Exploring the Startup Scene with Mindsalike Founder

Updated 2/14/2023 8:00:00 AM

Arab Finance: Startups play a major role in economic growth. Egypt is one of the best markets for startups. However, challenges like COVID-19, inflation, and global economic problems have made it difficult for many startups to continue and grow. Connecting to other entrepreneurs and investors has proven to be a key factor in startup success.

That is why Arab Finance sat down with Mahamad El Tanahy, CEO of DAZU Pay and Founder of Mindsalike, to discuss the difficulties startups face and to share the success stories of the companies he founded.

1- 2022 was a tough year for the global economy, especially the tech sector. How did this impact startups overall, and in Egypt?

It is important, before jumping into the discussion of 2022, to understand the context of what followed. The two prior years saw exceptional factors. Firstly, the COVID-19 pandemic resulted in rapid changes in consumers and businesses, with new opportunities to digitize our lives. A record number of new startups were created, with these companies identifying needs. For example, the second quarter (Q2) of 2020 saw 910,704 new business applications—an 8.33% rise from Q1 and a 4.6 % increase year-on-year (YoY), according to CrunchBase news report. These startups were founded on the assumption, correct or not, that societal behavior had permanently changed and that there were new needs that technology startups could fill. At the same time, the macro environment saw interest rates at almost 0% in the US and, in some cases, negative in Europe, with a huge pump of cash by governments to support economies amidst a post-pandemic slowdown. This meant that investors, especially venture capitalists (VCs), would be flushed with cash in 2020 and 2021, with a once-in-a-lifetime opportunity to build startups for the "post-pandemic world". There was a meteoric rise in funding for startups, and startup valuations were at an all-time high. For instance, CrunchBase shared statistics that early-stage startups in 2021 raised a record $100 billion more than in 2020, and unicorns—those with a valuation of more than $1 billion—were created at a rate of more than 10 per week, as reported by Mint about startups in 2022.

Moving to 2022, the macro environment changed, with inflation becoming a major concern in most economies. So, investors were pulling their money out of public markets, which negatively impacted the valuation of private startups.

2- How did this impact startups?

There are two major changes: (1) Valuations and (2) Focus on Growth vs. Revenues

For early-stage startups, the impact has so far just been on the type of valuations they are getting. VCs' sentiment is more cautious; however, VCs have stockpiled a record amount of funds in 2022 of $580 billion, with this "dry powder" ready to be invested, as reported by CrunchBase. The early-stage startups are seeing lower valuations, which can be easily adjusted in a future round if markets adjust and compensate for any discounted valuation.

For growth-stage startups, some, but not all, have found it harder to raise at expected valuations. Although valuations have gone down, the main risk is the impact of a down-round, where the valuation is lower than a previous round.

Of course, there are startups in 2022 that have shut down across the globe as they were not able to raise funds. For instance, India saw 2,404 startups shutter in 2022, which is double the number that shut down in 2021, as reported by Mint.

With VCs reporting on their portfolio companies and seeing all the drops in valuations happening in 2022, most VCs have pivoted their focus for their portfolio companies to cost-cutting and "sustainable growth." They want companies with good unit economics, so the days of having a higher cost of acquisition (CAC) than the lifetime value of a customer (LTV) are thankfully behind us, which is a good thing for entrepreneurs who know what they are doing.

Despite this, I am optimistic about Egypt, the Middle East, and Africa's startup ecosystem. According to Briter Bridges, the market intelligence firm, Africa saw growth in startup capital from 2021 to 2022, with $5.4 billion in total estimated funding across 975 deals in 2022, an increase from $4.3 billion in 820 rounds in 2021, according to Mint statistics.

3- Moving on to 2023, what are the sectors in which startups are most likely to achieve success?

I believe that some of the most significant startups will be founded in 2023. In times of economic crises, entrepreneurs have an incredible ability to find new solutions to existing problems. If you look at the 2008 financial crisis, many startups we know today were founded. WhatsApp, Uber, Square, Cloudera, and other examples, were established during or after the last financial crisis. Any sector that can find a big enough pain point and properly harness artificial intelligence (AI), blockchain, robotics, or VR will be the winner.

With the viral launch of ChatGPT, AI has gone mainstream, and people are trying to find out how to leverage it effectively. Blockchain is the future of many decentralized industries. Even with the collapse of some blockchain companies, I still think 2023 will see a real rise in blockchain use cases globally, especially for things like cross-border international trade.

