A number of investors in entrepreneurship and startups believe that the market is currently going through a correction phase that followed the exaggerated financial evaluations of startups.
The sources attributed the exaggeration of valuations during the past two years to the crowding of investment funds and investors injecting investments into startups in the region. That came in light of the increasing investment opportunities in the Middle East and Africa and their scarcity in Europe and the United States of America. This has prompted some specialized funds to back down from concluding a number of deals due to exaggerated valuations.
Daily News Egypt spoke to some investors about the issue. They said that the global market is currently working to correct its position, as well as the markets of the Middle East region, which comes in the form of a significant decline in investments and lower valuations.
Mohamed Okasha, founding partner of the Disruptech Fund, said that there was a time when the market suffered from exaggerated valuations of emerging companies, after many venture capital funds and individual investors went to the region’s markets, which contributed to an abundance of financing, causing the overvaluation of companies.
Okasha believes that the period of exaggeration in valuations began from the end of 2019 until about the middle of last year, with the emergence of signs of the global crisis, and the investors’ reconsideration of the whole system.
Okasha stressed that the startup sector in Egypt is still immature, which means that there are more failure stories than success stories, which makes their exposure to the challenge of exaggerated evaluation have a negative impact on their future.
He explained that many of the startups that were subjected to exaggerated evaluation were unable to obtain proper financing.
Okasha went on to explain that the fund retreated from investing in many emerging companies during this period due to exaggerated valuations.
Khaled Ismail, co-founder of the Him Angel Fund, believes that Egypt and the region are not isolated from the world. There has been an overestimation of emerging companies for a period of time, but since last year the world has started a revolution to correct this error.
He explained that there is a tacit, undeclared agreement by investment funds and investors in the United States of America to restore things back to normal and reduce their evaluations of startups, since March 2022.
The correction revolution began at a time when global stock exchanges were declining, which showed a decline in the values of major companies, and therefore this decline had to be accompanied by a reduction in the evaluation of emerging companies, according to Ismail.
He explained that Europe and China joined the United States of America and restored things to normal regarding the evaluation of companies in line with the current economic conditions, but there were markets that were slowly affected by this movement witnessed by the American and European markets, such as the Middle East markets.
“If we look at Africa, we will find that the first markets began to move affected by what happened in America was South Africa. Investments began to decline and the valuations of emerging companies decreased,” he said.
“This is happening now in Egypt and the Middle East region, and this is healthy because valuations were often exaggerated,” he added.
This is evidenced by the drying up of investments directed to the emerging companies sector in many African markets, including Egypt, since the end of 2022.
Hisham Abdel Ghaffar, managing director of Menagurus, which specializes in investing in startups, said that indeed, there was a rush on the part of investors and specialized investment funds on startups. This rush caused a rise in the evaluation of startups that have investment opportunities due to the increase in demand on the part. investors.
Abdel Ghaffar attributed this to the orientation of many investment funds and investors to the Middle East and Africa market due to the abundance of opportunities in it and the lack of opportunities in America and Europe.