For many start-ups, in Cairo and elsewhere, translating a good idea into a viable business model is no easy task. This is a role that Cairo’s Flat6Labs aims to fill, a company which does not call itself a start-up incubator, but rather an accelerator.
Founded in 2011 by venture capital firm Sawari Ventures and AUC, and with offices in both Cairo and Jeddah, Flat6Labs provides seed-funding, mentorship, and a wider support network to help entrepreneurs advance their start-ups. After selecting the most innovative and promising teams from their pool of candidates, the firm operates on four-month cycles, the most recent of which in Cairo concluded at the end of May, when it held a Demo Day for its 10 sponsored start-ups – its largest class so far.
Daily News Egypt sat down with the company’s CEO, Ramez Mohamed, to discuss its operations, challenges to start-ups and investors in Egypt, and future vision.
What do start-ups need the most in their initial phases? Once you have an idea, what kind of challenges do you have, and what options are available to meet these challenges?
We started Flat6Labs, actually, by examining these challenges. Before we started, we [conducted] interviews, met focus groups and met with people who were part of the start-up system back then and asked them: “What do you need, exactly?”
Of course, we had a set of assumptions of what they’d need and what’s lacking in the market. After we met with them, though, we found out that these people, they need more than money. Money’s one of the most important aspects in starting a new venture, but you also need connections, and you need someone who’s strong enough to back you up; you need access to resources and training. So what we offer at Flat6Labs is a means of meeting these challenges.
First of all, we provide the funding. One of the biggest challenges in this market is that there’s not enough capital for start-ups to start. So definitely, we’re not just providing office space and some support and that’s it. No. We attach this to the amount of funding these start-ups need to start, which is usually in the range of between $10,000 and $15,000.
So, seed funding.
Exactly. It’s twofold actually; it’s the seed funding they get at the beginning of the cycle, and by the end of the cycle, we have the Demo Day where we pitch these start-ups to our network of investors. So it doesn’t end at the seed-funding they receive from Flat6Labs; the whole idea is making these start-ups accessible to investors, giving them all the due diligence that they need.
That brings us to the other side of this equation, then: how difficult is it in Egypt for an investor looking for a viable venture to invest in?
It’s usually more the other way around – hard for entrepreneurs and start-ups to find investors. That said, if you talk to any investor, they’ll tell you that they’re not investing that much [in start-ups] because they don’t see the high quality background that they’re looking for; they need to calculate where they’re putting their money and who they’re supporting – and [have a level of] trust.
This process can be very long; in Egypt, to close a new investment, this usually takes from three to six months. So this is a big challenge when it comes to access to funds; even if you convince an investor of your idea today, you won’t have the money in your bank account for at least two to three months.
All this actually is another challenge for the entrepreneurs themselves – especially the tech entrepreneurs – since most of them don’t have a business background, and that’s [one reason] they need the training. It’s why one of our first partners was with the AUC [American University in Cairo], with Sawari Ventures to provide the elements of training these entrepreneurs need [to make up the gap] in their business skills.
In addition to this training from our partners at AUC, we also provide our start-ups with very high profile mentors who help them out from the very first day to the end of the cycle on Demo Day. They meet with them bi-weekly or weekly and are there to answer questions by phone or email.
So how do you select your mentors, then?
We have a list of mentors – a huge list of about 80 or so – and every cycle we check out this list to determine who will be the best match for the start-ups in that cycle. Then we approach them, ask them: “Can you commit for the next three or four months to a mentor team?” Some might say no if they’re busy with a project, but most of them will say yes.
After that we come up with a list of 30 mentors who are the most active and committed during the cycle, and ask the teams to select three or four mentors from this list, ask the mentors to do the same and select one or two teams, and then we match them up.
So you compile your list of mentors based on the types of start-ups you have on hand for that cycle?
Right. Our list includes interviewers, business executives, [and others] who fit into the Flat6Labs model. We tailor it according to the needs of the cycle. And we also ask the teams before the cycle if they have any names in specific they’d like us to reach out to, inside or outside of Egypt.
So there are non-Egyptians participating in this?
Exactly. By design, 60% of our mentors reside in Egypt and 40% reside outside of it – even if they’re Egyptian. But that’s mainly to give it an international outlook, especially for these entrepreneurs, and to help them get some international exposure and know how things work outside of Egypt.
On the flip side of that, are you getting a degree of foreign investment as well, or are your investors mostly Egyptian?
We haven’t had many foreign investors for our companies. And this is the case with most Arab countries in general, because of the political situation and the disturbance we have in the region, not very many investors from outside the region are willing to put down money [for start-ups].
You’ve been with Flat6Labs for about three years, so you’ve seen it during Egypt’s transitional period. How has that affected the entrepreneurial environment, and the investment climate?
There are two sides to this. There’s a side that wasn’t affected that much, as we kept trying to improve from cycle to cycle, and the number of applications was always increasing from cycle to cycle. For example, our last cycle was the largest so far, as we expanded to 10 teams.
