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RiseUp Summit Day 1: Some good and bad news for entrepreneurs in Egypt

As the RiseUp summit, which bills itself as the region’s top entrepreneurship event convenes for its third year in downtown Cairo, the buzzword of the day is “ecosystem.” This, speakers explain, is start-up speak for the larger environment in which entrepreneurs develop and launch business ideas.

 

For the 4,000-plus aspiring entrepreneurs, mentors and investors signed up to attend RiseUp, the summit’s first day offered a blend of optimism and pessimism about the state and potential of Egypt’s entrepreneurship ecosystem.

 

According to Ramez Mohamed of regional start-up accelerator Flat6 labs, the basic “chemistry” of an entrepreneurship ecosystem comes down to four elements. The first of these is the ingredients: entrepreneurs and their ideas. Next comes equipment and supply systems, meaning the venture capitalists, incubators and accelerators that help transform ideas and raw talent into viable businesses. The “catalyst” should be the ecosystem itself, Mohamed continued, with the various actors supporting and inspiring each other. The final necessary element is vision — a shared sense of goals and growth.

 

Egypt excels when it comes to raw talent and market potential, speakers at panels throughout the day seemed to agree. As Flat6 labs’ Mohamed said, Egypt has the largest market in the region, and a strong pool of engineering talent.

 

The rest of the ecosystem, however, needs some work.

 

Investment in particular remains a challenge. Multiple panels addressed the shortage of funding that businesses need both to sustain themselves in the start-up phase and to expand once they have established themselves.

 

Ahmed al-Alfi, veteran investor and founder of downtown’s GrEEK Capmus, which is hosting the event, said he expects an uptick of investment in 2016 compared to 2015. Foreign investors are recognizing local talent more and more, he says.

 

However, even entrepreneurs with sound ideas face serious challenges finding funding. The window of opportunity is very small, and investors demand high standards, explained Alvaro Abella of Dubai-based venture capital firm BECO Capital.

 

In addition to looking for great teams and great products, many investors have unreasonable expectations about how much money they should make and how fast, Abella said.

 

“Some local investors look at quick wins and rewards, being profitable in two years. That’s not really feasible in Egypt,” he explained. “You need to be patient. It doesn’t work here the way it works in Silicon Valley. There are no quick flips.”

 

In addition to Egypt’s start-up culture being relatively new, Egypt also faces political instability, a slow economy, a general lack of liquidity in the market and a cumbersome bureaucracy.

 

Unfortunately for Egyptian entrepreneurs, at the same time they face such challenges, they also often find themselves in direct competition for investment with businesses in places like Silicon Valley. As speakers at a panel on Venture Capital competition noted, since investor capital is transnational, investment money that originates in the Middle East doesn’t necessarily stay there.

 

Sovereign funds from the Middle East have been key anchor investors in many Silicon Valley firms, noted Khaled Talhouni of Wamda Capital. At the same time, these funds don’t allocate investment money for small companies in their own backyard not even as corporate social responsibility initiatives. Talhouni describes the current situation — in which small companies and the accelerators designed to support them may have an easier time seeking money from Western institutions like the EBRD than from regional sovereign funds — as both “disgraceful” and ridiculous.

 

On a more positive note, Hasan Haider of Silicon Valley-based seed fund 500 Startups believes things may be changing.

 

“I think there has been a little bit of a shift,” he said. As the price of oil falls, he explained, government funds are increasingly seeing the need to invest in a regional economic future that moves beyond the petroleum industry. This, he says, presents an opportunity for local entrepreneurs.

 

However, investors are still wary of tying up their money in regional start-ups. “We have to prove that venture capital, as an asset class makes sense as an investment,” Hassan says.

 

What that would take, Khaled says, is a flow of successful, profitable companies coming out of the region, establishing a precedent for lucrative investments. “We are seeing a bit of that momentum coming through,” he says.

 

This momentum is where the ecosystem idea comes back in. Building on the metaphor, speakers throughout the day emphasized that the ecosystem needs to become self-perpetuating, with entrepreneurs pushing and inspiring each other, creating a Silicon-valley style buzz that lures in investors.

 

Much of this comes down to cooperation, and an attitude among entrepreneurs that balances healthy competition with mutual support.

 

Alfi sees the need to build up a sense of collaboration as another challenge for Egypt. Sharing is not a big part of the business culture in the Middle East, he says, but events like RiseUp are trying to change this.

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