Mergers, Acquisitions and Financial Results

Walid Bakr put together Egypt’s first and only early-stage venture capital fund. Despite the lack of competition, it wasn’t easy.

When Bakr first began raising money for the US$8.5 million fund a year ago, the tech industry was in a global slump. And Egyptian attempts to emulate Silicon Valley in 2000 and 2001 had failed to produce any major success stories.

"No one wanted to invest, period," Bakr recalled during a recent interview. "And they especially didn’t want to invest in a fund, in the technology sector, which no one believed in, or in start-ups."

But the reasons investors doubted Egypt could develop a lucrative technology sector were precisely the ones that convinced Bakr and his sponsors at the Ministry of Communications and Information Technology that they had no choice but to create one.

Egypt needs to begin building a modern economy that can provide jobs for its ever-expanding workforce and ensure that talented people who are trained in Egypt stay here.

Economic development has been a major preoccupation in the Middle East since the nations here achieved independence from colonial powers. Recently, countries such as Egypt, Jordan, Kuwait and Dubai have turned to tech as a national pick-me-up, investing heavily in telecommunications infrastructure and technology parks.

A payoff isn’t likely to happen soon, in Egypt or elsewhere, although expected reconstruction in Iraq after a war could pump billions of dollars into the region. Despite aggressive governmental support, including generous tax breaks and subsidized training, Egyptian high-tech exports totaled less than $100 million last year. In comparison, Israel’s high-tech exports exceeded $12 billion.

Venture capital investments in Egypt—and the rest of the Arab world—were so small last year that research firms like San Francisco’s VentureOne did not track them. Meanwhile, Israeli companies attracted more than $1 billion in venture funding during the same period.

Egyptian officials say the next step is to get private industry involved. "We have come up with a model. Businesses must come up with the rest," Ahmed Nazif, the minister of Communications and Information Technology, told international businessmen attending a recent conference in Cairo.

That was the concept behind the new fund, said Ali Moselhy, a former high-ranking official in the IT ministry who is chairman of the Postal Authority. It was a way for private companies and investors to support the young tech sector while receiving a respectable return on their investment.

There was only one major problem: The private individuals and institutions that had the financial resources to back start-ups in Egypt weren’t interested. Some had been burned in Egypt’s dot-com mini-boom, and others lacked familiarity with the role of an early-stage venture capitalist, said Yasser El Mallawany, managing director of the Commercial International Investment Co.

CIIC is Egypt’s largest investment holding company and it was one of the earliest investors in the new fund, along with Telecom Egypt, the government-owned phone company.

Money-losing public industries, a legacy of a socialist system that was set up in the 1950s, dominated the economy until the government undertook an aggressive privatization program in the mid-1990s, reinvigorating local stock exchanges.

Entrepreneurs have traditionally funded their own ideas unless they were lucky enough to be connected with one of the several dozen families that controlled Egypt’s small commercial sector.

Venture funding "is not part of our business culture," said Ehab Heikel, the founder of, Egypt’s first portal.

The absence of a vibrant market for initial public offerings of stock, or IPOs, also made it hard to generate interest in a fund focused on start-ups. There have been just two tech IPOs on the Cairo and Alexandria stock exchanges. And in 2000, the Egyptian stock market lost its liquidity as trading volume evaporated.

Bakr, who had worked for the IT ministry before accepting a job setting up the fund, thought investors could achieve a 40 percent annual internal rate of return, provided that start-ups owned by the fund were acquired by larger companies. He also said the fund could exit companies through successive rounds of financing, assuming that later-stage investors would buy out their predecessors.

KBut mostly Bakr had pitched investors on what he believed was Egypt’s biggest asset: the thousands of well-trained, talented engineering graduates who would be grateful for jobs that pay $4 an hour. "I wouldn’t say we are underutilizing them," he said. "We are not utilizing them at all."

After overcoming several hurdles, including a banking scandal that scared some of his institutional investors, a currency devaluation and looming war in the region, Bakr has finally raised enough money to start making investments.