From the other side, though, from the point of view of investors it’s different. If you have a timeline from the last three years, against the cycles, we always see there is a drop in fundraising – we wouldn’t be able to secure funds [quickly] – if there’s some kind of disturbance in Egypt.
Has there been any effective assistance from either international organisations or the government in terms of supporting access to funds for small business or startups?
We weren’t really expecting anything from the Egyptian government, because for the last three years it was really challenging to do anything with them, especially with so many governments changing. If we were expecting to get any help from our government, it would be to fix legal structures or help our companies from the regulatory side.
As for international organisations, we’re open to working with them. We’re partners with Endeavor Egypt, and with MC Egypt, which is part of Mercy Corps, sponsoring our last demo day and also providing support to us in lots of different ways.
When you say you’re not expecting that much from the government, do you feel it’s not the government’s role to support entrepreneurship?
Accelerators like Flat6Labs are something usually backed by the private sector; the most successful accelerators in the world are mainly backed by private investors – not by public institutions or programmes.
The support you offer, does it include legal support?
Yes, we have a relationship with a law firm, and we have an in-house lawyer who meets with the teams every day, whenever they need any legal help.
So does this legal support include navigating the necessary government bureaucracy – and is that a major challenge in Egypt?
Not really – not in the company setup part, anyway. The most challenging part we see is in the capital increase –when new investors are coming in, issuing new shares, things like that.
On the other side, we’ve been seeing some good initiatives actually coming from the government, especially in the last six months, and I think it’s improving.
Can you go into more detail about what kind of initiative you’re talking about from the government?
I really can’t disclose anything now because we’re working on our partnership, but I can say that [it involves] some governmental financial institutions, or even the communications minister. They have a few programmes, like the TIEC [the Technology Innovation Entrepreneurship Centre], and the MCIT [Ministry of Communications and Information Technology] has a mandate for technology in general – they’ve had this commitment for the last six years. So it’s part of their mission to support these initiatives.
Is there a certain kind of company you look for during the screening process? Are there certain base tenants that you’re looking at?
Absolutely. We don’t like a very detailed structure per se, like we don’t have a matrix or a score sheet. It’s all about the team – who are they, what are they doing – it’s all about the idea and how innovative it is. So we mainly support innovation, and creativity. And it’s also the market they would like to be in. Is it a broad market, or is it a small market that can’t be replicated anywhere else in the world?
So now that you’ve explained the process from the perspective of the startup and investors, how and at what point in the process does Flat6Labs generate income?
The model of an accelerator is much like a VC (venture capital) model. We have a fund that we invest in each of these companies, and in exchange, we take equity in each of them. So since we started, we own 10 to 15% in each of the companies we’ve invested in. And this is the model. So if any of these companies exit, or if we choose to exit from any of these companies, we make our money back.
So far we haven’t had any exits, because it’s too early, since exits usually don’t happen until three to five years from the company’s start, so hopefully in the next couple of years we’ll see more.
In terms of plans, you recently announced you’d be launching an office in Abu Dhabi. Is there more you can tell us about that?
When we first started Flat6Labs we thought we would be launching more accelerators in Egypt, outside of Cairo. But we found out that most of the startups, they actually moved to Cairo for the programme, and about 45% to 50% of our companies come from outside of Cairo, which is where they find the most support for their business.
But we did see opportunity outside Egypt, there are so many similar systems in the region where many people are starting to think “Why don’t we have an accelerator?” And we had a very good partner in Saudi Arabia, Qotuf, who we joined forces with to launch our branch in Jeddah in 2013 and began two programmes there. The reception has been very positive. The Saudi entrepreneurs are very passionate about their businesses.
For Abu Dhabi, it’s very interesting. It’s our third market to enter in the region, and it’s a very important one, and a big deal to be able to say you have an accelerator in each of the biggest economies in the region – Egypt, Saudi, and the UAE. So we thought that having an accelerator in the UAE is a must for us, and we’ve been talking to a few partners there. One of the best partners that we met, twofour54, is the media zone in Abu Dhabi, and they are hugely supporting the programme – seeding the capital for the fund, providing all legal support, visas, and the facilities. It’s an amazing partnership to have in the UAE, in one of the best media zones in the world, so we said decided we’d open up a Flat6Labs there by the end of the year.
Are you looking to stick within the region, or do you have more global expansion plans?
It’s developing. Two or three years ago, we were thinking we’d just remain in Egypt, and then we expanded. So now we’re positioning ourselves as a regional accelerator, with three sites in the MENA region, and hopefully more in the next two years, but no one knows how things will develop. For us, our mandate for the next two years is to manage our presence in Egypt and Saudi, and to launch the UAE site. We hope to we’ll have more accelerators in the region. North Africa is a candidate location; the Levant is a candidate location, namely Lebanon; and we’re also thinking about Turkey and [connecting] all these accelerators together.