Innoventures seeks to establish investment fund with EGP 100m capital
STARTUP REACTOR OFFERS UP TO EGP 300,000 FUNDING FOR EMERGING COMPANIES
Innoventures aims to establish an investment fund with capital of EGP 100m before the end of this year to invest in emerging enterprises. Chief executive officer, Hesham Wahby, said that the company is negotiating with several parties to establish this fund.
Wahby told Daily News Egypt in an interview that the Startup Reactor, a startup incubation programme, will hold a new round this year to increase the number of incubated companies within the programme to 20 companies before the end of 2018.
How do you see the entrepreneurship and startup sector?
The entrepreneurship sector prior to January 2011 was there, but it only kicked off and started growing exponentially following 2011.We were one of the first entities that started to encourage the industry and support entrepreneurship through the organisation of the competition Start with Google, which graduated several experts that launched their own startups shortly after.
After that, many organisations started arranging activities and launching support programmes for entrepreneurs, which contributed to the growth of this industry in the past years, especially that entrepreneurship and emerging companies have become a global trend.
Entrepreneurship creates new employment opportunities and solves many problems in terms of the environment, economy, and other aspects of life, because the solutions of entrepreneurs are dependent on innovation and creativity.
Entrepreneurship is an important industry and needs more support. In Egypt, part of the industry is unfortunately a bubble, but another part is real. This is normal in any new field.
What opportunities and challenges do you see for entrepreneurship?
Lack of funding is one of the biggest challenges facing the industry of entrepreneurship. Therefore, the sector needs greater awareness of investors about the importance of entrepreneurship and the feasibility of investing in it.
In addition, there is a particular challenge: most entrepreneurs do not have marketing, management, or other important skills to lead an emerging company.
What is Startup Reactor? What does it offer to entrepreneurs?
The reactor is a six-month intensive programme that could extend over a year.The emerging companies are incubated for six months, during which we finance and train them to develop their skills and help them succeed, in exchange for a stake in these companies.
We invest in incubated companies with an amount ranging from EGP 50,000 to EGP 300,000.We also train them and link them to experts in their fields to help them.We also provide additional services to emerging companies, such as legal procedures for establishing the company and training them on mechanisms for developing marketing and work plans.
During the incubation period of six months, we agree with the companies to set several goals to achieve during that period, such as sales of a certain amount, or launching a certain version for the service and other short-term goals.We usually set five main goals and give the companies’ teams the flexibility to set their own goals in consultation with us. The more goals they achieve, the more funding they receive.
How many companies are incubated?
In the training we are currently working on, we will incubate 10 companies. Last year, we incubated 10 companies, following 10 others in 2016.The total number of companies that befitted from the programme now stands at 25.
This year, we aim to hold the incubation cycle twice, to work with 20 companies in one year. This will be done through an incubation cycle in the second half of this year.We also aim to launch an incubation round in Alexandria for five companies.
What are the basic criteria for incubated companies to be chosen?
There are a number of important criteria that should be present in the candidate company for incubation. The first is the presence of a strong and cohesive team with a passion for achieving their goals who have taken serious and practical steps in implementing their project. Statistics indicate that lack of a good team is the reason behind the failure of 60% of emerging companies.
The second criterion is that the idea of the project must be distinct from other competitors, or entirely new and has no competitors.The service or product they offer must also have a potential for growth and expansion, locally, regionally, or globally.
The business model is also one of the most important criteria, where it must be logical and enforceable on the ground.
What share is acquired from the incubated company?
We usually hold a stake of 3-13%. Sometimes, we get less than that.T his happens when we do not inject funds into the companies.
What is the total investment of the reactor so far?
So far, the total investment of the programme amounts to EGP 2m. Most of this figure was secured internally, alongside some individual investors. We also have several partnerships with strong entities, such as VC4 Africa, one of the main sponsors of the reactor.
We also have a partnership with IBM, where they offer training for entrepreneurs who provide cloud computing services.We have a partnership with Studio 14, which is a design company that helps emerging companies. In addition, we also have a partnership with The Plant that assists emerging companies in terms of digital media.
Are you considering increasing investments in the reactor programme?
We are already planning to establish an investment fund with a capital of EGP 100m. There are now negotiations with several entities to establish this fund. We plan to complete the first phase in April and complete the capital fund before the end of the year.
What sectors do you focus on in startups?
We are not looking at a specific sector, but we are looking for ground-breaking new technology based on innovation and creativity. For instance, we invested in a company that manufactures agricultural waste wood and patented it.
We are also interested in investing in innovative companies, especially in the field of design.
What sectors do you see as opportunities for growth for emerging companies?
In Egypt, we see a strong opportunity for growth in the field of software and information technology, in addition to ideas related to clean technology such as waste recycling or environmentally friendly products and services, and technology related to improving efficiency in the industrial and agricultural sectors.
For example, a company that has been incubated in this cycle of the programme creates a machine to cut sugar cane automatically, which reduces the cost of harvesting the crop, and reduces waste of the crop.
When do you leave the company you invest in?
The overall success rate of startup companies is no more than 10%.If the companies attract funding from venture capital funds, the expected success rate increases to 20-30%. We aim to exit companies in four to five years.
How many companies have you left so far?
We have exited one company: QP. This company works to improve the productivity of small cheese factories using advanced machines that are manufactured in Egypt.We exited this company after one year, with a value five times the funds we injected.
Are the current economic conditions affecting the investment climate in the emerging companies sector?
Economic conditions have affected traditional sectors such as real estate, tourism, and leisure activities. Longterm investments have not been affected. In addition, more attention has been paid to technology that solves problems, despite economic conditions.
How do you see Egypt compared to other countries in the Middle East in the field of entrepreneurship?
There is a greater attraction to the UAE and Jordan in entrepreneurship as the entrepreneurial environment is clearer and more mature than Egypt.The laws are easier.The Egyptian market is still the largest in this activity. Even Dubaibased investment funds monitor emerging companies in Egypt to invest in them.