Inside Egypt's bustling start-up sceneApril 25, 2012: 12:02 PM ET
Despite the economic uncertainty and social unrest in Egypt, tech start-up investors are finding plenty of promising options.
By Christopher M. Schroeder
FORTUNE -- It's been more than a year since Egypt's former president Hosni Mubarak resigned after the Arab Spring uprising began. Many Egyptians had high hopes for major reforms after the dictator's 30-year rule, but so far few of them have been realized. But despite the economic turmoil and leadership uncertainty in Egypt, one group is remaining steadfastly optimistic on the country's future: Entrepreneurs.
"We all know there is political uncertainty as Egypt wrestles decades of infrastructure, cultural, social and religious issues," says Khaled Ismail, twenty-year veteran of the Egyptian tech scene, who sold his most recent software company to Intel last year, one month after Mubarak resigned. "The pessimists tell me we are about to drive off the cliff – foreign direct investment has dried up, our foreign reserves are impossibly low, political instability will continue. The optimists say there is a year of pent up demand waiting to be met once the political scene is clearer after Presidential elections in May."
Ismail says a new generation of entrepreneurs is buzzing about opportunities in Egypt and the greater Middle East. He points to Flat6Labs, the first of a crop of tech start-up "accelerators" popping up in Cairo, Alexandria and around the Middle East over the past year, as an example. Like their YCombinator or Dog Patch Labs compatriots in the U.S., Flat6 is a beautiful, open office space where up to seven Egyptian tech start-ups are housed and supported for three months at a time. Flat6Labs provides early seed funding, computers, Internet access, and basic HR, accounting and legal resources. Each week, seasoned professionals, entrepreneurs and business school professors from Egypt and around the world mentor these start-ups one-on-one and offer sessions on various topics, such as entrepreneurship, marketing, user experience, digital advertising, project management and alike.
Flat6Labs is the brainchild of Egyptian investor Ahmed Alfi, who returned to Egypt five years before Tahrir and after a 40-year absence, much of which he spent in the U.S. investing in tech and media companies. Convinced that Egypt and the Middle East offered great business opportunities for a new generation of entrepreneurs, he and Egyptian investor and investment banker Hany al-Sonbaty launched one of the early venture capital firms in Egypt, Sawari Ventures, in late 2009.
During the past year of instability and revolution, Sawari has invested in a dozen early-stage Egyptian companies in areas ranging from chip design to precision search capabilities to consumer-facing mobile applications. Vimov, one of Sawari's first investments which started with three iPhone and iPad app developers in Alexandria a year ago, has created the highest-selling paid weather app in the world, now reaching nearly five million users, half of whom are in the U.S.
Sawari was more than happy to donate a floor of its renovated, turn-of-the-20th century building in the leafy Giza neighborhood right off of the Nile to help launch Flat6Labs. Sonbaty notes with a sense of appropriateness that The American University of Cairo signed on as their partner eleven days before Tahrir Square, and their first entrepreneurs were "birthed" nine months later.
Sawari's next task was to find someone to lead Flat6. Appropriately, their answer was found on Twitter. Last spring, 27-year old Alexandria University computer science alum, Ramez Mohamed, was enjoying a successful career in website design and usability for businesses and later in mobile applications for one of the largest content and ecommerce portals in Egypt. While he had never heard of a "tech accelerator" until he began to follow Sonbaty's tweets posting observations about Tahrir Square and entrepreneurship, he tweeted reactions back and eventually they agreed to meet. In preparation Mohamed studied all the accelerator models in the U.S. and came loaded with ideas about what could be done in Egypt. He proposed the three-month cycles Flat6 would adopt, and the rigorous, tenacious competitive vetting of online applications followed by the around-the-clock boot camps to find the best of their generation entrepreneurs. He wanted his companies hyper-focused on their businesses, and established a central tenet: "no religion, no politics."
The process Mohamed created is as simple as it is Darwinian. Each quarter, a new "cycle" commences where Ramez and his team selects up to seven start-up concepts from hundreds of candidates that apply online. Flat6 seeds each investment with the Egyptian pound equivalent of $10,000 to $15,000 for 10%-15% of the company. The selected teams are hosted in Flat6Labs headquarters, each week presenting their progress internally and at the end of the cycle on "Demo Days" to outside investors, mentors, media and the business community. After each three-month cycle, Sawari invites other investors to fund the best companies -- it will co-invest passively. Once a company completes its cycle, it moves out to pursue its destiny -- with or without further investment.
Flat6's first companies cover a wide breadth of concepts including online collaboration tools for businesses and their clients, online video services to offer greater access to on-demand programming, consumer-facing social recommendation engines for restaurants and other local entertainment and needs, among others. In a city and country suffering from significant infrastructure challenges, many of their entrepreneurs see opportunity to solve them.
Wrestling the challenge of job matching among under-employed college graduates, Careerise has introduced one of the first social online job and career management resources in Egypt and the Middle East, allowing companies and job seekers to find their best job fits through their social networks. With over a half million Google searches for doctors in Egypt per month, Ekshef will allow patients to have the most comprehensive interactive guide to physician quality and the ability to book an immediate appointment. As there are no reliable or safe ways to call for cabs in Cairo, Ogra offers mobile phone apps that not only allow a passenger to find the nearest, vetted taxi driver among the chaos of Cairo traffic, but offer GPS tracking to ensure passengers arrive to their destinations safely.
As the local angel investor community continues to develop and expand, Alfi, Sonbaty and Mohammed see a clear path of putting through 100 start-ups a year or more through Flat6 by 2013, and believe other accelerators will do the same.
Can tech ventures and venture investing, however, really make a dent in the vast economic and employment challenges of today's Egypt? Alfi argues that people who doubt the potential are missing the broader multiplier benefits. In the U.S., according to the National Venture Capital Association, companies that were originally backed by VCs account for 11% of private employment and 21% of GDP.
"Look at the history of economic success in almost any country in recent history, and innovation, venture capital and entrepreneurship are the answer," notes Alfi. "Egypt needs to rekindle this spirit here. The talent and hunger are here."
Christopher M. Schroeder is an Internet entrepreneur and US venture and angel investor, having formerly run washingtonpost.newsweek interactive and co-founded the online social and content health platform healthcentral.com, sold in December 2011. He is working on a book on start-ups in the Middle East to be released in February 2013. He can be followed on Twitter @cmschroed.