By Nagham El Houssamy
There has been a notable increase in the number of startups and startup incubators in Egypt in the last decade. With an interest in the intersection between knowledge and technologies, my colleague Nadine Weheba and I became engaged with the digital entrepreneurship field and with how technology is transforming business models in the Egyptian startup scene, and the implications of these developments for Egypt’s knowledge economy.
A knowledge economy, or a knowledge-based economy, is one where economic success is mainly based on the effective use of intangible assets such as knowledge, skills, and innovative potential. These intangible assets serve as the competitive advantage of a knowledge economy. In such a scenario, knowledge is the ultimate economic renewable resource. The use of knowledge does not deplete it; on the contrary, more knowledge is created when knowledge is shared. The potential that entrepreneurs have to utilize, store, share, and analyze knowledge with the aid of digital technologies allows them to benefit from the properties of knowledge and its competitive advantage and foster the country’s knowledge economy.
Digital entrepreneurship has the potential to serve as a path towards realizing the knowledge economy. With the depletion of natural resources, the avenue towards competitive advantage is coming from knowledge creation and innovative potential. Digital entrepreneurship can play a role in reinforcing this knowledge generation cycle while at the same time contributing to the country’s sustainable growth.
There are many characteristics of digital startups, including the utilization of social media tools, big data, and mobile and cloud solutions to improve existing business operations and invent new business models.
In a recent report conducted by Mercy Corps and Endeavor Insights, they found that almost 5,000 employees are currently directly hired in the local tech ecosystem in Cairo. This number is expected to grow by a third annually. In a country with a large segment of the population in the youth bracket, any potential source of sustainable job creation should be capitalized on.
The Mercy Corps and Endeavor Insights report also found that between 2010 and 2014, the Cairo tech sector grew at around 30 percent each year, signifying huge potential for growth and contribution to Egypt’s knowledge economy. According AngelList, a website for startups, angel investors, and job-seekers looking to work at startups, there are almost 200 tech startups in Egypt.
According to official sources, Egypt has an Internet penetration rate of 57 percent. More than 49 million Internet users serve as potential consumers for the products of digital startups. These same 49 million Internet users have the opportunity of establishing digital startups themselves.
But what obstacles do these digital entrepreneurs face? What factors do they need to tear down the walls separating them from becoming sources of sustainable growth for Egypt’s economy? How do we create an enabling ecosystem for digital entrepreneurship to thrive?
In trying to assess the obstacles and enablers to digital startups, one of the factors we needed to consider through our semi-structured interviews with several founders of digital startups and other stakeholders is whether or not the startup was incubated, and if so, where.
An incubator is an organization that aims to accelerate the success and growth of startups by offering them a variety of business support resources and services. Although these resources and services vary from one incubator to another, they mainly include physical office space, mentoring services, and cash support or other in-kind support. In exchange for seed investment, some incubators acquire a small portion of a startup’s equity.
There are a number of private, university-based, and government-led incubators for digital startups in Egypt. The main government-led incubator is the Technology Innovation and Entrepreneurship Center (TIEC). TIEC offers a one-year incubation package for startups in the ICT sector, which includes up to LE120,000 of in-kind services at no request for equity. University-based incubators include the American University in Cairo’s Venture Lab, which aims to commercialize technologies and innovations to contribute to growth and job creation in Egypt. Private incubators include Flat6Labs, a regional accelerator program that provides seed funding, mentoring, and other business support services in exchange for a specified amount of equity.
We interviewed three startups that are at the early-stage phase, but with different incubation experiences. One of the startups was privately incubated, one was governmentally incubated, while the third chose not to go through the incubation experience.
OtlobDoctor.com is an online medical booking platform, incubated at the government-run Technology Innovation and Entrepreneurship Center. On OtlobDoctor.com, users can view doctors’ and nurses’ CVs, prices, and insurance arrangements. Patients can reserve for clinic visits or request house visits. The website includes a rating system in order to be transparent and allow users to pick the most suitable choice of physician. OtlobDoctor.com seeks to become the number one medical search engine in Egypt, creating indirect jobs for the younger talented doctors and nurses that are largely unknown to the public. OtlobDoctor.com, a knowledge sharing platform, leverages the playing field among younger doctors and older established doctors, reducing the asymmetry of information in the medical market. In describing their incubation experience, Ashraf El Fiky, CEO and founder of OtlobDoctor.com, explained that TIEC has provided in-kind support in the form of access to office space, mentoring, and other services over the duration of one year. Fiky attested that this has been instrumental to helping the startup mature into its next phase.
