How green accelerators are addressing the challenges for climate startups: Last week, we explored how climate-focused accelerators are helping green startups in Egypt gain access to capital and funding. In the second installment of our two-part series, we take a look at the technical, regulatory and economic barriers that startups face, and how accelerators are helping startups navigate and mitigate such challenges.

There’s a gap in finding the correct technical support: Access to tech support is a significant barrier startups face when scaling, especially in innovative fields like biotech or AI built to support green initiatives. Most state-owned commercial banks such as NBE and Banque Misr offer technical assistance to SMEs, but these are often not tailored enough to the needs of climate startups — nor are many accelerator programs, which offer general business development support, but fall short of sector-specific climate tech support.

We need more climate-focused accelerators: Given that climate tech is a nascent industry, focused tracks for each sector would be beneficial, project lead of ClimAccelerator Egypt Ola El Houfy told Enterprise. “If you put biotech next to fintech, they’re not quite the same, so the benefits won’t be tailored. We were able to offer an advanced program based on the needs of the startups – we ran a co-creation phase prior to the programme asking green startups to tell us exactly what they needed,” she added.

Still, it’s not always easy to source expertise: ClimAccelerator partnered Schneider Electric to offer startups workshops led by experts. “For one of our startups Egymag, which produces protein from insects, we ended up having to outsource tech support from abroad,” El Houfy said. Flat6Labs Chief Programs Officer Yehia Houry — an accelerator which offers tech support on its Ebtekar agritech program — agreed that it has been difficult to find the correct experts tailored to each startup’s niche, and has resorted to running multiple cycles of the accelerator programme in order to allow enough time to source the appropriate support.

Egypt’s legal environment is an obstacle to startups: Egyptian startups face rigid regulations surrounding business administration, licensing, and compliance processes. Founders often lack the awareness of hiring, contracting, insurance and labor rights, according to a 2021 AUC report (pdf) on startups and human capital management in Egypt. Moreover, outdated employment laws are not suited to a dynamic labor market. “Hiring people is tedious work — we often end up turning to consultants to help with the legal side of things,” Changelabs CEO Karim Samra told us.

Many startups are, for regulatory and financial reasons, headquartered abroad: “Running a business in Egypt is still rather complex — being able to manage bank accounts and wire money around in a foreign currency, for example. A lot of companies instead register as an entity abroad in order to expand and raise money,” Samra explained.

And recent developments have not made it easier: Our current FX crunch and FX spending limits on credit and debit cards are a significant challenge to early-stage startups based in Egypt. Coupled with record high inflation and an impending devaluation, these factors stand in the way of startups looking to purchase equipment, scale up, and gain credibility from foreign investors.

“We don’t invest in companies today that are focused on Egypt alone,” Samra told us.“There’s no startup that’ll be able to raise VC funding in the next 12-18 months without having a clear, actionable strategy around expansion and generating foreign currency, to avoid reliance on the EGP. We’ve introduced our startups to partners in Africa and the Gulf.”

Climate tech is still struggling against fintech: Most accelerator programs in Egypt rely on the financial backing of commercial partners and development finance institutions such as Hivos, GIZ, and USAID. Commercially-driven accelerators have a fiduciary responsibility to investors, where they must justify investing in a climate tech startup as opposed to the attractive fintech startup, which typically generates revenues faster. The aim is to help green startups reach the same level of profitability as traditional startups in order to make them enticing enough to further investors down the line.

What can be done to encourage more investment? “What has worked best for us, was partnering up with [international development organization] Hivos – for every USD we invest into a startup, Hivos matches it with a grant. This makes investment more attractive to us, as it’s less risky,” Houry told us. Many others we spoke to agreed that financial matching from development organizations and the government is needed to develop Egypt’s green startup ecosystem.

How can state-led initiatives help? “Given that the loss and damage fund that was announced at COP27 has still not been clearly defined, I believe there needs to be more ground-level initiatives and cooperation between sectors. We’ve been supporting the state-led National Initiative for Smart Green Projects by offering our network,” Houry said.

And where do development finance institutions (DFIs) step in? “The state should provide more debt facilities to the most promising companies, identified by working closely with the private sector,” Samra added. “That’s what we’re trying to do with Hydrofarms, whose water-saving hydroponics systems are desirable to both farmers and the economy, but which have a high upfront cost to build. Imagine if The European Bank for Reconstruction and Development and Agricultural Bank of Egypt stepped in to finance the purchase of these products.”

Your top green economy stories for the week:

  • Checking in on our green hydrogen strategy: Prime Minister Moustafa Madbouly called for the swift adoption of our green hydrogen strategy and for updating the country’s energy strategy. (Statement)
  • Plans to boost electricity production: The Electricity Ministry is working to convert the country’s power generators to combined cycle plants, which would increase their capacity by 50%. (Statement)
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