Startups
What MENA startups still lack to achieve their potential
![What MENA startups still lack to achieve their potential?](https://adigitalboom.com/wp-content/uploads/2019/03/MENA-region-1.png)
A few weeks ago, my friend Hendrik Jandel wrote an article about the potential he saw in the Beirut startup scene and how it can become a tech hub in the region. Not surprisingly, his article stirred a lot of debate and opinions about the subject.
Being a tech entrepreneur from the region, I shared my opinion, yet I did it my way (no reference intended).
I had a private in-depth discussion with him detailing the logic of how I’ve built my opinion based on my first-hand experience and network in the MENA tech scene.
This article is the summary of my thoughts as discussed with Hendrik after some cleanup and embellishment.
The vibrant tech scene
What would the tech scene in a country/city in the MENA region look like, if it had a strong and vibrant tech sector?
For non MENA people, please note that in this case city and country are quite exchangeable due to the centralized nature of big cities in the region.
This has led me to start defining some quantitative KPIs – to help describe this relative utopic case in a measurable way. Here goes; a vibrant tech city achieving its potential would contain:
- 35-80 revenue making tech companies with healthy unit economics and a total “real” (i.e. post accelerator) valuation of 400-700 million USD.
- A healthy mix of B2B vs. B2C tech companies skewed towards the B2B sector. (I understand this is not quantified, but it doesn’t matter to the assumptions. It will be clear later.)
- An 80/20 split in revenue between local and regional – local being 80%
For the sake of argument and the logical path I’m moving along. I will focus on the 1st point as the underlying line of thought arguing my point.
How would such a tech company look like?
The total valuation of 35 companies at 700 million USD means a 20 million USD valuation each on average. Which means, said companies would have achieved most if not all the following:
- Positive unit economics
- Cash flow positivity
- An aggressive growth trajectory in revenue, traction and/or brand value
- Attracted serious regional and/or international investors
Even at the other end of the scale of 80 companies valued at 400 million USD in total gives an average of 5 million USD valuation per company.
Those numbers still make the case. At least in MENA where the cost of living is inexpensive per international standards, like Cairo or Alexandria (5 million USD ~ 100 million EGP, i.e. a lot of money).
Also, continuing the example: a valuation of 400 million USD is ~8 billion EGP. Which makes the sector comparable to other traditional business sectors in the Egyptian economy. And that’s the lower end of the suggested range.
The higher end of the range is rather applicable to more expensive cities like Amman, Beirut, Dubai, Jeddah, Tunis, etc…
Let’s keep the math simple and work with the following numbers as averages that are to be adjusted per city based on its own dynamics:
- 50 companies
- Total valuation = 500 million USD
- Average company valuation = 10 million USD
How do we get there?
So, how does one reach the above assumed state of startups? Well, assuming VC company success rates of 10% (i.e. 1 out of 10 companies actually succeeds). There needs to be a series A investment in 10 times the above number of companies (i.e. 500 series A investments). This means:
- Series A Ticket size in MENA: 200k USD – 1 million USD
- Total number of investments = 500;
- Total (min) investment = 500 * 200k USD = 100 million USD
So this means that a total of 100 million USD should be invested in series A alone to reach the mentioned state.
We can also calculate it “backwards” to see how much angel/accelerator money is needed to create 500 investible companies ready for series A investment. Also assuming 10 percent hit rate, here are the numbers:
- Angel/accelerator ticket size in Mena: 10k USD – 50k USD
- Total number of angel/accelerator investments = 5000
- Total (min) investment = 5000 * 10k USD = 50 million USD
Although the numbers seem to stack up, let’s put it into perspective:
- Total investment = total accelerator/angel investments + total series A investments = 50 million USD + 100 million USD = 150 million USD
- Total valuation of all “successful” companies post series A = 500 million USD
- ROI = 500 million USD / 150 million USD = 3.33x
Which is a nice ROI in general, albeit not so nice for VCs who expect >10x. But, for jumpstarting an ecosystem into a powerful existence, I would say this is a very good ROI if anyone can achieve it.
One more important factor
Those would be the theoretical numbers that you would find in high-level market studies done by international consultants and VCs.
