Last April, Egyptian and MENA-focused venture capital firm Algebra Ventures announced the launch of its $90 million second fund. It was the sequel to its first: a $54 million fund invested in 21 startups across Egypt and the Middle East.
While Algebra Ventures predicted it would reach its first close in Q3 2021, the firm had to wait an entire year to achieve that. However, the lag afforded Algebra Ventures enough time to exceed what it initially earmarked for the fund. The firm disclosed in a statement that it has finalized a $100 million first close and expects to reach its final close by the end of Q1 2023.
Since its inception in 2016, Algebra Ventures has backed Egypt's top startups in various industries. They include names such as Halan, Brimore, Trella, elmenus, Khazna, Yodawy, Mozare3 and Shift EV.
In a past interview, managing partners Tarek Assaad and Karim Hussein told TechCrunch that the firm hopes to back 31 startups from the second fund, which focuses on seed to Series B startups building in fintech, logistics, health tech, edtech and agritech sectors. The firm, whose general partners include Laila Hassan and Omar Khashaba, will also cut checks ranging from $500,000 to $2 million from this second fund.
The partners say Algebra plans to invest $15 million by the end of this year; that is, within its first year of operation. So far, it has backed four startups, including Sylndr, the online used-car retailer which raised the largest pre-seed investment in Africa this May at $12.6 million. Also, while Algebra's second fund will explore investment opportunities in East and West Africa, its primary focus remains on Egypt.
"Our second fund will pursue opportunities in various sectors by partnering with high-potential founders to address specific market gaps in these sectors. We haven't made any investments in sub-Saharan Africa yet, but continue to build relationships in these markets," added Hussein via email about the company's prospective investments in neighboring markets.
Algebra Ventures is one of the few firms that have recently reached the first or final close of large funds targeting the Middle East, including ADQ-backed Further Ventures and Endure Capital. It is also arguably the largest indigenous fund in Africa and lists alongside Partech Africa, TLcom Capital, Norrsken22 and Novastar Ventures as well-established funds investing in African growth-stage companies. These funds were pivotal to the increase in venture capital that flowed into Africa's tech ecosystem, totaling more than $5 billion and minting soonicorns and unicorns in the process. However, their funding activities has taken a slightly different shape this year due to macroeconomic trends affecting global venture capital. Like others globally, portfolio companies in Africa-focused funds have shown signs of struggle this year. In Algebra's case, one example is Brimore, the social commerce startup that announced a $25 million Series A, laid off hundreds of employees, saw its valuation slashed significantly (up to 40%, according to some sources) and is currently undergoing restructuring.
"We have seen ups and downs before and have been working closely with our portfolio companies to ensure that they have a solid financial position in this new environment," commented Hussein, on how Algebra Ventures is assisting portfolio companies weather this cash and valuation crunch period. "We continue to support our companies with strategic advice, funding, operational issues and other matters as the need arises."
Algebra Ventures reaching the first close at a size larger than its intended second fund is a tremendous feat. It spotlights a decisive vote of confidence from the firm's first fund investors, who have invested larger tickets in the second fund and commitments from new investors who share its vision for the potential of VC in Egypt and the region.
Large institutional investors, including DFIs such as FMO, BII and IFC, are backing Algebra's second fund -- the IFC and FMO made $15 million and $10 million commitments into the fund, respectively. Other limited partners include existing participants EBRD and EAEF, new investors MSMEDA, DGGF and a few regional family offices.
"This is a testament to the potential of tech entrepreneurship in Egypt. Even in these uncertain times, there will be funding to back founders who are building transformative companies. The upside is still very significant and successful, well-funded companies will be in a position to become market leaders, even in challenging economic times," Hussein said on the firm's efforts to raise its second fund. "It also highlights the importance of local funds, working closely with entrepreneurs on the ground. We're four partners, all Egyptians, all living in Cairo; we've been investing for a long time, and we understand the local environment. We've seen startups succeed and others fail, and many regional and global investors think of us as their local partner in Egypt."