In a continent witnessing a dynamic surge in tech innovation, an unlikely but increasingly influential player has emerged as a significant source of capital: the Egyptian state. Through its Micro, Small, and Medium Enterprise Development Agency (MSMEDA), Cairo is strategically deploying millions into venture capital funds across Africa, aiming to catalyse entrepreneurship, diversify its economy, and establish itself as a crucial enabler in the continent’s burgeoning digital narrative.

This calculated move comes at a pivotal moment for Africa’s startup scene. While global venture funding has experienced a downturn, recent analysis from industry observers like Partech indicates a comparatively resilient performance in Africa, suggesting a maturing ecosystem with robust underlying potential, even amidst evolving challenges. It is against this backdrop that MSMEDA’s recent investment spree takes on added significance.

Over the past few months, the agency has announced a notable $7.5 million commitment across three distinct regional venture capital funds, signalling a clear intent to foster entrepreneurial growth both domestically and across the continent. This includes a $2 million injection into the P1 Ventures Fund, a vehicle with a deliberate pan-African strategy, targeting promising startups with ambitions to scale beyond their national borders. Basil Rahmi, CEO of MSMEDA, emphasized the rationale behind this international outlook, stating the importance of harnessing Africa’s growth prospects to benefit Egypt’s youthful population and enhance both market competitiveness and regional economic ties.

Further solidifying its commitment, MSMEDA allocated $3 million to the Foundation Ventures Fund approximately a month prior. This investment is specifically tailored to stimulate innovation and bolster the competitiveness of Egyptian start-ups, aligning directly with the nation’s Vision 2030 objectives for economic transformation. Notably, Foundation Ventures operates within MSMEDA’s broader investment framework, a “Fund of Funds” (FoF) initiative established in collaboration with the World Bank. This FoF structure represents a strategic evolution in Egypt’s approach to venture capital, enabling early-stage Egyptian businesses to tap into a more diverse and competitive funding landscape by indirectly investing in a portfolio of local, regional, and even international funds.

Adding to this momentum, November 2024 saw MSMEDA commit $2.5 million to the Capital Ventures Development Fund 2 (Tanmia Capital Ventures 2). This contribution is strategically aligned with the agency’s objective of attracting foreign capital and providing a wider spectrum of financing solutions for Egyptian start-ups, ultimately aiming to drive broader economic growth and diversification in line with its national vision.

These recent commitments are integral to Egypt’s overarching “Fund of Funds” initiative, which harbours ambitious plans to secure up to $1 billion in funding. This initiative is designed to invigorate Egypt’s venture capital ecosystem by attracting international investment and fostering a more robust environment for local entrepreneurs. The pilot phase in 2022 saw $50 million, backed by the World Bank, deployed across approximately 15 venture capital funds, with MSMEDA typically contributing between 10% and 20% of their capital as a cornerstone limited partner (LP).

Amr Al-Abd, Advisor to the Prime Minister for Entrepreneurship, has emphasized the strategic importance of this expanding program, noting its design to not only strengthen Egypt’s domestic startup landscape but also to extend its influence into wider African and Arab markets. “The Fund of Funds is the main driver of this strategy,” he stated.

The “Fund of Funds” model offers inherent advantages, providing diversification and risk mitigation by spreading investments across multiple venture capital funds rather than making direct bets on individual startups. In Egypt, this approach has already begun to yield tangible results. Endure Capital, a beneficiary of the program, successfully closed its $50 million Africa-focused fund in 2022 and has invested in prominent regional players such as Careem, MaxAB, and Breadfast, demonstrating the potential for Egyptian state-backed funds to facilitate significant continental impact.

Hani Emad, head of MSMEDA’s Central Sector for Venture Capital Investments, highlighted the long-term transformative potential of the initiative. “Our focus is to empower small projects operating in Egypt and enable their expansion into regional markets,” he stated. The program’s diverse portfolio, encompassing sectors from logistics to fintech, indicates its broad ambition to drive innovation and entrepreneurship across the Egyptian economy.

