{"id":542769,"date":"2022-01-16T03:59:25","date_gmt":"2022-01-16T03:59:25","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/whatsnext\/startup-investment-in-2022-more-of-the-same-but-stronger\/"},"modified":"2022-01-16T03:59:25","modified_gmt":"2022-01-16T03:59:25","slug":"startup-investment-in-2022-more-of-the-same-but-stronger","status":"publish","type":"whatsnext","link":"https:\/\/enterpriseam.com\/egypt\/whatsnext\/startup-investment-in-2022-more-of-the-same-but-stronger\/","title":{"rendered":"Startup investment in 2022: More of the same, but stronger"},"content":{"rendered":"

<\/a> What\u2019s in store for Planet Startup in 2022? More of the same \u2014 and that\u2019s a great thing. <\/strong>In the past two weeks, we\u2019ve looked at how much funding Egyptian startups raised in 2021<\/a> and the new investment vehicles<\/a> that have emerged in the market. This week, we\u2019re looking at what lies ahead.<\/p>\n

The theme of 2022 when it comes to funding for startups is simple: MORE. <\/strong>More funding, bigger ticket sizes, more international players (VCs and startups alike), more exits, more M&A, and last, but not least, more fintech.<\/p>\n

Your guides to What\u2019s Next in the startup space in the year to come are three top industry <\/strong>leaders: Tarek Assaad<\/strong>, managing partner at Algebra Ventures. Hany Al Sonbaty<\/strong>, managing partner at Sawari Ventures. And Basil Moftah<\/strong>, general partner at Global Ventures.<\/p>\n

All three insiders expect 2022 to be another record year for fundraising by startups.<\/strong> \u201cWe\u2019re expecting USD 3 bn to be raised in MENA, and that Egypt will lead in terms of number of transactions for the first time,\u201d Moftah says. The UAE and KSA will round out the top three in terms of number of transactions. In terms of total investment value, the UAE will be at the forefront, he expects.<\/p>\n

The venture capital landscape is going to get more crowded\u2026 <\/strong>We also expect a number of Egypt-based VCs to (a) close funds for which they\u2019re now raising funds and (b) to launch new funds. And the market can also expect to see other players looking at the startup space, with Assaad pointing to corporate investors, financial institutions and later-stage players. Al Sonbaty reiterates what he had told us in his Morning Routine<\/a> two years ago: \u201cI personally expect that the capital available for VC will increase by close to two orders of magnitude within our lifetime.\u201d<\/p>\n

\u2026and VCs are going to write larger and larger tickets. <\/strong>The average VC investment in an Egyptian startup has grown steadily in the past three years, but compared to other emerging markets, the sizes are not insane, Assaad said, implying that there is still significant breathing room. \u201cEgypt has been underinvested and behind due to the revolutions and then the economic reforms. Today, it is becoming a darling story to investors, as a place that is undervalued and underrepresented in the tech scene,\u201d Moftah notes.<\/p>\n

Expect an influx of international players: <\/strong>Top-tier international investment vehicles that have global mandates will be coming into and looking at Egypt, Al Sonbaty says. Assaad and Moftah said much the same thing.<\/p>\n

2022 could shape up to be the \u201cyear of the exit,\u201d too. <\/strong>Momentum for exits is gaining steam as investment rounds grow in size and more sophisticated investors enter the scene. \u201cWe will see exits next year and we\u2019re hoping to see a lot of them,\u201d Assaad confirms.<\/p>\n

M&A is also picking up. <\/strong>Consolidation in the market started on a smaller scale in 2021, as we\u2019ve previously reported<\/a>, and you can expect lots more where that came from. \u201cM&A will become more of a feature, be it startup-to-startup or larger companies acquiring startups, so we\u2019re dedicating part of our investment team to focus on that,\u201d Moftah says.<\/p>\n

Companies are eyeing Egyptian startups as acquisition targets because, simply, Egypt is <\/strong>the hottest place to be<\/strong>, Moftah adds. Saudi Arabia\u2019s Tadawul opening the door to tech startups interested in listing will be good for Egypt: KSA-listed companies will be eyeing acquisition targets in Egypt (and elsewhere) to deliver growth. \u201cI\u2019m looking forward to seeing some more consolidation in 2022 as companies [...] think about exits and IPOs,\u201d Assaad says.<\/p>\n

