Egypt’s economy is in bad shape, so who would want to invest in startups and SMEs in this current gloomy atmosphere?

Tarek Fahim, managing partner at VC firm Endure Capital, shrugged off all talk about economic fears stifling rising startups.

“A little modification in your revenue streams and ultimately business model is all that is needed, if you focus on creating a more regional market as opposed to a local one, it all should be fine,” he said.

He added that the next phase would be one of ‘natural selection’, where Egypt’s economic challenges would weed out the unmotivated and overly-optimistic among the country’s entrepreneurs.

Is the market that unstable?

Egypt devalued then floated its currency in late October, causing the pound to weaken from 8.88 to the dollar to 17.70 by the end of November.

This is creating problems for importers whose costs are skyrocketing, but has also allowed banks to loosen rules on foreign currency withdrawals and payments. It means tech companies and those which use foreign software services such as Slack or Asana can now make their US dollar-denominated payments.  

Furthermore, other help lies in the Central Bank of Egypt’s demand in January for banks to increase their lending to SMEs to 20 percent of their portfolio, in an attempt to support small businesses and unlock banks’ large reserves of cash. National Bank of Egypt head of business and retail banking Hazem Hegazy told Wamda their SME lending rates had risen from 1,000 companies a month to 1,300, but did not have a breakdown of how many would be considered true tech startups as opposed to SMEs.

Fahim sees potential in Egyptian entrepreneurs even in the current climate, saying the current economic challenges will bring out versatility, persistence and creativity in founders.

But Tarek Nasr, founder and managing director of Juicelabs, is also concerned that the challenges ahead may put off good business men and women.

“Entrepreneurship isn’t an easy path by default, some might be inclined to let go of the entire thing entirely,” he said. “That mentality would be a big mistake.”

Not a time for making mistakes

Nasr said startups that didn’t serve regional and international markets were making a big mistake in the long term, particularly as this is a key element international investors look for.

“It is very rare to expect an entirely local startup to gain traction and actually make money [in Egypt alone], because of the bank regulations and the state of the Egyptian pound versus the US dollar,” he said. “It can seem daunting to do a completely local product unless it is an explosive [one that’s] never been heard of before.”

Nasr believes new media startups such as Kijami and Sarmady are booming because of Egyptians’ love for social media. For example, Facebook chatbots could potentially gain a lot of traction in Egypt because of the American tech giant’s dominance over Egyptian social media.

With investments in Moviepigs and other startups under his belt, Nasr said the biggest mistake generally still being made by investors in Egypt was investing in a field they knew nothing about.

In turbulent times like this investors had to get personally involved in a startup to help it meet market expectations, he said. Investors should focus less on metrics and ROI and more on entrepreneurs’ real experience as well as their own ability to provide resources and day-to-day support, when venturing into a startup in Egypt.

“An investor is becoming more and more like a cofounder these days and investors need to catch up,” he said. “Everyday I see investors who basically look at the numbers, not the product’s core, and they make a solid investment then it goes down the drain because they have never worked first hand on that particular industry. If one doesn’t have any particular working experience in an industry, he/she might as well be a bank.”

He said Moviepigs had benefited from the ‘in kind’ services they provided, such as mentorship, social media and marketing services, and sales funnel building.

Fahim adds he still “invests” time in meeting with aspiring entrepreneurs in early stage ventures.

He also believes that challenges such as a weak Egyptian pound and the lack of a good investment law were creating barriers to entry, and only the efficient and tech-enabled would prevail.

Feature image via Flickr.