{"id":578166,"date":"2022-12-18T04:00:23","date_gmt":"2022-12-18T04:00:23","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/whatsnext\/a-year-of-reckoning-for-planet-startup-but-we-came-out-stronger\/"},"modified":"2022-12-18T04:00:23","modified_gmt":"2022-12-18T04:00:23","slug":"a-year-of-reckoning-for-planet-startup-but-we-came-out-stronger","status":"publish","type":"whatsnext","link":"https:\/\/enterpriseam.com\/egypt\/whatsnext\/a-year-of-reckoning-for-planet-startup-but-we-came-out-stronger\/","title":{"rendered":"A year of reckoning for Planet Startup, but we came out stronger"},"content":{"rendered":"

<\/a> It was an eventful year for StartupLand to say the least: <\/strong>Startups and venture capitalists alike have faced a slew of challenges this year \u2014 from a global VC squeeze, to two EGP devaluations, to the downfall of one high-profile startup. The funding slowdown fueled the rise of new trends in the market, like the emergence of new financing tools, and led many startups down the daunting road of restructuring and cost-cutting. But it\u2019s not all doom and gloom \u2014 much of it was healthy and symbolic of a large-scale \u201cmarket correction,\u201d industry insiders tell us.<\/p>\n

In context: <\/strong>VCs have been tightening their belts<\/a> since the start of the year as interest rates rose, tech assets were sold off, and sky-high valuations came back down to earth<\/a>. The squeeze has been even more pronounced here in Egypt, as the local economy faced soaring inflation, two EGP floats<\/a> and the Central Bank of Egypt (CBE) hiking rates by 500 bps. This all comes after a record couple of years for startup land that saw mega rounds and exaggerated valuations.<\/p>\n

VCs managed to stay active despite the turbulence: <\/strong>Several VC outfits launched new funds, including impact investor Catalyst Private Equity<\/a>, Modus Capital<\/a>, and Egypt\u2019s Micro, Small and Medium Enterprise Development Agency<\/a>. Other funds reached their targeted close (and even surpassed fundraising targets<\/a>) by \u2014 smartly \u2014 targeting LPs<\/a> like development finance institutions (DFIs) and Gulf family offices. DFIs, particularly those in Europe, have a clear mandate to invest in our part of the world \u2014 that hasn\u2019t changed despite turmoil on the continent and in the UK. The Gulf also has an additional USD 1.3 tn in excess liquidity sloshing<\/a> around over the next four years thanks to high oil prices, meaning they\u2019re going to be allocating to a wide range of assets for the foreseeable future.<\/p>\n

VCs + investors also tapped into new funding models, including: <\/strong><\/p>\n

#1- Corporate venture capital:<\/strong> Impact investor Catalyst Partners launched a corporate VC arm, Serv Startup, to acquire minority stakes primarily in the fintech and digital lending sectors. Corporate VC is what it sounds like \u2014 when established companies invest in startups. They often invest in startups that complement the investing companies\u2019 operations, writes Harvard Business Review<\/a>. Among the first to jump on the trend in Egypt was CIB\u2019s CVentures.<\/p>\n

#2- Venture building: <\/strong>Modus Capital launched a venture builder<\/a> in Egypt and Berlin-based corporate venture builder FoundersLane launched operations<\/a> here after its acquisition by Creative Dock. Venture builders help build startups from scratch and position themselves as going beyond the provision of finance. Their role usually lies in staffing a startup, testing its product, and preparing it before launching it into the market. Venture builders usually focus on a small handful of early-stage startups, rather than building large portfolios.<\/p>\n

#3- Search funds: <\/strong>There are two searchers in Egypt right now: Ahmed Raafat\u2019s Giza Capital Partners and searcher Aly Taha. Search funds<\/a> are investment outfits that raise funds from investors to acquire a small- or medium-sized business (SME) that is already operating well in the market, to then grow it and ensure return for their investors. Through the acquisition, the CEO of the company is replaced with a seasoned entrepreneur to lead the company for 6-10 years, providing investors with safe, high returns, and entrepreneurs with a business to run without struggling with the pains of building a company from scratch.<\/p>\n

Startups also got creative with fundraising: <\/strong>B2B logistics marketplace Trella managed to secure USD 6 mn in debt financing from global debt platform ALMA Sustainable Finance and the US government\u2019s US International Development Finance Corporation (DFC). Otherwise known as \u201cventure debt,\u201d debt financing typically combines the traditional features of a loan with some aspects of VC financing. We have more in our recent explainer<\/a>, but generally, it\u2019s pretty new to Egyptian startups.<\/p>\n

And followed through with a lot of consolidations:<\/strong> From fintech to cosmetics and pharma, several startups \u2014 both local and foreign \u2014 have made moves on local startups this past year. Some of the biggest acquisitions:<\/p>\n