Page 2

Introduction

You have probably heard a lot about entrepreneurship and stories of the usual guys making it to outstanding success through starting their own business. The Bill Gates, Steve Jobs, Mark Zuckerberg are known names that every entrepreneur is aspiring to catch up with.

You have probably started a journey of searching for an idea, building a team, building a product or probably starting a company to create your own success story. You might have searched and suffered of lack of funding and you might be considering giving up.

This document provides basic understanding to the roadmap entrepreneurs go through from idea till building a hugely successful companies and making a lot of money in the process, focusing exclusively on the funding component across their journey.

About the authorAbdelrahman Magdy is the CEO and Founder of Egypreneur. Since 2008, Abdelrahman had been leading the effort to establish the network of Egyptian entrepreneurs, among his responsibilities had been introducing entrepreneurs to investors, conducting training workshops on investment readiness.

Why do people invest in companies?

The reason why people invest their money in companies, if company A is valuated today at 100,000 EGP and you invest 10,000 EGP to own %10 of the company, in 2 years the founders work very hard and now the company grows to be valuated at 1,000,000 EGP, your %10 shares (ownership) is now equals. How much? 100,000 EGP

Imagine that having this 10,000 EGP today, other than choosing to invest in this company, I have kept my money in the bank, after these two years, how much would the 10,000 EGP grow into? (Assume interest rate of %10) in 2 years, that will be just 12,100 EGP.

Now compare the decision to put your money in the bank relying on interest rate vs. investing in a company A. If you are really looking to grow your money, then the option to invest in the company is way better.

This is exactly how you should start thinking while attracting funding to your business from this perspective, as the founder and owner of the company, you are selling part of your company in exchange for money that will help you grow the total value of the company and accordingly maximize gains or what they call it Return on Investment (ROI) for your investors.

Page 3

Page 4

The whole startup funding game is based on this basic principle. Though, startups are experimental companies that while having the potential for exponential growth, it is is an extremely risky investment as you can’t guarantee that it’s going to work or that you’ll even get your money back.

Now, you should start thinking like an investor, the only reason why they might consider investing in your “potential company” is that YOU can show them the potential, skills and flexibility you have to lead this experiment though and make it a financial success.

Also, you should now understand that the reason why Mark Zuckerberg, Bill Gates, Steve Jobs and all other entrepreneurs are rich, is that they owned percentage of companies they have created and invested their time and skills growing these companies to be “Valuated” at very large values.

The good news is that it’s a simple game, the bad news is that it’s very hard and only 5-10 % of startups make it alive after the first 3 years. It’ll be a hard job for you to build this startup and sell other investors on its potential for growth.

TIP: Now, you know why people invest in companies, we know you have a great idea, passion and probably team, but something matters just more to your investors, their return on investment, if they buy part of your company today for 100,000 EGP, how much would it be worth in 3 years?

Exercise 1: Go to Forbes.com and check out the list of the most valuable companies in the world http://www.forbes.com/global2000/list/

Exercise 2: Go to SharesPost.com and check out the list of most valuable venture-backed startups in the world http://sharespost.com/sharespost100-/list/

Page 5

Things you’ll need to knowFinding your “Hedgehog” concept (The Engine of Growth)

So, you might be asking how can I discover the idea where I should start my business, or if I already have a startup how can I optimize it to be ready as an attractive high growth venture. Jim Collins in his book From Good to Great highlights that out of years of study he discovered that the companies that was able to survive and thrive was that realized their “Hedgehog” concept early on.

The Hedgehog concept can be thought of as the X Factor for scaling your startup, the growth engine that drives the whole vehicle into profitability and scalability

an action that can be repeated endless number of times with low investment to increase the company’s ability to make money.

This exercise should help you realize this X Factor from both ends, the end of you as the founder and what you want to make in the world and the end of the market and what they are willing to pay for, if you find this fit and you are able to let it grow on its own, your company is ready to scale.

TIP: Your goal should be achieving Product-Market fit in a way that maximizes your revenues and minimizes expenses.

The Business Model

When you have realized your X Factor and want to manage the variables of your startup to maximize Profit and minimize Expenses and accordingly build a profitable business with high growth potential, the type that investors like to pour their money into to grow it.

Your most essential task is to work on optimizing your business model, The Business Model Canvas is a tool that helps you arrange your thoughts in a structure way until you are able to weight the revenue streams and cost structure of your businesses. Your job is to keep optimizing these variables until you reach the formula with which you maximize revenue and minimize costs.

Fore more information about The Business Model Canvas please visit: http://www.businessmodelgeneration.com/canvas/bmc

Page 6

Page 7

The Startup Journey So once you find your “Hedgehog” concept and start optimizing your business model, you should be ready to pitch this attract startup to investors within weeks right?

The bad news is, this is just the beginning of your startup journey, you should expect to have 3-5 years during which you’ll be experiencing ups and downs and during this period you are not expected to be an attractive opportunity for usual investors.

«A pivot is a shift in one aspect of your startup›s focus based on validated learning»

Excuse me?

You’ll have to survive this potential company for 3-5 years before you reach the solid grounds upon which people would be trusting you with their money and be gladly considering you other than any other options.

