The Fintech Investment Focused Landscape Review surveyed 148 fintech startups and 26 investors and accelerators to cover all aspects of the fintech ecosystem.
Fintech in Egypt has been booming over the years, with fintech startups leading other sectors in terms of venture capital funding in the country. In 2021, total investments in the sector reached $159 million compared to $37 million in 2020.
And investments in fintech show no signs of slowing down this year. The Fintech Investment Focused Landscape Review for H1 2022, a newly released report published by CBE-powered initiative Fintech Egypt, reviews the fintech startup ecosystem for the first half of the year. The report, which examines investments, growth and trends for 2022, surveyed 148 fintech startups and 26 investors and accelerators to cover all aspects of the fintech ecosystem. Below is a snapshot of the latest findings.
VALUE OF INVESTMENTS
Investments in fintech startups reached an all-time high of $167 million, and comprised a total of 31 deals. Out of the 31 deals, five were valued at more than $10 million each. Meanwhile, 90% of the funding went into Series A and B rounds, supporting growth in later stage startups.
TYPES OF FINTECHS RECEIVING FUNDING
Fintech startups operating in the payments and remittances sector received the lion’s share of funding at 58%, or $96.80 million. This was followed by lending and alternative finance representing 26%, or $42 million, and wealth management and savings accounting for 12%, or $20.6 million. The remaining 6% were directed at seven sub-sectors, including B2B marketplace, data analytics, insurtech, and payroll and benefits, amongst others.
SOURCE OF FUNDING
The most common source of funding for fintech startups is bootstrapping. About 42% of startups surveyed raised funding for their business by bootstrapping. However, as they grow and scale their business, they opted for venture capital (VC) support, which accounted for 37% of funding. This is followed by angel investors (29%), private equity (27%), and incubators and accelerators (16%).
TYPES OF INVESTORS
From the 26 investors surveyed, 69% were VCs, 23% were accelerators, and only 8% were angel investors. Meanwhile, 27% of investors have a fintech-focused fund.
INTEREST OF REGIONAL AND INTERNATIONAL INVESTORS
While more than half of investors are based in Egypt (53%), startups in the country are attracting a lot of regional and international interest. Some 19% of investors are headquartered in the US, with 12% in the UAE, 8% in KSA, 4% in Jordan, and another 4% in China.
KEY FACTORS FOR INVESTORS
All investors surveyed stated that the startup’s team was the number one factor for deciding on investments. This is followed by unit economics and post-revenue generation model (86%), and investment thesis fit and impact (71%). In addition, founders’ leadership ability, revenue model, and innovative product came at 57% each, while track record, sector-specificity, serviceable obtainable market, and reasonable money burn rate were at 29% each.
KEY FACTORS FOR STARTUPS LOOKING INTO VCS
When startups were asked about the most important key areas for selecting a VC, 48% of surveyed startups cited connection and expertise, followed by 46% for name and reputation, and 42% for track record and past deals. The remaining criteria included support services besides funding (39%), terms of agreement (33%), industry focus (26%), alignment (22%), funding (21%), startup autonomy (6%), and location of VC (1%).
STARTUPS’ MOST NEEDED SUPPORT AREAS FROM INVESTORS
Fintech and fintech enabled startups state that funding is what they need most from investors. Funding is ranked first (86%), networking came in second (44%), and mentorship came in third (22%). This is followed by PR and marketing (13%), talent management (5%), and co-working space and domain expertise (1%).
INVESTORS’ PLANS FOR FINTECH STARTUPS
About 70% of investors have pre-set future plans for fintech and fintech enabled investments in the next three years in Egypt. From the 70% of investors surveyed, almost 29% are planning to invest $10 million to $20 million, while 24% are looking to invest more than $50 million. Meanwhile, 18% intend to invest up to $5 million, while another 18% want to invest between $20 million and $50 million. Finally, the remaining 11% want to invest between $5 million and $10 million.
STARTUPS CURRENTLY SEEKING FUNDING
108 startups are seeking funding for $600 million. To date, 45% are approaching VCs now, 48% are planning to seek funds in the next 12 months, and 7% are looking to join an accelerator programme. In addition, more than half of startups, 55%, are looking for seed rounds, 21% are looking for Pre-seed, and 19% are looking for Series A. The rest is divided between Series B (4%) and Series C (1%).
STOCK MARKET IS A FUTURE POTENTIAL EXIT STRATEGY FOR STARTUPS
Almost 53% of surveyed investors and 26% of surveyed startups see EGX IPOs as a future potential exit strategy for fintech startups. When asked about their views on the potential of the Egyptian stock market as an exit strategy, most say that it could definitely be a promising route for exits.
OPEN BANKING TREND FOR 2022 AND BEYOND
Open banking is seen as a top trend to watch for in the fintech sector. In short, open banking refers to providing third-party access to financial data through the use of application programming interfaces (APIs). Investors believe that open banking has a high growth potential in Egypt in the future, with 75% believing in open banking and infrastructure, 70% in lending and alternative finance, and 70% in B2B marketplace and insurtech, followed by 65% in payments and remittance.