After its first $54M fund, Algebra Ventures launches $90M fund for startups in Egypt
The venture capital scene in the North African tech ecosystem will be absolutely buzzing right now with the announcement of two large VC funds in the space of two days. Today, Algebra Ventures, an Egyptian VC firm, announced that it has launched its $90 million second fund.
Four years ago, Algebra Ventures closed its first fund of $54 million, and with this announcement, the firm hopes to have raised a total of $144 million when the second fund closes (with first close by Q3 2021). If achieved, Algebra will most likely have the largest indigenous fund from North Africa and arguably in Africa.
According to the managing partners - Tarek Assaad and Karim Hussein, the first fund was an Egyptian-focused fund. Still, the firm made some selective investments in a few companies outside the country. The second fund will be similar - Egypt first, Egypt focused, but allocating investments in East and West Africa, North Africa and the Middle East.
Assaad and Hussein launched the firm in 2016 as one of Egypt's first independent venture capital funds. It wasn't easy to start one at the time, and it took the partners two years to close the first fund.
Raising a venture capital fund in Egypt in 2016, in all honesty, was a pain. There was no venture capital to speak of back then," Assaad told TechCrunch. The high-flying startups back then were raising between $1 million and $2 million. We decided to take the bull by the horn and raise from very established LPs."
These LPs include Cisco, the European Commission, Egyptian-American Enterprise Fund (EAEF), European Bank for Reconstruction and Development (EBRD), International Finance Corporation (IFC) and private family offices. From the first fund, Algebra backed 21 startups in Egypt and MENA, and according to the firm, six of its most established companies are valued at over $350 million and collectively generate more than $150 million in annual revenue. It hopes to back 31 startups from the second fund.
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Algebra says it's sector-agnostic but has a focus on fintech, logistics, health tech and agritech. Although the firm has invested in startups in seed and Series B stages, Algebra is known to be an investor in startups looking to raise Series A investments.
Another appealing proposition from Algebra lies in the fact that it owns an in-house team focused on talent acquisition - in operations, marketing, finance, engineering, etc., for portfolio companies.
The firm's ticket size remains unchanged from the first fund and will continue to cut checks ranging from $500,000 to $2 million. However, some aspects as to how the firm handles operations might change according to the partners.
One of the lessons learned in our first fund is that we see that there are more interesting opportunities and great entrepreneurs in the seed stage. And given that we're more on the ground in Egypt, sometimes we wait for them to mature to Series A. But going forward, we might need to build relationships with those we find exceptional at the seed level and also expand our participation on the Series B level, too," Hussein said on how the firm will act going forward.
Karim Hussein (Managing partner, Algebra Ventures)
Hussein adds that the company will also be doubling down on its talent acquisition network. Typically, Algebra helps portfolio companies hire C-level executives, and while it plans to continue doing so, the firm might adopt a startup studio model - pairing some professionals to start a company that eventually gets Algebra's backing and support.
The reason behind this stems from the next set of companies Algebra will be looking to invest in. According to Hussein, the partners at Algebra have studied successful businesses in other emerging markets for some time and want to identify parallels in North Africa where the firm can invest.
In cases where the firm can't find those opportunities, we may spur some of those in the network to start building those businesses and capture those opportunities," he remarked.
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Before Algebra, Hussein has been involved with building some successful tech companies in the U.S. Primarily an engineer after bagging both bachelors and doctorate degrees from Carnegie Mellon University and MIT, respectively, he ventured into the world of startup investing and entrepreneurship after working for a consulting company in the dot-com era.
He would go on to start Riskclick, a software company known for its commercial insurance applications. The founders sold the company to Skywire before Oracle acquired the company to become part of its suite of insurance services. After some time at WebMD, Hussein returned to Egypt and began mentoring startups as an angel investor. Alongside other angel investors, he co-founded Cairo Angels, an angel investor network in Egypt, in 2013.
There was a massive gap in the market. We were putting in a bit of small angel money to these businesses but there were no VCs to take them to the next level. So I met up with Tarek and Ziad Mokhtar, and the rest is Algebra," he said.
Assaad is also an engineer. He obtained his bachelors in Egypt before switching careers by going to Stanford Graduate School of Business. He continued on that path working for some Bay Area companies before his return to Egypt. On his return, he became a managing partner at Ideavelopers, a VC firm operating a $50 million fund since 2009. The firm has had a couple of good success stories, the most notable being fintech startup Fawry. Fawry is now a publicly traded billion-dollar company and Assaad was responsible for the investment which realized a $100 million exit for Ideavelopers in 2015.
Tarek Assaad (Managing partner, Algebra Ventures)
With Algebra, both partners are pioneering local investments in the region. Some of its portfolio companies are the most well-known companies on the continent - health tech startup Yodawy; social commerce platform Brimore; logistics startup Trella; ride-hailing and super app Halan; food discovery and ordering platform Elmenus; fintech startup, Khazna; and others.
The firm's latest raise and $144 million capital amount is one of the largest funds dedicated to African startups. Other large Africa-focused funds include the $71 million fund recently closed by another Egyptian firm, Sawari Ventures; Partech's $143 million fund; Novastar Ventures' $200 million fund; and the $71 million Tide Africa Fund by TLcom Capital.
These funds have been very pivotal to the growth of the African tech ecosystem in terms of funding. Last year, African startups raised almost $1.5 billion from both local and international investors, according to varying reports. This number was just half a billion dollars six years ago.
However, regardless of the period - 2015 or 2021 - African VC investments have always been largely dominated by foreign investors. But VC firms like Algebra Ventures are showing that local investors can cumulatively raise nine-figure funds or attempt to do so. Obviously, this will provide more startups with more funds and pave the way for indigenous and local VCs to at least increase their participation to nearly equal levels when compared to international investors.