Page 8

The reason why, is that it doesn’t work right away, your passions and ideas are really nice, but not necessary would build a solid company, you’ll have to experiment and grow through try and error until you define and reach the stable Business Model and “Hedgehog Concept” for your startup.

Before the stage of profitability and scalability, you’ll experience 3-5 years of a harsh startup life where you’ll be searching for the proper business model, it’s very unlikely investors will be interested in pouring investments in your startups, you should be expected to change your business model a few times before you reach the right model through which income is higher than expenses and you can scale that at low cost.

Eric Ries, writes about the Pivoting game of changing the business model of a startup 7-5 times in 5-3 years until the startup is ready to be called a stable company.

Pivoting is not failure, pivoting should be intentional, you should be aware of the cycles your startup is going through and should get ready to pivot whenever you need before you hit the bricks.

The question is as you’ll not be such an attractive investment during this period for the usual corporate funding options, how can you survive until you reach this stage and that’s when Startup Funding comes in play.

HIGHLIGHT: When you are starting out, you’ll still need a long way to go before you become an attract investment, that’s when the startup funding ecosystem comes in play.

Page 9

Startup Funding Sources in Egypt Because of this harsh years of “starting up” a company and because of the massive potential startups have, there is a complete industry and “ecosystem” that’s concerned about supporting and giving a lifeline to companies that’s just “starting up”.

If you still can remember the 10K that grew into 100Ks in 2 years? While being extremely risky the startup funding game is about figuring out startups with this potentials and buying parts of these startups in exchange of Cash that can help them survive during these rough years.

Startup funding usually happens at stages, below are some of the sources you might consider during the startup stage until you have already proven your business model and can be a part of the corporate finance world.

Services : Consulting , FreelanceLoans

CompetitionsGrants

International Development InstitutionsOperations : Sales , Sponsorship

Financial PartnersIncubators

AcceleratorsAngel FundingCrowdFundingVenture Capital

Page 10

Fundraising Process1. Your personal brand Why should I fund you? Am I making an “ass” of myself if I invest with this guy and he fails? Do you have the social proof that you can make it?These questions might seem irrelevant and quite unfair speaking of a profes-sional, consistent environment, but so as the startup funding landscape one of the deciders whether you’ll get funded or not is your personal brand, who knows you as a quality professional and promising entrepreneur.

the good news is that building this can be fairly easy with the commitment and consistency, you can use your LinkedIn posts, your Tweets and Facebook posts to showcase your knowledge and progress, you can even grab mem-bership at quality organizations like Egypreneur to get yourself known and reach the right exposure and network.

2. Your value propositionWhat problem are you solving in the world? How are you solving it differ-ently? What’s the size of the market for this idea and how are you going to capture it?

Entrepreneurs often get caught out in the details of either financials or op-erations of their startups and overshadow the most essential questions to have, you need to understand and commit yourself to understanding the real problem and need in the world and the core competence and potential value of how you are solving it.

Pack this value proposition with you everywhere you go and make sure to consistently communicate it, if someone got to know that you are working on solving this problem or take advantage of this market and that you know enough about it, then saved yourself a lot of pushing into investors.

3. Do you really need external funding, now?Alright, now, before you jump into the process of securing funds for your startup, I want you to know that it’s not easy, it’s very exhausting and time consuming, your idea and startup might be very fine, but it’s might not be the right time for you yet to start raising funds for your startup.

Or you might be seeking funding from the wrong sources, too early seeking Venture Capital investment and building expectations on your idea not prod-uct ... etcRely on sales, sponsorship, grants, if you can’t then proceed to the next

Page 11

4. Your startup valuationAs you understand the number that you are look for and how much equity you are willing to give in exchange for this funds, you can easily find out which entities might be best for you to consider for your fundraising activities

According to InvestoPedia, these are rough estimate for startup valuation at each stage.

Estimated CompanyValue Stage of Development

$500,000 - $250,000 Has an exciting business idea or busi-ness plan

million $1 - $500,000 Has a strong management team inplace to execute on the plan

million – $2 million $1 Has a final product or technology pro-totype

million – $5 million $2 Has strategic alliances or partners, orsigns of a customer base

million and up $5 Has clear signs of revenue growth andobvious pathway to profitability

Source: InvestoPedia http://www.investopedia.com/articles/financial-theory/11/valuing-startup-ventures.asp

5. Possible resources categorizationIf you have really reached a dead end or can see a great opportunity, then prob-ably it’s time for you to start fundraising. Your can have two approaches, “Spray and pray” which might fire back and affect your image and reputation as a seri-ous entrepreneur or you might want to take a sniper attitude.

6. Design a custom approachOnce you have realized how much you need and what range of valuation should be acceptable to you and accordingly which entities you’ll be seeking funding from.

You need to take the time to visualize and design a custom approach to initiate communication with each of these entities. Worst channel is a cold email and best to be introduced through a trusted source.

Page 12

7. Pick up a lineIt’s important to be thoughtful in your approach to initiating communication with potential investors, ideal sce-nario is that your personal brand and your startup has already done the tough part of the job, if not, you need to make some decent first impression.

