INNOVATION
Crowd Power
Entrepreneurship in Egypt is booming though access to credit is still often limited.
Business Today meets the entrepreneurs trying to help solve that problem.
9 January 2013
Omar Mohsen
The crowd has proved a potent force in Egypt. It’s toppled a corrupt and repressive dictatorship and since that time, formed almost weekly to have its collective voice heard.
Now a local start-up wants to harness its power to help spread the country’s wealth and launch some of Egypt’s most promising business initiatives.
Opening its doors in the middle of November, Shekra.com is a crowd funding initiative which acts as a middleman between start-ups and investors. The goal is to find the best ideas which would ordinarily struggle for funding, help those teams with their pitch and business plan and give them access to high-net-worth individuals who are looking for socially responsible ways to invest.
Cofounder Adel Boseli says their pitch is “all about the power of the crowd”.
“We believe in the power of everyone around us so much, and you can actually use this power as a positive thing to encourage change,” he says.
The computer engineer says he and cofounder Shehab Marzban were inspired by the enthusiasm and the entrepreneurial spirit in post-revolution Egypt and wanted to channel that to create both momentum and opportunities.
“If the energy is not channelled correctly it kind of fades away a little bit, slowly. Everyone has a lot of energy, everyone has big dreams but they need a bit of help and a window of opportunity to realize their dream,” Boseli says.
The idea
The idea for Shekra — which is a combination of the Arabic words meaning partner or participate (sharik) and idea (fekra) — was born approximately six months ago. It was at this time that the colleagues noted the large amount of entrepreneurial activity being stunted by a major funding gap for start-ups too big for microfinance and too small for venture capital firms — those seeking between LE 50,000 and LE 400,000.
Access to credit has improved in recent years — Egypt was ranked 156th out of 183 countries by the World Bank in 2007 for ease of obtaining credit but moved up to 78th by 2012. The pair says Egyptian entrepreneurs who were not well-connected have previously struggled to find capital for start-ups and expansion. They also saw an opportunity for a new type of asset for investors and a chance to promote corporate social responsibility.
Marzban says the entrepreneurial spirit in Egypt is relatively strong, pointing to research by Global Entrepreneurship Monitor in 2009 which showed that 15% of young Arabs wanted to start their own business compared with 4% in Europe and North America.The number of initiatives in Egypt was low relative to its population when compared with countries like Lebanon and Jordan — partly because of the lack of access to funding here and this is where Shekra believes it can help.
“[...] Because Egyptians want to do business, want to have these things but mostly will not have access to funding because [the businesses] are too risky, they do not have collateral and so on and so forth.”
Shekra seeks to help fill that gap by creating a crowd of investors willing to invest smaller amounts in an idea rather than requiring one person to provide all of the funding.
While crowd-funding is a well-established concept in the US and is already used by some businesses here (nonprofit media collective Mosireen recently raised $40,000 (LE 243,880) through US-based crowd funding website Indiegogo while fellow crowd funding platforms Yomken and Aflamnah launched in Cairo and Dubai recently), the pair says the model had to be redesigned to jell with legal, cultural and religious concerns in Islamic countries.
For starters, Shekra is not a fund and cannot legally handle money transfers.
Instead, it identifies the best possibilities from ideas pitched to them and then helps those ventures with their legal work and business plan and values them using its internal team as well as consultants.
Finally, the pitches are put together and placed online where Shekra’s private network of investors can read the plans and watch a video introducing the team and the idea before deciding whether to invest.
Shekra then takes an equity stake in the successful ideas rather than payment for their services.
“We kind of indirectly tell investors that we know and we believe in this company and our profit and loss is your profit and loss,” Boseli says.
Shekra will also only accept ideas and businesses which are Shariah compliant and socially responsible. It has already declined one pitch because the business was associated with tobacco which is not Shariah-compliant.
“We do not brand ourselves as being an Islamic finance product but at the same time the products would be appealing and are compliant for Islamic investors,” Marzban says.
They also want to invest in ventures which create jobs and, where possible, the goods or services are exportable and therefore contributes to Egypt’s GDP.