Decoding MSMEDA’s Investment Playbook

MSMEDA’s strategy as a limited partner in these venture capital funds is multifaceted and carefully structured. The agency employs several mechanisms to deploy capital:

• Equity Stakes in Funds: MSMEDA directly invests in the capital of venture capital funds that focus on startups or small and medium-sized enterprises. These funds are managed independently by experienced private sector professionals, ensuring market-driven investment decisions and professional oversight. This approach aims to provide crucial early-stage capital to companies with limited access to traditional financing.
• Co-Investments: MSMEDA also engages in joint investments alongside other financial institutions active in the venture capital arena. This collaborative approach typically requires the participation of a minimum number of private sector investors and financial institutions, ensuring broader market validation and risk sharing.
• Providing Loans to Funds: MSMEDA extends loans to venture capital funds, which in turn invest in startups. However, to safeguard its capital and ensure the sustainability of the funds, the total amount of loans provided to a single fund, including those from MSMEDA and other lenders, is capped at 20% of the fund’s total equity. This maintains a significant equity buffer within the fund structure.
• Direct Financing for Growth: In certain instances, MSMEDA provides direct financing to early-stage or growth-stage start-ups that have already received equity investments, either from MSMEDA itself or other investors. This additional layer of funding is intended to support the startup’s expansion plans and achieve a more balanced capital structure without excessive equity dilution for existing shareholders.

MSMEDA adheres to a well-defined set of criteria when selecting venture capital funds for investment. Key considerations include:

• Clear and Targeted Investment Policy: The fund must possess a transparent and strategically focused investment policy that aligns with MSMEDA’s overarching objectives of supporting Egyptian start-ups and fostering economic growth.
• Experienced Management Team: The fund must be led by an integrated management team with demonstrable experience and a successful track record in investing in early-stage ventures and high-growth companies. The management team is also required to contribute a minimum of 1% of the fund’s capital, demonstrating their vested interest.
• Robust Governance Structure: The fund must have a strong governance framework and independent oversight mechanisms in place to ensure sound investment decisions, ethical practices, and effective management of capital.
• Significant Private Sector Participation: A minimum threshold of 50% of the fund’s capital must originate from private sector shareholders, ensuring market-driven investment strategies and reducing reliance solely on state funding.
• Investment Focus on Egypt: While not exclusively mandated, the fund’s investment strategy should explicitly include the Arab Republic of Egypt as a target market, ensuring that Egyptian startups benefit directly from the capital deployed.

Continental Reach, Local Impact

The international focus of many of the venture capital funds backed by MSMEDA is a critical component of Egypt’s tech investment strategy. By investing in funds with a regional or pan-African mandate, MSMEDA is not only providing capital to Egyptian startups but also facilitating their expansion into other African markets, aligning with the broader goal of enhancing Egypt’s economic influence and fostering regional integration.

A compelling illustration of this strategy in action is MSMEDA’s participation in the recent $43 million first close of LoftyInc Capital’s third fund. Based in Lagos, Nigeria, LoftyInc has a proven track record of identifying and backing high-growth African tech companies, including now-continental players like fintech giant Flutterwave and education platform Andela. This investment by MSMEDA not only provides capital to a fund with a strong pan-African reach but also opens doors for Egyptian startups to potentially receive investment and benefit from LoftyInc’s expertise and network.

Further underpinning this interconnectedness, LoftyInc Capital recently backed Widebot, an Egyptian artificial intelligence start-up that secured $3 million in pre-Series A funding. While the funding round was led by Saudi investors, LoftyInc’s participation highlights how Egyptian state-backed funds are indirectly contributing to the growth of domestic innovation through their investments in internationally focused venture capital firms. Widebot’s ambition to develop an Arabic large language model (LLM) also reflects the growing focus on local technological advancement within the region.

The Bottom Line 

Egypt’s strategic deployment of state-backed capital into tech-focused African venture funds represents a calculated and ambitious move to position itself as a key enabler of the continent’s rapidly growing tech ecosystem. By acting as an anchor LP, MSMEDA is not only de-risking investment for other international and local investors but also actively shaping the future of African innovation. With a clear strategy, ambitious targets, and a growing track record of successful investments through its “Fund of Funds” initiative, Egypt is aiming to bridge its venture capital gap and solidify its role as a significant gateway to both African and Middle Eastern markets, fostering economic growth and creating opportunities for its own generation of entrepreneurs. The long-term impact of this strategic initiative on both Egypt’s economy and the wider African tech landscape will be closely watched.