Personally, I am optimistic and interested in fintech, health tech, and climate tech, with 2023 being the year when the right technologies come together to solve major pain points around these sectors.

4- Fintech has grown massively. What are your ambitions for DAZU Pay?

DAZU Pay is a business-to-business (B2B) payments platform focused on business payments in the Middle East and Africa. Founded in the US, we are looking to solve pain points around B2B payments, specifically saving businesses time, money, and headaches when making payments both locally and cross-border. B2B payments globally are a $125 trillion market, so it is a big enough market, and I believe now is the right time for it.

5- Mindsalike is bringing together entrepreneurs and business minds aspiring to connect the dots between the Bay, Cairo, and Dubai. What inspired you to establish Mindsalike?

In or around 2016, I had the idea for Mindsalike about halfway through my entrepreneurial journey. I had been building my first company, Bright Creations, a software company I built into a team of 65 as a sole founder, and I found myself wanting to speak to friends about the challenges I faced and the decisions I was making. But it was difficult in usual events where everyone felt like they were pitching. Instead, I invited 30 friends who owned businesses to a restaurant for a casual meet-up. People really enjoyed it and loved the opportunity to talk about work, but also in a very informal setting that made it feel like a social event. Since our first event was a success, I gave it a name, Mindsalike, and it grew from there. At every event, members would bring a few more people who are like-minded, and it just kept growing. To ensure we were able to control the quality of the conversation, we structured Mindsalike to have people "apply" first to become members. What started with 30 friends now has over 5,000 members across three cities in the region.

6- What are Mindsalike’s future ambitions?

We are building Mindsalike into a regional network. We want to build bridges not just in Cairo and Dubai but also across the Gulf Cooperation Council (GCC) and Africa. We would like to help open doors for entrepreneurs in different regions, to help them find investors, entrepreneurs they can collaborate with, angel networks they can join, or just build new lifelong relationships with like-minded people.

7- You recently returned to Egypt from Stanford and Silicon Valley, the heart of the startup world. What are the most important insights you have gained?

Stanford and Silicon Valley were incredible experiences. Firstly, I realized how important it was to never stop learning. Secondly, the importance of a strong network and ecosystem. Even with the day-to-day grind of an entrepreneur building a business, it’s critical to have a strong network. Thirdly, the power of optimism. At Stanford, everyone is incredibly optimistic, and it’s contagious. Research by one of my professors, Professor Ilya Strebulaev, showed that for every graduating class of 1,000 MBAs, there are 3 unicorns built and that graduates of the Stanford Graduate School of Business (GSB) have created over 36 unicorns and raised over $65 billion in funding. This means when you meet someone with a crazy idea, you cannot help but believe they will achieve it, as they might be the next unicorn. Finally, be ruthless with your time. It’s our most limited and invaluable asset.

8- Why have you decided to return to Egypt? And do you think startups have a good chance now in Egypt?

Going to the US, I knew I would continue being an entrepreneur after graduating, and I believe now is the best time to build a startup in Egypt. I am optimistic about Egypt, the Middle East, and Africa's startup ecosystem. According to Briter Bridges, the market intelligence firm, Africa saw growth in startup capital from 2021 to 2022, with $5.4 billion in total estimated funding across 975 deals in 2022, an increase from $4.3 billion in 820 rounds in 2021, according to Mint statistics.

Besides, Egypt is a massive market. We are talking about 110 million Egyptians, with 60% under 30 and a gross domestic product (GDP) of over $400 billion. It provides the perfect test market to establish a startup at a relatively lower cost than building one in the US, GCC, or Europe.

Moreover, when you want to expand past Egypt, you will be supported by unique geography and history. So, once you build a business in Egypt, you can grow it out into several geographically adjacent markets. Consequently, we are in a great position to start in Egypt, then leap across to Africa or the GCC as needed, which is my goal.

Being in Egypt provides a great opportunity for me and the growth I want to achieve. Mindsalike, as a network across the Middle East and Africa, is something I am passionate about building, and DAZU Pay is specifically targeted toward the Middle East and Africa.

9- What knowledge would you like to impart to entrepreneurs starting their business ventures?

Be optimistic and ignore the naysayers; surround yourself with great people; work hard; and constantly learn. This is the only way to overcome the fear of the unknown, which is what every entrepreneur faces.