There is one more aspect that we tend to ignore along with everyone who tries to make reason out of the MENA region’s “special” way of functioning.
A lot of investors come to the region with “readiness” to risk series A size tickets but claim that there aren’t so many options worth their money or valuations they are asking. Which is to some extent not completely out of this world, though I wouldn’t advocate for it. Yet, here is the situation:
- There are a lot of companies who graduate accelerators seeking series A investments
- Series A investors look for more proven traction (and revenue) than is achievable via accelerator money
- Result = accelerator grads need Series A money to be ready for series A money, i.e. circular references or chicken-egg-problem
What investors call “Series A investible” is not only the state of the company, but also the state of the entrepreneur behind the company.
Before Series A, an entrepreneur isn’t only lacking the money, but also the experience that comes from spending Series A money on growth.
There is a phenomenon I have experienced myself and observed in cases of fellow entrepreneurs. Which I would like to call the post-million-EGP-entrepreneur (this is in 2016 pre-EGP-floating numbers. Feel free to adjust them in your head or via back-of-the-envelope Math).
Spending 1-2 million EGP in Egypt (~50k-100k USD) on building a company opens up some experiences that transform you as an entrepreneur. From an amateur to someone with actual experience (the numbers should now be higher. Also, those numbers don’t apply in more expensive cities, but the concept stands).
This hurdle isn’t surpassable with accelerator money that is designed to be the least possible to enable you to build an MVP and business case on paper. But no real product-market-fit testing or proof of real traction.
Here are some examples of experiences you cannot go through with accelerator money (even if you get creative) and definitely need Series A money for it:
- Proper marketing campaigns to test market response and build acquisition pipelines
- Hiring top talent to lead the company
- Acquiring top tools that help reach product-market-fit
- Be in the market long enough to actually prove market fit
- Make proper mistakes in their first venture that fuel their next venture’s success
- The list can go on…
This also applies to investors
Investors also need to build up their experience and quiet their risk aversion with their money when investing it in series A tickets. This will only happen if they have their own failures behind them. Which lines up quite with the need for building prior experience for entrepreneurs.
We’ve seen lots of inexperienced investors approach the market and of those who have learned from their mistakes as well.
Here are a couple of examples that new investors will only learn if they spend series A money many times:
- Achieving an appropriate and fair level of complexity on the term sheets that doesn’t create bad blood between the shareholders
- Adjust their expectations of market performance and valuations (applies to entrepreneurs too)
- Adjust their speed or slowness of executing an investment deal to the benefit of the company
- Balance their own benefit with the benefit of the company and entrepreneurs and think win-win rather than maximize their gain from the deal and go for win-lose
- This list can also go on…
The market is young on both sides, not only on the investors’ or entrepreneurs’ side. Both sides need to build real experience by trying, spending, failing, learning and adapting.
So, what’s the final tally?
We should add an extra USD 100k per company of the 500 series A investible companies, in order for those 500 entrepreneurs and their investors to throw away the first pancake which will contribute to their next ventures success odds. This brings the tally to:
- Total theoretical investment = 150 million USD
- 500 sunk series A tickets: 500 * 100kUSD = 50 million USD
- Total investment = 150 million USD + 50 million USD = 200 million USD
- Total ROI = 500 million USD / 200 million USD = 2.5x
2.5x is still good ROI in my view, although I know that VCs would differ.
Reality check: How & Who?
The next question would be: how can this be done and who could/should do it?
Concrete answer: I don’t know exactly. I’m not a finance guy. But, here would be my general thoughts:
- The money needs to come from a source that is OK with the 2.5x and a probability of less return, but with a longer-term focus.
- It could be a combination of International Institutions, VCs, International Funds, Angel funds, Governments…. Don’t know exactly how though.
- The money needs to be spent even though chances of corruption or at the very least misspending would be relatively high. This is a given factor in this journey and it is there by design. Thus, some level of due diligence is needed, but there should be high awareness to avoid overkill in such processes.
