The reason Uber is investing in this hot market ·CNBC
Elizabeth MacBride, special to CNBC.com
Updated
CAIRO — In 2012, veteran venture capitalist Ahmed El Alfi first noticed that the former campus of the American University in Cairo was abandoned, occupied only by a colony of wildcats. But the five buildings, with their colonnades and a long, leafy courtyard, brought to mind a mosque or church, and he could see the potential.
"It was a place that you could immediately envision people interacting in a positive way," he recalled. "It's inward facing, where we could be isolated from the outside and implement a positive vision."
Alfi has invested millions to turn the campus, just a few blocks from famous Tahrir Square, into a technology hub. Open for two years, the GrEEK Campus has now become the center of a tech ecosystem that, against the odds and geopolitical obstacles, is breaking out in Egypt.
Home to 112 companies, it's already producing success stories: start-ups that are landing funding rounds and have a good chance of acquisition in the next few years by global companies wanting an entrance into Egypt's big market, one of the keys to the Middle East and Africa. On Dec. 12 the campus will host several thousand for a big emerging markets tech summit called RiseUp.
The burgeoning success isn't a surprise to those who know Alfi's U.S. track record. Egyptian-born Alfi, who was reared mostly in the United States, had a stellar career in southern California that took him from Wall Street to venture investing to the successful sale of his family's medical business. He spent 10 years at Jeffries, became an independent venture capitalist in 1990, backed PC Mall before its IPO in 1995 and then sold his family's company, Alfigen, to Genzyme in 2004.
Looking for a new challenge, he moved to Egypt in 2006. He found a nascent community of young entrepreneurs who were "doing many things wrong." Helping them became his next project.
He rarely seeks the spotlight, but "he returned to Egypt at a time when almost no one over 40 anywhere in the world thought an ecosystem was possible there," said Christopher Schroeder, a U.S. venture investor and author who sits on the advisory board of the business school of the American University in Cairo, in an email to CNBC. "He built strategically, step by step — investment, mentorship, bizdev relations, academic relations, outreach to U.S. and global ecosystems ... And he put his money, time and reputation to it, all-in."
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Companies at the campus include Yaoota, a Shopzilla-style shopping engine, which recently landed a $2.7 million A round from UAE-based KBBO. SuperMama, a content site for parents, has graduated from the campus into its own office and has a total of 5.3 million visitors monthly. Another Egyptian start-up, BasharSoft, landed a $1.7 million round for its recruiting website, Wuzzuf, from Sweden-based Vostok New Ventures and U.K.-based Piton Capital.
The GrEEK Campus (before it was home to the university, it was a school for the Greek community of Cairo) is just part of Alfi's efforts. He also started a fund, Sawari Ventures, and a network of accelerators called Flat6Labs, with locations in Cairo, Jeddah and Abu Dhabi.
Alfi invested the majority of the funds for all three endeavors, he said, though he won't be specific about how much, except to say that it is one-tenth what it would cost in the United States. He's currently raising another $50 million fund for Sawari from institutions and individuals. He said he hasn't made money — yet.
The Egyptian economy is large, with a rapidly expanding middle class, and many of the tech companies find an early path to growth in the domestic market of 90 million people. Despite the obstacles — such as the recent downing of a charter plane in Sinai, which will likely hurt Egypt's all-important tourism sector, the World Bank predicted the GDP to grow at a rate of 4.2 percent this year, more than double the rates during the turmoil.
And there are beginning to be examples of IPOs and outside investments. In May, Cairo-based IDH, a health-care diagnostics company, went public on the London Stock Exchange and was valued at $668 million. Another sign of the potential: Uber's announcement it was investing $250 million in the Middle East, some of its fastest-growing markets, with Egypt a key.
The young entrepreneurs at the GrEEK Campus are betting that big global players will take an interest in the fast-growing e-commerce market in the Middle East — expected to hit $15 billion by the end of the year, according to a PayPal (NASDAQ: PYPL) study — and look for acquisitions.
"A great deal will hinge on the governments' support of (the tech ecosystem) in the coming years — mostly convincing the best talent they should stay," said Schroeder.
All along the balconies at the campus, there are examples of the young talent, who rent spaces that range from a single desk to large built-out rooms. To make it easier for young parents to work, the campus is opening a day-care center in January.
On the third floor, a retailer-cum-social media site called Slickr has a sunny office and a team of 12 employees. The site, which launched seven months ago with $100,000 in seed funding, has established its first market in the United Kingdom, but co-founder Maria Sanchez Munoz said Slickr is operating in Egypt because the costs for developers are so low: only about $650 a month for a junior developer.
And there are people like ElRakabawy. one of the co-founders of Yaoota, which has a similar business model as that of U.S.-based Shopzilla or Google (NASDAQ: GOOGL) Shopping. ElRakabawy, who has a Ph.D., was a visiting scholar at Berkeley before he returned to Egypt, got a job at Booz & Co. and saved up to co-found Yaoota. The site's traffic has increased to about 100,000 a month since its founding in 2014. With a team of 12, it expects to use its latest investment to hire more in the coming months and expand to the Gulf countries.
ElRakabawy said the campus is like a miniaturized start-up ecosystem. "You have great opportunities for networking, several events about entrepreneurship at your doorstep, plus a historical nostalgic effect due to its location right at the Tahrir Square."
Alfi is not yet satisfied. He calls the current crop of entrepreneurs that he is working with incredibly tough — many of them were inspired by the Arab Spring — and then somehow find a way to help their companies grow despite the political turmoil in their country.
The campus isn't yet turning a profit, and Alfi is awaiting the first big exit — something it needs in order to become the ultimate hot spot for entrepreneurs. "I promised at the launch press conference that we'd be the coolest place to work and collaborate in the Arab world. We have to work a little harder."
