Cairo's 'startup revolution'

CAIRO - One warm day in early July, Omar Gabr and Moataz Soliman, the 22-year-old founders of Egyptian startup Instabug, sat in a cool, dark flat in Giza, neighboring Cairo - windows and shutters firmly locked - contemplating their next move.

The duo were scheduled to appear on stage at San Francisco's MobileBeat 2013, publicly unveiling the launch of their product - an innovative bug-reporting tool for mobile application developers, activated by users simply "shaking" their iPhone - in front of dozens of investors, CEOs, and Silicon Valley big-shots.

Instead, they followed the event via a live Twitter feed, as armored personnel carriers patrolled the streets in front of their office. Widespread protests and violent clashes across Cairo ground the city to a halt. The US embassy had been closed for days, and at the last minute, they couldn't get visas.

"It was frustrating," remarked Soliman, Instabug's chief technology officer. "It's the event that we'd been looking forward to for four to five months."

Yet despite the political instability and violence on the streets, they, like most other young startup entrepreneurs in Cairo, simply had to push on. 

Gabr and Soliman graduated from Cairo University in 2012, and immediately turned down jobs at large multinationals - Microsoft in Seattle, and Vodafone in Egypt - to start Instabug. Their decision to give up steady, well-paying jobs for an uncertain startup caused their family and friends in Egypt to consider them crazy.

But their gamble paid off. In April, they beat 4,000 other startups to win $50,000 from MIT's Arab Business Plan Competition. This month, they received an additional $150,000 from investors.

"If you want to make huge money, you have to start your own business," says Gabr, Instabug's CEO. "And now is the time to take a risk - we don't have any responsibilities."

Their story is becoming more common in Egypt today. A wave of young entrepreneurs, fresh out of university and inspired by the recent revolutions are taking risks, launching businesses, and hoping to build a better future - for themselves and for Egypt. Many hope to turn Egypt into the world's next technology hub.

"There were always entrepreneurs," says Cornelius O'Donnell, a Region Entrepreneurship Adviser for MC Egypt, who has spent the last 20 years founding startups in Egypt. "But there wasn't an entrepreneurship ecosystem."

O'Donnell said that the main barrier to startups was that Egypt was "socially repressive for entrepreneurs - and the entrepreneurship landscape was challenging, filled with bureaucracy."

Another hurdle for young entrepreneurs, according to Muhammed Radwan of icecairo, a new co-working space for green-tech startups in Cairo, was a lack of hope. "People had no hope that things could change," said Radwan. Now, however, "they are taking matters into their own hands, not waiting around."

On the heels of Egypt's second political revolution in three years, hope for young entrepreneurs might be soaring, but there's more to it than just youngsters with ideas.

A supportive ecosystem of competitions, networks, and co-working spaces are emerging to help them navigate the system, fuelling a new culture of entrepreneurship.

At The District, a co-working space in Cairo's Maadi area, dozens of entrepreneurs, engineers, and workers in the creative industries collaborate on new ideas, apps, and software. Across town, Al Maqarr, another new co-working space - founded by four entrepreneurs in their early 20s - brings together NGOs, student groups and startups. Both spaces, just two out of six in Cairo, are already sustainable businesses themselves.

For growing companies, however, sometimes co-working is not enough.

Cairo has seen several incubators spring up since 2011 - copies of successful Silicon Valley models such as Y-Combinator, which spawned Dropbox and AirBnB - all working to accelerate the new startup economy. One incubator, Flat6Labs, has already invested $10-15,000 in each of more than 30 technology startups, offering them a free place to work, mentorship and connections.

"We are a whole startup support ecosystem, not just a venture capital, or accelerator, or incubator," said Ramez Mohamed, CEO of Flat6Labs.

The startups emerging from Flat6Labs are as unique and diverse as Egypt's 84 million-strong market. For example, Solarist, founded by 24-year-old Dina Mosallem, has developed an affordable, portable, solar-powered water desalination machine.

Another company, Taqalid, is building a web and mobile platform to bridge the digital divide of death for a new generation, taking the "process of death" - obituaries, announcements, and other services - online. 

Yet another, PieRide, is helping customers beat the cost of Cairo's atrocious commute by essentially crowd-mapping carpooling.

While there's no shortage of great ideas emerging from Cairo's hubs, the challenges for young Egyptian entrepreneurs remain immense. 

One rising point of contention is the issue of military service. The compulsory conscription of all Egyptian men aged 18-30 - regardless of class, education, or employment - into military service for one to three years can derail young entrepreneurs eager to run businesses fresh out of college.

Mostafa Hemdan, the 23-year-old CEO of Recyclobekia, which exports Egypt's growing mass of electronic waste abroad for green recycling, says that conscription is "the worst thing ever I have found for my business… the worst thing in my life."

Every time he travels abroad for business meetings, to Germany or China, he must navigate endless university and military bureaucracy for permission to leave. He has been denied or stalled multiple times.

"What do I tell my investors when I can't travel?" he complains.

The situation has become so bad that he's now hiring an older chief operations officer, who will handle day-to-day operations and travel, while he considers enlisting next year.

Beyond simply being present to run startups, there's also the challenge of finding money to keep them going.

It's getting easier for young entrepreneurs to find "seed" funding, $10-15,000, to get ideas off the ground - but finding investment to help them grow remains a challenge. Venture capital and private equity firms still remain few and far between.

One of the main reasons is that bad news and political instability - of which there is no shortage of in Egypt - spooks foreign investors, and local investors have yet to develop the appetite for the risk it takes to invest in technology startups run by inexperienced graduates.

Hossam Allam, the founder of Cairo Angels, a group of 50 angel investors who fund high-potential Egyptian startups such as Instabug, said that while the political climate gives some investors cause for concern, "it also makes startups cheap to invest in, and prevents overvaluing of startups". Compared with Beirut, Dubai or Israel, Allam said he could invest in three to four times as many startups in Egypt for the same amount of money. 

Still, Allam says of his angel group, "we're just one group of entrepreneurs that people can go to. We really need 200 more people like us for this ecosystem to grow."

While Egypt's vibrant startup scene is giving hope and purpose to a new generation of young entrepreneurs, there's still a lot to look forward to. It's no Silicon Valley.

Dr Sherif Kamel, dean of the business school at the American University of Cairo, which has several programs helping young entrepreneurs tap into Egypt's growing market, said that, despite some hype, "the ecosystem is still small".

"Egypt's numbers [its population] are the oil of the 21st century," claims Kamel. "But to talk about a tech boom, you really need two million people involved. Right now, it's only a few hundred." 

A true tech entrepreneurship boom, according to Kamel, will only come when entrepreneurs "can trust that when you start a company and pay taxes, you'll have rights, legal protection, customers who pay, and banks who help you out."

"That's entrepreneurship," he adds, "and it can only flourish through an open and empowered society where everyone knows their rights and there are clear checks and balances."

Egypt may hold enormous potential for these young companies - but it still has a long way to go for business to flourish.

Follow Jonathan Kalan on Twitter: @KalanThinks