- It also doesn’t need to happen all at once. It could be phased but with the awareness that each phase on its own is only building up to the end-goal. Lots of lean and agile principles can be applied in the actual execution strategy to reach the above goals of spending and 35-80 strong tech companies of a total valuation upwards of 700 million USD.
- Then money on its own is not the solution. There are some other factors that contribute to the success and/or failure of the ecosystem. But the money catalyzes the effect of everything else. If it is not there, all other factors have very limited effect.
Finally…
All the above are my thoughts, ideas and opinions. I am happy to discuss them and to have a meaningful debate around them to challenge them or discuss them in further depth and details.
Startups
Rising from Debt: Al Nashmiah Farms’ Battle to Empower Indebted Women
![Rising from Debt: Al Nashmiah Farms' Battle to Empower Indebted Women](https://adigitalboom.com/wp-content/uploads/2024/02/Alnashmiah-farms.jpg)
Al Nashmiah Farms, committed to aiding women burdened by debt and facing the threat of incarceration, offers a novel solution for them to earn their way to freedom. Under the leadership of Razan Harb, motivated by her family’s financial struggles, the farm has become a pivotal force in rescuing those ensnared in the debt trap, providing them with employment and a sense of purpose.
Harb, observing the plight of many women who took loans in hopes of improving their families’ fortunes, only to be overwhelmed by unfortunate circumstances, economic downturns, and oppressive taxes, has established a farm that serves as both a source of employment and a supplier of high-quality produce to major markets.
The farm’s operations include the provision of household essentials, emphasizing the importance of quality through methods such as nitrogen sterilization and the use of healthy packaging. Additionally, Harb has initiated work-from-home opportunities, enabling women to engage in the packing of vegetables and fruits for market and direct sales, thereby offering a sustainable model for economic independence and recovery from debt.
News
GoDaddy’s Global Markets VP Predicts Egypt’s E-commerce to Hit $9.88 Billion by 2028
![GoDaddy's Global Markets VP Predicts Egypt's E-commerce to Hit $9.88 Billion by 2028](https://adigitalboom.com/wp-content/uploads/2023/12/Selina-Bieber-the-Senior-Director-of-Global-Markets-at-GoDaddy.webp)
Selina Bieber, the Senior Director of Global Markets at GoDaddy, has predicted a significant increase in Egypt’s e-commerce revenue. By 2028, it could reach $9.88 billion.
Godaddy is forming strategic partnerships and launching initiatives to help local entrepreneurs. These efforts align with Egypt’s digital transformation goals and its Vision 2030.
In an interview with the Arabic financial news “Amwal Al Ghad,” Bieber spoke about GoDaddy’s plans and how they match Egypt’s 2023 strategy. She highlighted the company’s aim to provide effective, easy-to-use digital tools and services. By 2024, GoDaddy wants to serve more customers in Egypt by making its digital tools more widespread.
The company is working closely with the Egyptian government, especially the Ministry of Planning. They are offering training programs to improve the digital skills of startups and existing businesses. GoDaddy’s services in Egypt include domain registration, web hosting, e-commerce solutions, and digital marketing tools.
Recent surveys support Bieber’s positive outlook for e-commerce in Egypt. They show a clear trend towards digital strategies among small businesses. Many are realizing the importance of having an online presence for their growth and success.
As GoDaddy continues its partnerships and supports government digital initiatives, its influence on Egypt’s digital landscape is growing. The company is committed to sustainability and reducing its carbon footprint. It aims not just for business growth but also to contribute to a sustainable and thriving digital economy in Egypt.
The 2028 projection indicates a vast potential for e-commerce, with GoDaddy playing a key role in this digital evolution.
Apps
Saudi Fintech ‘Lendo’ Raises $28M in Series B Funding
![Lendo Secures $28M in Series B Funding Led by Sanabil Investments, Eyes IPO](https://adigitalboom.com/wp-content/uploads/2023/12/Untitled-3-1.webp)
Lendo, a Saudi Arabia-based shariah-compliant debt crowdfunding marketplace, has raised SAR 105 million ($28 million) in Series B funding led by Sanabil Investments, a wholly-owned company by the Public Investment Fund (“PIF”). The round saw participation from Shorooq Partners, AB Ventures and other investors.