As you meet investors for the first time your goal probably shouldn’t be an immediate pich, rather to build rapport and personal connection before pitching for funds. A good approach is to ask them for advice that shows something in-teresting about what you are doing.

Think about this as a dating process, at first, you’d probably get someone’s at-tention and exchange contacts not necessarily going out immediately.

8. PitchOnce you have built rapport with a potential investor or venture capitalist, ideally you’ll be asked to visit their offices and provide a presentation about your invest-ment opportunity.

“Failure to prepare, is preparing to fail” This will be very obvious

9. Follow-up / Due DiligenceIn average it takes 2-3 months to complete all communications related to the funding deal, this period from the moment you attract the attention of the inves-tor till you close the deal is called due diligence.

During this period you and your investors will be testing everything, they will be testing the assumptions you made regarding the finances and your ability to run the business, you should be open and transparent to build up for a strong relationship.

10. Term sheet (Contract Terms)It is important to understand that an investment deal is not just about how much to invest and percentage of equity the investor gets in return. Once you move into more serious investments you’ll have to agree to a term sheet.

11. Close the dealCongratulations, deal is now closed. Make sure you have your lawyer with you throughout the process and be very careful with the amount you have on the company’s bank account now, it’ll not be enough for everything, so manage it carefully.

Page 13

Who is funding startups in Egypt?

INJAZ Egypt

Startup Egypt Com- petition provides seed funding and incubation

services to winners

http://injaz-egypt.org

Com

petit

ion

Arab Startup Com-petition

Competition provides$50K USD seed fund-ing to winning startup

http://www.mitarab-competition.com

Social Fund forDevelopment

Providing loans tomicro and small busi-

nesses

http://www.sfde-gypt.org/web/sfd/

direct-loan Loan

s

TIEC TIEC AccelerationProgram

http://www.tiec.gov.eg/incubation

Incu

bato

r

Ki Angel Seed funding for earlystage startups

http://www.crunch-base.com/organiza-

tion/k-i-angel

Ang

el F

undi

ng

Cairo Angels Seed funding for earlystage startups

http://www.cairoan-gels.com

Flat6Labs

100K EGP in seed funding and joining the acceleration program

for 6 months

http://www.flat6labs.com

Acc

eler

atorJuice Labs Acceleration program

with seed funding /http://juicelabs.me

AUC Venture Lab

Accelerator program at AUC including seed

funding for winningteams

http://www.aucegypt.edu/Business/eip/Pag-

es/Venture%20Lab.aspx

Page 14

Oasis500

Seed funding and acceleration program for entrepreneurs in

MENA

http://www.oasis500./com

Seed

Fun

ding

Middle East Ven-ture Partners

Investing at early stage startups in the

Middle East

http://www.mevp./com

Vent

ure

Inve

stm

ent

Vodafone Ventures Venture Capital Armof Vodafone Egypt

http://www.vodafone.com/content/xone/in-

dex/ventures.html

Wamda Ventures Venture Capital Armof Wamda http://wamda.com

MBC Ventures Venture Capital Armof MBC Group

http://www.crunch-base.com/organiza-tion/mbc-ventures

N2V

Investing in technol- ogy startups in the

Middle East includingEgypt

/http://n2v.com

Ideavelopers Venture Capital http://ideavelopers./com

VC

Sawari Ventures Venture Capital http://www./sawariventures.com

Page 15

Tamkeen Capital Venture Capital https://angel.co/tam-keen-capital

Delta Inspire Venture Capital http://www.del-/ta-shield.com

Union Capital Co-invests with VCs inhigh growth startups

http://unioncapitalpe. /com

Priv

ate

Equi

ty

Innoventures Innovation platform that helps you with

fundraising

http://www.innoven- /tures.me

Serv

ice

aFundem Platform connecting entrepreneurs and

investors

http://www.afundem./com

ZoomaalCrowd funding plat- form for creativeprojects in MENA

https://www.zoomaal./com

Yomken Crowd funding for

Crafts and Innovativeprojects in MENA

/http://yomken.com

Eureeca Equity-based Crowdfunding in MENA /http://eureeca.com

Shekra Crowd funding Plat-form in MENA

http://www.shekra./com

Page 16

Facts & Figures

Page 17

Case StudiesWUZZUF

Started in 2009 as a project of BasharSoft, BasharJobs.com founders entered multiple competitions and finally won at an ITIDA competition and was incubated at Smart Village. With ex-tensive networking and product development for years, WUZ-ZUF then was offered an investment deal with OTVentures that didn’t finish successfully.

WUZZUF then received investment from 2 individual investors, who helped them pitch to global incubator 500Startups and there entered the acceleration program for three months in San Franciso.

WUZZUF is now claiming being #1 Job site in Egypt and actively raising more investments for expansion.

INTEGREIGHT

Started by 8 Egyptian Engineering students as their grad-uation project, the group was then accepted in Flat6Labs accelerator, working on their Smartboard product, they faced serious challenges and had to focus on a different product.

In order to keep going they raised funding from Cairo Angels, launched a Crowdfunding campaign and was able to raise 85,000 USD, they developed and launched their product in 2014.