Both Marzban and Boseli have backgrounds in Islamic finance and used that experience to build their model.
“The core thing is that we knew what we wanted and we knew what others and what the country would want and how the country would benefit as well,” Boseli says.
Once the deal is done, Shekra maintains its role as a middleman, ensuring the businesses adhere to the model they sold to investors and that investors do not place demands on the business that were not previously agreed to.
The pair say they are building “a complete start-up supply chain” which also supports businesses with legal advice and mentors and believe their role should help minimize the risks that start-ups face.
“The optimum scenario is that we increase the success rate of these start-ups because normally it’s a high-risk investment,” they say.
A week after launching, they had received around 25 solid ideas and expected to put five or six of those to investors. Most ideas were tech-based so far though they had also had interest from the services and agriculture sectors.
The main concern expressed by start-ups has been around protecting their intellectual property. Most needed to be reassured that their ideas would be protected and the Shekra team says this was also one of the first things that came to their mind when formulating the business model. As a result, Shekra has investors sign nondisclosure agreements as well as only showing core intellectual property to those people who choose to invest.
Shekra also vets its investors, built through the contacts of its board, ensuring they have relevant expertise and were reliable and committed to helping new businesses as well as holding enough capital to ensure they would not be ruined by failed investments.
“We’re starting the crowd but we’re wanting to make sure that the crowd expands in the right way,” Boseli says.
Following on from their mantra of corporate social responsibility, Boseli says they also sought to educate even those ventures which did not succeed in their application for funding so they would go away and work on the issues Shekra identified and rectify them or apply those lessons to new ideas.
“We just want business to grow,” he says.
Shekra plans to take their idea to the rest of the country to try spread the opportunity to people without access to venture capitals and incubators.
The founders say they want to stop talented people from leaving Egypt because they can’t see the opportunities here. They believe the opportunities here are immense, whether they be in creating new ideas or copying existing ones.
Once fully established their goal is to export their business to the Middle East and North Africa then around the world.
They are hoping the government comes on board and creates legislation which allows them to act as a fund. That way, rather than having a limited network where investors have to put up a minimum of approximately LE 50,000, they can go public and have many investors putting in much smaller amounts.
While this is the “optimum scenario” the pair realize it will take some time as Egypt also needs to experience a cultural shift to make entrepreneurship more appealing and culturally acceptable.
Cultural barriers
The cofounders say Egyptian parents generally want their children to become doctors or engineers or work for big companies, rather than start their own businesses or join small enterprises. Encouraging SME growth via methods such as favorable tax rates created jobs and took some of the burden off the government, Marzban says.
Experienced entrepreneurs themselves, they say that apart from the lack of funding, other obstacles for young businesspeople include a lack of education, an awareness of how tough things could get and the ability to see through those difficult times.
Being an entrepreneur is a hard path and people need experience themselves, Marzban says.
“If we would have stopped at any obstacle nothing would have happened.”
“You have to think out of the box and see how to go to the next step and so on and patience is very important.”
The pair, who have funded their new venture themselves, say the main obstacles for Shekra were ensuring their model was legally compliant, putting together a team which covered the whole businesses ecosystem and creating a model which protected both investors and business.
With Egypt having gone through so much recently and with so many people offering views on what needs to happen, they wanted to do something concrete and act as an example for emerging businesses and those looking to start.
“Most Egyptians in the past year or two […] believe so much in what we can do for our country and our community and we believe people who have more knowledge and are willing to put in more effort should actually do that. We should not be talking about what we should do, but rather we should be putting in the time to do it,” Boseli says.
Before the revolution, social and economic benefits were not distributed to the wider society and according to Marzban, Shekra is focused on changing that and showing that it is possible to have an idea and the same opportunities as the bigger, well-connected players.
“This generation has already started believing in change so much and it’s about time to take this to another level and always be thinking win-win: I can win, I can let society win, I can let my coworkers win, the investors win, the community, the country,” Marzban says.
“At some point it’s time to turn all the words, hopes, dreams and aspirations into real action that would [allow] everyone win.” bt
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