North African Tech Ecosystem Sees Major VC Investment

The venture capital landscape within the North African technology sector is experiencing significant activity with the recent announcement of two substantial VC funds within a short timeframe.

Algebra Ventures, a prominent Egyptian VC firm, has unveiled its $90 million second fund today.

Fund Growth and Regional Ambitions

Having successfully closed its initial $54 million fund four years prior, Algebra Ventures aims to amass a total of $144 million upon the completion of its second fund’s fundraising – with the first close anticipated by Q3 2021.

Achieving this goal would likely position Algebra as the largest domestically-originated fund in North Africa, and potentially across the entire African continent.

The firm’s managing partners, Tarek Assaad and Karim Hussein, indicate that while the first fund primarily concentrated on Egyptian ventures, some strategic investments were made in companies beyond national borders.

The second fund will maintain a primary focus on Egypt, but will also allocate capital to opportunities in East and West Africa, alongside North Africa and the Middle East.

Founding and Early Challenges

Algebra Ventures was established in 2016 by Assaad and Ziad Mokhtar (now serving as an advisor) as one of Egypt’s pioneering independent venture capital funds.

Securing initial funding proved challenging, requiring two years of effort from the partners, including Hussein who joined shortly after the firm’s inception.

“Establishing a venture capital fund in Egypt in 2016 presented considerable difficulties,” Assaad shared with TechCrunch. “Venture capital was scarce at the time, with high-growth startups seeking investments between $1 million and $2 million. We proactively sought funding from well-established Limited Partners (LPs).”

Key Investors and Portfolio Performance

These LPs encompass Cisco, the European Commission, the Egyptian-American Enterprise Fund (EAEF), the European Bank for Reconstruction and Development (EBRD), the International Finance Corporation (IFC), and various private family offices.

From its first fund, Algebra invested in 21 startups across Egypt and the broader MENA region.

The firm reports that six of its most successful portfolio companies are currently valued at over $350 million, collectively generating annual revenues exceeding $150 million.

Algebra intends to support 31 startups through its second fund.

Investment Focus and Value-Added Services

While sector-agnostic, Algebra demonstrates a particular interest in fintech, logistics, health tech, and agritech.

The firm is recognized for its preference for startups seeking Series A funding, although it has also participated in seed and Series B rounds.

A distinctive advantage offered by Algebra is its dedicated in-house team specializing in talent acquisition – encompassing operations, marketing, finance, and engineering roles for its portfolio companies.

Investment Parameters and Future Strategy

The firm’s investment ticket size will remain consistent with the first fund, ranging from $500,000 to $2 million.

However, the partners suggest potential adjustments to the firm’s operational approach.

“A key takeaway from our first fund is the recognition of compelling opportunities and exceptional entrepreneurs at the seed stage,” Hussein explained. “Given our strong on-the-ground presence in Egypt, we sometimes waited for them to mature to Series A. Moving forward, we may prioritize building relationships with promising seed-stage ventures and expand our involvement in Series B rounds as well.”

Expanding Talent Network and Proactive Investment

Hussein further added that the company will significantly enhance its talent acquisition network.

Currently, Algebra assists portfolio companies in recruiting C-level executives, and plans to explore a startup studio model – pairing professionals to launch companies that could potentially receive Algebra’s investment and support.

This strategy is driven by the types of companies Algebra intends to invest in next.

According to Hussein, the partners have extensively studied successful businesses in other emerging markets, seeking to identify similar opportunities within North Africa.

“If we encounter a lack of suitable opportunities, we may encourage individuals within our network to develop those businesses and capitalize on those prospects,” he stated.

Founding Partners’ Backgrounds

Prior to Algebra, Hussein was deeply involved in building successful tech companies in the United States.

Holding both bachelor’s and doctoral degrees from Carnegie Mellon University and MIT, respectively, he transitioned from engineering to startup investing and entrepreneurship after a period in consulting during the dot-com era.

He subsequently founded Riskclick, a software company specializing in commercial insurance applications, which was acquired by Skywire and later integrated into Oracle’s insurance services suite.

Following a tenure at WebMD, Hussein returned to Egypt, mentoring startups as an angel investor and co-founding Cairo Angels, an angel investor network, in 2013.

“There was a significant void in the market. We were providing modest angel funding, but there was a lack of VCs to facilitate further growth. This led to our collaboration with Tarek and Mokhtar, and the birth of Algebra,” he recounted.

Assaad also possesses an engineering background, earning his bachelor’s degree in Egypt before pursuing a career shift at Stanford Graduate School of Business.

He gained experience with Bay Area companies before returning to Egypt and becoming a managing partner at Ideavelopers, a VC firm managing a $50 million fund since 2009.

Ideavelopers achieved notable success with fintech startup Fawry, now a publicly traded, billion-dollar company, with Assaad leading the investment that yielded a $100 million exit for Ideavelopers in 2015.

Pioneering Local Investment and Portfolio Highlights

Through Algebra, both partners are at the forefront of local investment in the region.

The firm’s portfolio includes prominent companies such as 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.

Growing African VC Landscape

Algebra’s recent fundraising and $144 million capital base represent one of the largest funds dedicated to African startups.

Other significant Africa-focused funds include Sawari Ventures’ $71 million fund, Partech’s $143 million fund, Novastar Ventures’ $200 million fund, and TLcom Capital’s $71 million Tide Africa Fund.

These funds have been instrumental in driving the growth of the African tech ecosystem through increased funding.

African startups raised nearly $1.5 billion from both local and international investors last year, a substantial increase from $0.5 billion six years ago.

Shift Towards Local Investment

Historically, African VC investments have been predominantly driven by foreign investors.

However, firms like Algebra Ventures demonstrate the capacity of local investors to raise substantial funds, potentially leading to increased participation from indigenous and local VCs, approaching parity with international investors.