As New York-based Modus Capital selects start-ups for its second venture builder in Egypt, managing partner Kareem Elsirafy says the country’s economic crisis has presented opportunities in the market.
“Investment capital can go a lot farther. It’s unfortunate, but you can get more bang for your buck on an investment right now in Egypt,” Mr Elsirafy tells The National.
“People are cost-cutting … so this gives us an opportunity to attract and retain the best talent out there. I don’t wish these circumstances on anybody, but there is this silver lining,” he says.
The economic fallout of the Russia-Ukraine war has left Egypt with soaring inflation, a higher import bill, low foreign currency reserves and a depreciating pound.
The Egyptian pound has nearly halved in value to the US dollar over the past year.
Despite global macroeconomic challenges, Egyptian start-ups still managed to raise $517 million last year, compared with $501 million in 2021, according to data platform Magnitt. Egypt led the Mena region with 160 deals, a 3 per cent decline from 2021.
Modus Capital, founded in 2015, calls itself a Mena-focused “venture platform” — investing in start-ups and entrepreneurs with financial capital and technical know-how through its accelerator-type programmes.
The company entered Egypt with MV Builder 1 in 2019, graduating six start-ups. It invested in blockchain email service provider Pravica's $500,000 pre-seed funding round in 2020.
In 2021, Modus teamed up with Abu Dhabi’s Hub71 to offer a nine-month Ventures Lab programme, through which founders can secure up to $450,000 in funding. Eight start-ups were selected in the first year and 16 in the second.
Its portfolio includes Emirati mentoring platform SmartMentor and the Play:Date social media app for parents.
A $75 million Modus Africa fund, expected to close in the first quarter of this year, will focus on early stage African technology start-ups.
MV Builder 2 in Egypt, announced in November, wants to build a cohort of 10 companies and will give each $250,000 in funding.
The venture builder, supported by Modus and USAid’s Digital Invest programme, is focused on start-ups working to drive digital inclusion among women and underserved populations.
Modus also recently acquired Saudi Arabia-based Agile Ventures to expand its venture builder network to the kingdom.
“Part of our model is … to have hubs in these big markets. So, we’ve got our Egypt venture builder, we’re here in the UAE and now we’re setting up in Saudi [Arabia],” says Mr Elsirafy, who is based in Abu Dhabi.
One of the start-ups that has been selected for the MV Builder 2 programme, which will run for nine to 18 months, is Lebanese remittance platform Purpl. The remaining nine companies have yet to be disclosed.
Founded in 2021 after the collapse of Lebanon’s banking sector, Purpl allows people in the diaspora to send money back home for a low fee, while beneficiaries can withdraw the money directly from ATMs.
Lebanon received $6.8 billion in remittances last year, about 38 per cent of the country’s gross domestic product, World Bank data shows.
Purpl co-founder and chief executive Karl Naim says the start-up is working with Modus to find a partner bank in Egypt and expand to its first market outside of Lebanon by September.
Remittances from Egyptians abroad totalled about $32 billion in 2022, making the country the fifth-largest recipient of remittances worldwide, according to the World Bank.
Egypt is “a much bigger opportunity” and “unfortunately, they’re having some of the same problems we’re having in Lebanon”, such as the currency devaluation and a strong dependence on remittances, Mr Naim tells The National.
“It’s really a necessity. People send money for their families to buy food, medicine, education. Even in times of recession, people still send money back home,” he says.
The regional FinTech sector has been booming, capturing 29 per cent of funding in the Mena region last year, more than the transport and logistics and e-commerce sectors combined.
Earlier this month, Egyptian FinTech MNT-Halan attracted $400 million in the largest financing round in the region over the past 12 months.
“Problematic times require innovative solutions,” Mr Elsirafy says. “If you’re solving a problem and the market is big enough, financial returns are going to come.”