Angel investors examine exit options in Egypt after end of holding period

CAIRO – 25 May 2020: While the majority of start-ups need angel investments to grow, such investors have to be acquainted with exit options.

Malaikah (Egyptian Business Angels Network-EGYBAN) held a roundtable discussion on the topic last week via video-conference focusing on angel investments in Egypt.

El Shwarby Attorneys at Law Principal Loay El Shawarby said that angel investors in Egypt remain in businesses for 2-3 years pointing out that the angel investment market is highly illiquid.

Shawarby highlighted that venture capital (VCs) target to finance the business expansion rather than the exit of existing investors. That is why he recommends that angel investors have to exit before the entry of VCs.

Shawarby clarified that angel investors in Egypt tend to enter at least 15 companies, and that each deal is worth around LE1.5 million.

Chairman and CEO of Financial Advice Corporate Transactions (FACT) Sherif Abdel Latif said that start-ups in Egypt can create an IPO in just 2-3 years and not necessarily 7-8 years like in the United States.

He added that businesses in Egypt usually raise capital by 3-4 percent compared to 7-8 percent in the United States. Abdel Latif highlighted that the holding period return of angel investments in Egypt is worth up to LE50 million.

Principal of Sawari Ventures Tamer Azer gave an overview about VCs saying that Series A investors keep their investments in a given business for around 6 years. Yet, he underlined that the VCs holding period in Egypt extends to 8 years.

Azer added that Series B and Series C are about the restructuring of the cap table like analyzing the efficiency of existing investors and often reducing their number. The businessman pointed out that a business would not reach VC in just 2 years so as an angel investor cannot exit after such short period but they can be a co-investor renewing trust in the company.

Speaking of the exit ticket size in Egypt, Azer said that it is worth $1-3 million in Series A, $5-10 million in Series B, and $20+ million in Series C. He underlined that in the United States, 60 percent of start-ups fail while 20 percent show a mediocre performance and 20 percent become successful. Of the latter, 32 percent seek IPOs while the rest go for trade sale that is usually worth $10-32 million.

Managing Director of Inari Capital Amr Rakha highlighted the potential effectiveness of NILEX in facilitating the exit of angel investors in Egypt. It is noted that NILEX is an Egyptian stock exchange within the Egyptian Exchange (EGX). It is the first market in the Middle East and North Africa region for the listing and trading of small and medium-sized companies.

Founder and Chairman of Malikah Samir al-Alayli said that COVID-19 crisis is massively affecting start-ups, which need the support of angel investors, who in turn must be reassured about how and when they can exit.