FMO, the Dutch entrepreneurial development bank, has announced the signing of a $10 million commitment with Algebra Ventures, an Egyptian venture capital firm.
The commitment was signed in Cairo in the presence of H.E. Mr Han-Maurits Schaapveld who is a Dutch ambassador based in Cairo. The commitment of $10 million was used for the fund manager’s second fund.
About Algebra Fund II
The Algebra Ventures second fund was announced in April 2021 and is expected to be used to invest in startups located in Egypt with an allocation for the wider middle east and the African region. FMO is not the only organization that invested in this program, there are other investing partners namely:
International Finance Corporation (IFC)
European Bank for Reconstruction and Development (EBRD).
In a statement, the Managing Partner at Algebra Ventures, Karim Hussein, said:
“It is an honour for us to have FMO as an investor in our new fund.
FMO’s wealth of experience and knowledge across the African continent and its deep expertise in agrictech and fintech, in particular, are of significant strategic value to Algebra. We look forward to working closely with FMO to support exceptional companies in Egypt and across Africa”.
Since the fund was initiated four years ago, they have invested in 21 startups all over Africa and have guided entrepreneurs to turn their startups into world-class companies. With the aid of its fund, Algebra Ventures’ managing partners Tarek Assad and Karim Hussein have continued to aid tech start-ups with finance and talent- they have also driven innovation and job creation in Egypt.
The second fund was partnered by Laila Hassan and Omar Khashaba who have added extensive regional and international venture capital investment experience, the fund has helped support startups in fintech, agritech, edutech, logistics, and healthcare and e-commerce to address specific gaps in these listed sectors.
FMO Initiatives Across Africa
FMO has also funded in various platforms across the Middle East namely:
Paymob: a merchant payment platform (2020)
Dopay: Salary payment platform (2019)
Liwa: SME lender and marketplace (2018)
FMO through its investment in Algebra Ventures and other initiatives has shown its support for the expansion of the Egyptian venture capital ecosystem.
In a statement, the head of the FMO Ventures Program, Marieke Roestenberg, said:
“We are excited to partner with Algebra Ventures, one of the most deep-rooted and seasoned venture capital firms in Egypt. FMO believes regional investors like Algebra Ventures play an instrumental role in both the creation and maturing of markets.
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We look forward to continuing to support and learn from the flourishing Egyptian venture capital ecosystem”.
Benefits of Venture Capital Firms
Venture capital in simple terms is the process where an investor invests in your startup without you paying back hence giving them some say in the company’s operations. For startups that are aiming to grow quickly, that’s the only viable option.
The venture firms can also introduce one to potential future investment partners and help secure future rounds of funding. Here are the benefits they provide to startups:
1) Startups can access large amounts of capital:
For most startups getting a loan can be an uphill task as even mature startups can only be qualified for $5 million and the requirements to get this loan is enormous hence most of them may not get them and eventually close down due to bankruptcy but with venture capital, small startups can have access to capital worth $100,000 and more mature startups can have access to $25 million.
There is also a very big possibility that these startups may raise venture capital a few times more hence providing them access to loans which they thought would be impossible for them to obtain.
2) Venture capital can help provide risk management support:
For most startups, the risk of failure in their first year of operation is 20% but when venture capital firms who have invested in your company provide you with their experienced team which will help to monitor growth and operations it will help to curb the risk of failure and help to grow the startup beyond its expectations.
Most startups are usually run by inexperienced employees which will make them novices in the competitive market hence making them unproductive but experienced personnel from venture capital firms on the ground, will help to curb the risk of failure.
3) No Recurrent Payments:
When taking loans from banks you will have to make a payment every month which will make you spend money to be used to procure resources spent on debt payments but with venture capital firms there is no need to spend money on monthly payments as profits made will be used to improve resources, make researches, and hire more employees.
Startups that borrow loans from banks are usually stagnant or making little competition in the market as they are bent on paying their loan before they start investing in their company which leads to unproductivity.
4) No Need for collateral:
When borrowing loans from banks or any financial institution, the owner of a startup will be required to put up some of his property as collateral to get such loans and failure to pay the loans will lead to a seizure of the collateral and even the startup at times but with venture capital, you don’t need to have collateral before taking a loan as the lender will have some say in the company’s operations and the loan is not required to pay back.
5) Proper guidance and mentorship are available: For most startups, the entrepreneur even though inexperienced is considered the most intelligent person in that startup and the wisest which leads to stagnancy but in venture capital you have access to experienced founders and employees to seek their opinion on the company’s issues.
FMO provides new startups with funding to advance their projects, help them with resources, and provide them guidance on how to excel in their chosen sector or industry. Encouraging startups with funding will be very helpful to them as it will enable them to provide the solutions for which they were created.
