Recent news about a financial breakdown in an Egyptian E-commerce startup is putting the spotlight on the challenges facing startups and their growth in the North African country,especially after the Russian-Ukrainian war, according to entrepreneurship and investment experts.
Earlier this month, local media reported that the board of directors of Capiter Holding Company for E-commerce, which specializes in serving merchants, announced in an official statement the dismissal of Mahmoud Noah and Ahmed Noah from their executive positions as chief executive officer and chief operating officer.
This came amid widespread accusations that the two brothers obtained funds from the company and fled the country, allegations which they denied during statements on the Hekayaprogram with TV broadcaster Amr Adib.
Mahmoud Noah denied the truth of the rumors that he and his brother Ahmed Noah had stolen $33 million, saying in televised statements: "Everything said about me is not true, and we have not stolen anything at all …
The 33 million dollars were spent in a year and a half for the expansion of the company, and they were not stolen."
Capiter was established in July 2020. According to press releases issued by the company in May 2022, the number of products on the company’s platform exceeded 22,000 products and 1,000 sellers.
It has 2,000 employees, with investments estimated at $33 million raised by funds and investments from Egyptian, Arab and international companies.
Mahmoud Noah said that he is currently working with the company's board of directors to find solutions for the company to continue in the market, adding that the issue is that the commitments are now greater than the amount of funding.
He explained, "I can go to Egypt at any time. We have not received any correspondence to the contrary. I am now in Dubai at the company's headquarters where other shareholders are present."
The company opened its first office outside Egypt in Dubai last November.
Will Egyptian Startups Be Affected by the Crisis?
"After this crisis, the financing companies will adopt more accurate criteria when making the financing decision," said Amin Helmy, a specialist in the startups and entrepreneurship sector and an Assistant Professor at the Faculty of Commerce, Ain Shams University.
He added, "This incident will have a negative impact on the idea of financing startups, which increases challenges for the founders. With this crisis of Capiter, there will be an additional challenge."
According to the UAE-based company, Magnet, which specializes in researching emerging companies, Egypt is a strong market in the region for emerging companies, as the volume of investment in startups grew by 106% and the number of deals by 22% in the first half of 2022 compared to the first half of 2021.
“Many startups fail for various reasons, and only a few of them continue their entrepreneurial journey, and this depends on each company’s plan and its ability to expand and grow in the target market,” explained Khaled Ismail, an investment expert in entrepreneurship projects.
Ismail added that each company has its own economic situation, indicating that it is not necessary that all startups face the same fate as Capiter.
“Capiter and other emerging companies face a strong challenge like the rest of the startups in the Egyptian market. This is represented by high inflation and a lack of funds, with most of these companies relying on the policy of ‘burning money for growth’ as it is known in the startup industry,” he said.
Ayman Abu Hind, another investment expert who is also founder and investment manager at wealth management platform AdvisorEngine, agreed with Ismail.
He said that Egyptian startups would not necessarily face the same fate as Capiter.
In a video on his personal Facebook page, Abu Hind said that each one of these companies has its own policy in business management and the problem is related to one company amid a market that includes many emerging companies.
“The problem is not only related to the companies themselves, but also to the way of managing the funds that pump money into these companies as the investments of their shareholders,” he further elaborated.
He also said that startups usually focus on achieving rapid growth rates regardless of profitability in order to attract new funds that can support their rapid growth until they reach an appropriate business size to achieve profitability.
“This is a well-known business model in the startup market, but it ran into a lack of funds affected by the current economic conditions,” he added.
According to Ismail, startups do not have enough resources to maintain their growth.
He added that government efforts to support startups are scattered. “There is no one entity that is concerned with Egyptian startups and that is why there should be a singleAnchorgovernment agency that addresses all things related to entrepreneurship and startups,” he said.