Lendo is a Shariah-compliant, debt crowdfunding marketplace that helps pre-finance outstanding invoices for businesses in Saudi Arabia. The platform is a community of creditworthy borrowers and sophisticated investors looking for alternative investments. The platform is licensed by the Saudi Central Bank (SAMA). Lendo will use the funds to support its fast-growing customer base in Saudi Arabia which has grown 3X year-on-year, introduce more innovative financing products, and accelerate market expansion plans.
“With this funding round, we are going to expand into new markets, support new and current customers, and launch new Shariah-compliant products, all the while continuing to innovate the marketplace for digital lending. We are going to make financial services more accessible, affordable, and inclusive for everyone. I am excited to see what the future holds for our company,” said Osama Alraee, CEO, and co-founder of Lendo, who also disclosed its plans for an IPO within the next few years.
Alraee has also expressed his gratitude to SAMA (Saudi Central Bank), Fintech Saudi, MCIT, Misk, and Monshaat for their unwavering support, emphasizing the pivotal role they have played in advancing financial inclusivity and fostering innovation in partnership with Lendo to reshape the financial landscape. Their dedicated efforts in advancing financial inclusivity and fostering innovation have been invaluable to us. We greatly appreciate their partnership in our mission to transform the financial landscape
Commenting on the announcement, Sanabil Investments said: “Lendo is a leading fintech company that is transforming the financial services industry in their specialist area of Shariah-compliant digital lending for SMEs. The Lendo team, especially the founders, Osama and Mohamed, have achieved a significant amount in a relatively short period, and we are eager to join their journey of increasing access to flexible financial solutions in Saudi Arabia and the region at large.”
“The growing demand for alternative, agile, and accessible lending solutions presents a significant opportunity. At Lendo, we are well-positioned to lead the charge in promoting financial inclusion not only in Saudi Arabia but also beyond. By fueling SME growth, we aim to contribute to the realization of Saudi Arabia’s Vision 2030 economic goals and to create a ripple effect of opportunity throughout the MENA region,” said Mohamed Jawabri, COO, and co-Founder of Lendo.
Lendo previously raised a SAR 27 million Series A funding round ($7.2 million) in 2021 led by Derayah Ventures with participation from Seedra Ventures and other investors, bringing the fintech’s total funding to SAR 132 million ($35.2 million).
Since the inception of Dec 2019, Saudi fintech Lendo has processed more than 2,500 financing transactions on its platform, providing over SAR 1 billion ($300 million) in financing to SMEs and generating SAR 140 million ($37 million) returns for investors.
The Small and Medium Enterprise financing landscape in the Middle East and North Africa (MENA) presents a substantial market opportunity as limited financial access continues to restrict the growth of the region’s businesses, with commercial banks hesitant to issue loans to SMEs at scale, resulting in a high percentage of declined financing requests annually. According to the International Finance Corporation (IFC), the SME financing gap is estimated at SAR 19.5 trillion ($5.2 trillion) every year in developing countries.
Lendo’s debt crowdfunding platform aims to bridge the financing gap for SMEs, which aligns with the Saudi Vision 2030 to significantly expand SME lending from 4% in 2018 to 20% by 2030.
The total value of debt crowdfunding in Saudi Arabia surged from 1.4 million SAR in 2019 to SAR 771 million in 2022, marking a remarkable 430% growth, according to SAMA’s annual fintech report 2022.
-
Startups9 years ago
3 Creative Egyptian Women Who Master E-commerce
-
News9 years ago
11 Talented Egyptian Photographers on Instagram
-
Campaigns8 years ago
Vodafone Egypt Brings Generations Together, Unlocks 4G Power
-
Marketing8 years ago
Which categories will suffer most from increased prices in Egypt?
-
Apps8 years ago
Radio Garden Live Map of The Globe’s Radio Stations
-
News8 years ago
Top 10 Egyptian Fashionistas to Follow on Instagram
-
Campaigns8 years ago
7 Big Stats That Show Which Ramadan Advertisements Resonated Most
-
Opinion8 years ago
F*** Being a Founder, Be a Follower