same again this year.

Massive opportunity for innovation in North Africa

Omar Gabr is co-founder and CEO is Egyptian startup Instabug, a bug reporting app that was selected for the Silicon Valley-based Y Combinator accelerator and is used on over 800 million devices globally. He says the Arab Spring actually gave a huge motivational boost to an entire generation to build and innovate.

“More tech startups are launching every day. There is a massive opportunity for innovation,” he said.

“Investors are coming back for sure.”

Investors are returning, and at ticket sizes bigger than ever. E-health startup Vezeeta’s $5 million round late last year was an Egyptian record, doubling the previous one set in 2015. It is highly likely it will be broken again before this year is out.

This process is not only happening in Egypt, however, with the Disrupt Africa funding reports also noting an increase in funding for Tunisian and Moroccan startups. Though not as high profile as Egypt, the two countries had their own fair share of turmoil during and after the Arab Spring, and saw investment drain away.

That, again, is now slowly changing. Three Tunisian startups raised over $500,000 in funding in 2016, with no rounds in 2015. Three Moroccan startups raised a combined $3.4 million, making it the sixth most popular African country in this respect.

Mehdi Triki is co-founder of Tunisian company RoamSmart, which was founded in 2012 and is now active in over 30 countries – providing roaming solutions to mobile operators. It is now a hugely successful business and a Tunisian export, but it suffered at the beginning.

“Fortunately, the situation has improved a lot since 2013 with the first democratic elections, which went well,” he said.

“With the improving environment, there are investors coming to Tunisia which is indirectly beneficial for us. The ecosystem is more dynamic and active and this is a positive environment in case we decide to look for a second funding round.”

He also notes an increase in the number of incubator and accelerator programmes, which he said are are encouraging the entrepreneurs to pitch and “make their dreams come true”.

Egypt is without doubt the leader in the North Africa market, but Triki believes the region as a whole has potential that cannot be ignored.

“The region has obviously big potential. Nevertheless, it varies from country to country depending on the political and security situation of each, and the impact of the Arab Spring,” he said.

“Morocco and Tunisia offer the best prospects and potential among the North Africa region. Innovation is visible from the different startup competitions.”

Tom Jackson is the co-founder of tech news and research platform Disrupt Africa and a journalist covering innovation on the continent from the Cape to Cairo.