Elwafeyat.com is another startup we interviewed, which pursued the non-governmental incubation path. Elwafeyat.com is a platform to “announce and honor the death of our loved ones.” Elwafeyat.com creates easy tools for such announcements to quickly notify people in your network when someone passes away. The announcements include the date and location (via Google maps) of the funeral. The platform allows you to track who is attending, and the announcements are shareable on social media platforms. The website also offers an online directory for funerals, mosques, churches, etc. ElWafeyat.com has the potential to revolutionize the over-priced business of placing obituaries in local print newspapers. In the summer of 2013, ElWafeyat.com was accepted for incubation at Flat6Labs. After committing and signing a contract, Flat6Labs provided the Elwafeyat.com team with office space, seed money, and helped them in registering their company.
Through Flat6Labs, Elwafeyat.com had the opportunity of attending an event organized by the Government of Bahrain, and received interest there from a Bahraini investor. Additionally, they were approached to participate in the 500 Startups program in Silicon Valley. This had a significantly positive impact on the founders and their business plan. 500 Startups transformed Elwafeyat.com’s business plan, by providing them with the know-how to become more organized, efficient and have a clearer idea of what they are doing. This incubation experience also pushed the team to raise the bar of their financial expectations, exposing them to the global playing field.
The third startup we interviewed that did not go through an incubation experience is Yaoota.com. Yaoota.com is a price comparison and online shopping website that allows you to compare prices among all online shopping outlets in Egypt, with the option of directing you to the outlets’ website to make a purchase if you wish. Yoota.com’s founders have self-financed the startup and associated costs as opposed to receiving funds through an incubation experience. Yaoota.com’s office is located at the GrEEK Campus, a tech park at the heart of Cairo, thereby benefiting from close proximity with the community startups and events situated there. In our interview with one of Yaoota.com’s founders, we learned that the platform is for knowledge sharing and analysing the knowledge captured from the customers. The platform collects a wealth of data and repackages it in the form of analytics dashboards to lure potential new clients.
Despite the different incubation experiences, or lack thereof, of the startups we interviewed, similar trends appeared when asking about the gaps and desired improvements in the entrepreneurial ecosystem in Egypt. This reflects larger deep-rooted issues that need to be addressed in the ecosystem beyond whether a startup is incubated or not. The benefits of an incubation experience depend on the entrepreneur’s utilization of the offered services, and the continued quest for new opportunities. Incubation is not a precursor for the success of a startup; other factors need to be taken into consideration. The willingness of entrepreneurs to take risks and explore new opportunities plays a major role in the startup’s growth.
At the fifth Annual Workshop of the Access to Knowledge for Development Center (A2K4D) held on June 9, 2015 in Cairo, a session on digital entrepreneurship discussed a few desirable improvements for the sector’s ecosystem. There is a need for more funding opportunities with higher investment ceilings. In parallel, there needs to be incentives and tax-breaks for digital startups.
There is also a dire necessity for major educational reform, the panelists argued. Instilling an entrepreneurial mindset from a young age is of vital importance to creating an enabling ecosystem and contributing to the country’s knowledge economy. Furthermore, in spite of the high Internet penetration rate, the country’s Internet infrastructure requires major quality improvements.
These quality improvements should to be complemented with outreach beyond Cairo and other urban areas. The entrepreneurial ecosystem, like the Internet infrastructure, also needs to be expanded to include connections beyond the major urban cities. The digital entrepreneurship ecosystem would also benefit from a greater outreach of the Internet grid, providing more job opportunities in remote areas while at the same time increasing the customer pool.
Meanwhile, there remain several unexplored avenues of the digital entrepreneurship ecosystem in Egypt. For example, how do we integrate the informal digital economy into the formal one? Ayman Ismail, Abdul Latif Jameel Endowed Chair of Entrepreneurship at AUC’s School of Business, raised this point during the workshop session, referencing the increasing amount of businesses that operate informally from Facebook and other social media platforms. If the digital startup ecosystem is an enabling and attractive one, then informal businesses will have an incentive to formalize and thus integrate into the local economy.
In general, we found that Egypt is attractive for digital entrepreneurs and the market is ripe for growth because of its largest population in the region, its growing Internet penetration, in addition to offering low operating costs. The general feeling is that the digital realm in Egypt is still underpenetrated and thus there is room for development and better enabling practices by both governmental and non-governmental actors.