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Lack of financing main obstacle facing start-ups and small companies in IT sector - Daily News Egypt

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Lack of financing main obstacle facing start-ups and small companies in IT sector

Sector suffers from a shortage in number of “angel investors”, says El-Gebaly

The lack of financing remains one of the main challenges facing start-ups in the communications and information technology sector, and a similar crisis faces small- and medium-sized enterprises (SME).

Hani El-Gebaly, CEO and founder of AvidBeam, which specialises in technological solutions, said that start-ups and small companies in the technology sector continue to suffer from a lack of financing. He attributed this to the fact that the majority of companies in the IT sector are working towards building a product, not manufacturing.

He added that it is difficult for small companies and start-ups at this stage to provide guarantees to obtain financing, or to provide time and marketing plans for selling their products, since they are still in the development stage, which relies more on intellectual property rights. He added that these kinds of innovative ideas are difficult to finance through banks.

El-Gebaly’s believes the solution is what he describes as “angel investors”, as they have a clear belief in the services of the start-ups that they invest in exchange for a small percentage of the company’s shares. However, the sector is suffering from a shortage in the number of these kinds of investors compared to the number of start-ups in the market.

Yehia Tharwat, head of Link Egypt, which specialises in IT solutions, said the lack of funding is the main problem facing SMEs in the Egyptian market, especially given that the majority of the sector’s companies do not have the assets to enable them to obtain financing, but rely on innovative ideas only.

Due to a lack of assets, communication and IT companies are being pushed towards two entities to obtain financing. The first is the Information Technology Industry Development Agency (ITIDA), which attracts many of the companies operating in the market. The second is in specialised investment funds, such as Vodafone Ventures, Ki Angel, and Sawari Ventures.

He believes specialised investment funds do not meet the needs of the wide base of companies. In addition, there is a shortage in individual ‘angel investors’, which he attributes to Egyptian investors being averse to taking risks.

One of the categories that suffers the most is SMEs working on sophisticated technological products that do not have a certain target clientele, comparable to companies manufacturing small parts in computer processors.

Topics: small companies

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