Being a cool startup is no longer enough. In 2011, Innoventures took part in organizing a major competition for Internet startups in Egypt, which attracted more than 4000 applicants. The participating startups generated a lot of interest from investors and business executives, even to the point of convincing a former minister and top-level executive of a commercial bank to shift her career into investing in startups. Fast forward five years to today, and I would argue that this is no longer going to cut it for investors.
Back then, on the other hand, we also cautiously included “clean technology” as one of our investment focus areas, and were expecting people to basically laugh it off as irrelevant in Egypt. Today in 2016, after less than five years, clean-tech and sustainability have become very much hot topics, and attract the attention of investors, entrepreneurship support organizations, and even the government.
Trends
The first moral of this story is that things change, and it’s important to be able to recognize trends and get behind them early. There is also a deeper moral.
The market rewards investment in products and services that address real problems and real needs, especially ones that require a lot of effort to get started. The more work that is needed to become one of those few initial players in a new industry area, the harder it is for new entrants to replicate it. The best way to create something that is hard to replicate is through innovation, but you can also double your chances for success by innovating in the choice of industry and application area itself.
Tangible solutions and products
While there will always be space for Internet and mobile apps, too much investment has already gone into them, with too little value coming out. The entrepreneurial industry in Africa and the Middle East is now shifting towards more tangible solutions and products. And it is also demanding quality. The “maker” movement is starting to build traction in the region, and capture the eyeballs and imaginations of investors and the market.
We, along with the rest of the world, are starting to remember the value of creating and building new and beautifully designed things, and elegant systems for solving actual problems. And technologies like 3D printing, solar energy, cloud computing, and mobile pervasiveness are enabling everyone to get in on the game.
Target industry areas
With the launch of Startup Reactor 3, we are deliberately focusing on a number of target industry areas, namely: clean-tech, energy, software, electronics, product design, agriculture technology, media, arts, and business intelligence. This may seem like quite a diverse and unrelated set of fields, however, what they do have in common is that we consider them to be the current innovative opportunity areas in Egypt.
But forget about this target industry list in Egypt for a moment. If you were choosing an industry area to start a company in any country, how do you go about doing that? What are the areas that would interest an investor? And how do you identify them?
Here are some characteristics that I suggest you should be looking for:
Emerging resource needs
Resources like energy, or Internet access, that are going through increased demand, or rising costs, as conditions and regulations change, locally and globally.
Emerging business needs
As new areas of business develop and become more innovative and advanced, businesses need certain support services, such as market data, logistics platforms, and payment systems.
Technology growth areas
There is no questioning the continued value of new technologies. We think of technology in its broader sense, including software, hardware, electronics, and product design. But technologies need to be novel on a global level, otherwise a competitor can easily come in and import a superior technology, once you’ve done the hard work of exposing the market need.
Market growth areas
As the standard of living in Egypt and other parts of Africa matures, there are a number of market areas that have traditionally been insignificant or non-existent, and are now growing in importance, such as design, creative industries, consumer products and media.
Sustainable and scalable businesses
At the Startup Reactor, we believe that the only way to create sustainable and scalable businesses with real value is through innovation. Thus, this is one of the main criteria for selection of startup companies for investments. Innovation can be in several different aspects of the business or product. It can be a technology innovation, or a new business model, for which a relatively small initial investment will pay off through long-term scale.
However, in all cases, we look for a clear, tangible innovation, that is novel and unique enough to place itself in a class of its own in the market, or create real disruption within the industry in which it operates. This is what investors are looking for, and this is what will give you a head start in front of competition.
So don’t settle for that social app, or local service. Think big, and look into the future. We’re all waiting to follow you there!
Hesham Wahby, the CEO of Innoventures, will share his vision for the Startup Reactor 3 accelerator program and provide tips for successful applications in the series of info sessions held in Cairo on May 29th – June 2nd. You can register for one of the sessions HERE or join an informal networking event co-hosted by Innoventures and VC4Africa at District on May 30th.