By Eslam Shaaban
Innovators, especially in the start-up stage, are facing the problem of financing their projects. In Egypt, there is great potential to develop the financing of innovations. There are many technology incubators in Egypt that help start-ups establish their business, such as the AUC V-lab, Technology Innovation and Entrepreneurship Center (TIEC), the Greek Campus, SHEKRA, GESR, Flat6Labs, and more. These incubators help transform innovations from the proposal stage to the business stage. These transformations help start-ups to grow their businesses, often in the hopes of attracting needed financing. This financing could take place through borrowing or through venture capital investments.
Financing through Banks
For businesses in the start-up stage, it is not easy to obtain financing from banks because most are too new to have positive financial statements. Meanwhile, if start-ups have a valuable asset through Intellectual Property (IP), and the bank accepts it as collateral for secured lending, this could help start-ups have enough financing. In such a case, the cost of lending will decrease due to the decrease in risk, allowing IP owners to raise the capital necessary for their projects. Such a model is being tried now through the Intellectual Property Office of Singapore. In 2014, it announced a S$100 million IP financing scheme to support the use of granted IP rights as collateral for bank loans by local businesses.
Financing with IP in Egypt
In 2015, the Egyptian parliament legislated law no. 115/2015, which regulates the security interests in immovable and intangible assets. In other words, it allows using these kinds of assets as collateral. Intangible assets include, among other things, intellectual property assets like trademarks, copyrights, patents, and industrial designs. This law, and its executive bylaw, are a significant change in the Egyptian legal system. Before the issuance of this new law, the law of Fond de Commerce (commercial mortgage) no. 11/1940 was used to create security interests in all debtor’s business assets including IP assets. In other words, the previous law meant that the lender and the business had essentially a mortgage agreement; if the business failed to pay back lender, the lender would be able to sell the IP and other business assets. These assets include tangible assets as machinery and equipment in addition to the non-tangible assets as IP assets. The significance of the newly enacted law is that it specifically includes a comprehensive legal framework that governs using IP assets as collateral. Furthermore, law no. 115/2015 stated in detail the process of recording and removing of IP assets in the government’s records. This step is important and will encourage businesses to create and protect their IP rights. In many countries, the legal frameworks for governing the use of IP assets as collateral is still unclear and need further development. The legal and policy reform of these inconsistent and vague IP systems could have a positive impact on innovations and the protection of IP assets.
Venture Capital investments
The second option start-ups could use to establish and expand their businesses is venture capital investments. In this option, investors become shareholders in the start-up. In the Egyptian context, there are many examples of venture capital investments, especially in tech companies. Here I am only giving a quick overview of three venture capital companies, to be used as examples.
A15 identify themselves as an entrepreneurial company that focuses on venturing and investing in tech companies, mainly in Egypt. They have partnered in the growth and development of many tech companies in the country. On their website, they mention many success stories that show how they elevated the start-ups and ventures they invested and partnered with.
Algebra Ventures is one of the leading venture capital companies working in Egypt, with also with a focus on tech startups. With a capital of about 50M$ they are one of the largest venture capitalists in Egypt. Algebra Ventures are supported by some international investors, such as the Egyptian American Enterprise Fund (EAEF), European Bank for Construction and Developments (EBRD), CISCO investments and International Finance Corporation (IFC).
C- Ventures is a company owned by the Commercial International Bank – Egypt (CIB), which is the biggest privately-owned financial institution in Egypt. C-Ventures’ investments focus mainly on the fin-tech sector in Africa. They are keen to invest in tech companies with the potential to make changes in financial services. In my opinion, although C-Ventures was recently incorporated, their focus on fin-tech investments could encourage young Egyptian & other African programmers and tech innovators to develop game-changing fin-tech technologies.
There are of course many other tech venture capital companies in Egypt: Cairo Angels, Sawari Ventures, Endure Capital, and many others. They are all doing excellent work in a market with a high potential for growth.
The Dynamic Start-up Potential in Egypt
The whole platform and framework to enhance innovations in Egypt are growing every day. Whether through a legal framework to facilitate the financing of innovations, through tech incubators, or through venture capitalist investments. The Egyptian start-up scene is dynamic and fast-moving. Thanks to the new laws and policies put in place, I expect that these new developments in the legal and policy frameworks will enhance innovations and growth.