Venture debt is coming in strong.<\/strong> Across MENA, 80% of investors and startups are planning to use venture debt as a funding tool in the near future, according to the Venture Debt Sentiment Report by Magnitt and Shuaa<\/a>. And it seems Egypt is going to follow suit. US venture debt firm Partners for Growth<\/a> is looking at lending to four companies in Egypt, Moftah says. \u201cVenture debt will become mainstream [and] part of how the ecosystem expands,\u201d he adds. Other investment vehicles in the market, which we covered in detail last week<\/a>, are set to increase the base and depth for startups at an earlier stage, Al Sonbaty tells us.<\/p>\n

Fintech, fintech, and more fintech: <\/strong>\u201cFintech is destined to attract more money this year and accelerate, given the size of the [potential],\u201d Al Sonbaty says. A number of African fintech unicorns will come to Egypt in search of growth, so that\u2019s going to make things interesting, he adds. Egypt\u2019s new SPAC regulations and fintech law have been in the making for a few years now \u2014 and will be coming together to create a more vibrant regulatory environment in 2022, he explains. We may even see some specialization in investment vehicles, particularly on the corporate side, Assaad adds.<\/p>\n

But isn\u2019t everything fintech? <\/strong>A lot of startups are taking the \u201cfintech highway,\u201d regardless of their sectors, because the need for financing is everywhere. \u201cFintech is an integral part of infrastructure \u2014 it is not a vertical, but rather required for industries to thrive, including healthcare and education,\u201d Al Sonbaty says.<\/p>\n

What we need to work on: Technical talent, corporate governance, and infrastructure. <\/strong>\u201cSomething on everybody\u2019s mind is access to technical talent on a more senior level, such as CTOs and senior developers,\u201d Assaad says. There is a lot of competition for tech talent, particularly as many of the nation\u2019s best and brightest are (a) lured to jobs abroad or (b) opt to work remotely for global companies, whether on contract or as freelancers. In parallel, the nation\u2019s infrastructure still needs to improve in terms of internet speed and data centers \u2014 and regulations to support startups and IPOs, Moftah tells us. But most importantly, governance and transparency need to be a priority. Egypt\u2019s entrepreneurs still need to exert more effort in communicating transparently and manage the governance of their companies better, he recommends.<\/p>\n

What we need to watch out for: the global debt bubble. <\/strong>There is a credit bubble brewing globally, especially when it comes to consumer and SME lending, Moftah says. \u201cWe\u2019re expecting a correction of that in 2022, starting in the US, which will spill over into emerging markets and lead to a correction of valuations on some businesses that have high exposure to credit and lending,\u201d he adds. These businesses include BNPL, working capital financing and microfinancing. The exact timing is still unclear, but corrections can be very disruptive to companies, boards and investment flows.<\/p>\n

Egypt\u2019s fintech sector is well-regulated <\/strong>by both the Central Bank of Egypt and the Financial Regulatory Authority. We think the risk to Egypt of a correction in developed markets is not that local players will default, but that international investors will pull back because they worry that Western risk is generalizable to EMs like us.<\/p>\n

The dominant theme at the start of this new year: Optimism.<\/strong> Tech startups are attracting strong talent and going after big markets, technology adoption has turned a corner as it is now in the hands of the masses, there\u2019s plenty of capital sloshing around in search of returns, entrepreneurs are more competent and capable, and there\u2019s interest everywhere from corporations to government, Assaad says. \u201cI\u2019m looking forward to Egypt regaining its position in the tech world,\u201d Moftah tells us. \u201cThere is a new caliber of entrepreneurs coming into the scene, of which a few are second-time founders.\u201d<\/p>\n

What\u2019s next (further down the line)? Open banking and <\/strong>Web3<\/a><\/strong> startups. <\/strong>Web3 businesses will become the hottest sector, including businesses related to crypto-exchanges, NFTs, blockchain and smart contracts, Moftah says. Other MENA countries, like the UAE and KSA, have also been working on their open banking mandates. Open banking is the idea that you force financial institutions and ins. companies to open up their APIs for fintech companies to capture and pass data. \u201cThis is the missing piece of making fintech successful in MENA,\u201d Moftah concludes.<\/p>\n

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Your top stories on future trends for the week:<\/strong><\/p>\n