Anghami's slow growth

Good afternoon,

This is the fifth issue of Termsheet since I resumed writing last month and I think it’s time I experiment with the format.

Until now, most of the issues have had three main sections; intro where I usually discuss a random topic around startups (for example in one of the previous issues I talked about press releases), insights (which is usually the main topic) where I try to break down interesting numbers on anything related to startups and VC in the region (for example $50 million+ rounds in MENA in 2021 & 2022 - Saudi’s growing influence), and news where I usually cover just one piece of interesting story from the region (example: Jahez’s acquisition of Marn in the previous issue).

I’d love to understand what you enjoy reading the most. I might skip one or two of these in future issues but would like to have some feedback before I do this. If you have any other ideas on how to make the newsletter better (by let’s say adding something that’s missing in it), please share your feedback on that as well by responding to this email. Or drop me a message on Twitter or LinkedIn.

I’ll share the results of this poll in the next issue or the one after that.

Anghami’s slow revenue growth

Anghami is one of the largest consumer internet companies to come out of the Middle East (in terms of users it serves). Operating in 16 markets across the region, the music streaming platform has close to 100 million registered users - about 20 million of which are active users.

Started in 2012 in Beirut, Anghami moved its headquarters to Abu Dhabi last year. Right after doing that, in March last year, Anghami also announced its plans to go public through a SPAC merger with Vistas Media Acquisition Company.

With the announcement, the company published an investor presentation - sharing its financials publicly for the first time.

The presentation also had revenue and MAU forecasts for 2021 to 2025. The company’s management had estimated to hit $48 million in revenue in 2021 - $39 million of which would come from subscriptions and $9 million from ads.

Anghami brought in $9.8 million from ads but the subscription revenue estimate was way off the mark. It managed to do just $25.7 million in subscription-based revenue, taking total revenue for 2021 to $35.5 million.

What this means is that the company’s revenue grew just 14 percent since 2019. Anghami’s investor presentation (March 2021) estimates a 70 percent CAGR for 2021-2025. The estimates were made assuming capital injection in 2021 and 2024.

(For 2019-2021, Spotify’s revenue grew to 43 percent to €9.66 billion in revenue in 2021).

Since 2019, the net loss of the company has also more than doubled to $18 million in 2021. It is largely due to the increase in general and administrative expenses. Anghami hired 60 new employees in 2021 which resulted in a 118 percent YoY increase in its salaries expense, taking it to $7.6 million ($3.5 million in 2020).

The advertising and marketing expense for 2019, 2020, and 2021: $8.2 million, $5.3 million, 8 million. So there was an overall decrease in advertising and marketing expenses for the period of 2019-2021.

Anghami’s filings highlight that they measure company’s efficiency through ROI on marketing expenses (total annual revenue divided by total annual sales, branding, and marketing expenses). It was 3.8x in 2019, 5.8x in 2020, and 4.4x in 2021.

Another interesting metric to potentially look at here is revenue per employee (mainly because the company increased its employee count by over 50 percent in 2021). In 2020, Anghami made about $267,500 per employee. In 2021, this number has dropped to $204,000. It would obviously take some time before the increase in headcount can produce results but this would be an interesting metric to keep an eye on, in the future.

It is not clear why the company has struggled to increase its revenue in the last two years. It had grown by almost 30 percent YoY in 2018 and 41 percent YoY in 2019. One possible explanation is the emergence of international competitors in the region. Deezer, Spotify, and YouTube Music launched in MENA between October 2018 and September 2019.

The numbers for the first half of 2022 show some encouraging signs. The company has grown its H1 total revenue by 29 percent to $21.1 million. It had done $16.3 million for the same period last year.

The company also recorded negative foreign currency effects of $3.5 million in its revenue for H1 2022. It means that actual YoY growth was over 50 percent but because of depreciating currencies of the markets Anghami operates in, it grew 29 percent in dollar terms.

The breakdown of revenue and other financials including sales and marketing expenses haven’t been published so we’ll have to wait for the company’s annual filings and report when it would share its detailed financials, to draw any conclusions from this.

What we know right now is that there has been an increase in Anghami’s monthly paying subscribers. They’ve grown 41 percent YoY to 1.28 million in the first of this year. At the end of 2021, the company had 1.17 million so it is a 9.4 percent increase from that.

The 2022 revenue in the chart is annualized based on the first half’s numbers. Given the past record, Anghami should close the year with more than that.

New VC funds on the block

There are two large new VC funds that have launched in the region in the last few weeks - and three if you add Algebra’s second fund. Here are some details about them.

Further Ventures: $200 million

Anchored by sovereign wealth fund ADQ, Abu Dhabi’s Further Ventures has launched a $200 million fund. On their website, they state that they’ve created the firm to be the ultimate co-founder, “We take common stock, take care of seed capital, deal with regulators, and bring our collective expertise to make sure our ventures have the best chance to becoming category leading companies.”

Further funds startups from idea-stage to Series A. According to its website, it also helps startups with recruitment, product development (through its in-house team of engineers and designers - until the startup can run on its own), and regulatory and legal support.

Big promises.

They want to invest in startups building in three areas: fintech, digital assets, and supply chain. The companies they’ve already made investments in include Aurem which enables ‘companies to offer world-class saving plans for their employees’, RightFarm, a UAE-based B2B ecommerce marketplace for fresh produce, and Floos, a salary-on-demand startup.

Mohamed Hamdy and Faisal Al Hammadi are leading the firm.

Hamdy was previously Investment Director (and later Head of Future Platforms) with Dubai Future Foundation. He has also invested in a lot of startups in the region.

Faisal has been working with ADQ for almost two years. He has previously also founded a few companies, Slices, a healthy meal startup focused on schools, being the most prominent one.

e& Capital: $250 million

Emirati telecom company e& (previously known as Etisalat Group) has launched a $250 million fund as part of its corporate venture arm e& Capital.

I could not find the website of the fund and e& Capital’s page on e&’s website doesn’t have any useful details. So I don’t know what kind of companies they’d be investing in but their two investments that have been announced with the launch suggest that they’re probably going to invest from seed to Series B (and maybe beyond).

e& Capital is led by Kushal Shah who’s the founder of Dubai Angel Investors. He was previously the Global Co-Head of Media & Entertainment at Roland Berger.

Speaking to media at Gitex last week about why founders should choose e& Capital, Kunal said, “We’ve got a whole machine behind us. We’ve got a flywheel that is very difficult for anyone else to provide. We’ve got sixteen countries. We have 160 million customers. We have the brand. We have the trust factor. We have all the different elements of a cog where if it works together, it will move faster. It will reduce your cost of acquisition, it will enhance the product and the technical appeal.”

e& Capital has invested in Vuz $20 million Series B. It’s an immersive social video app that offers 360-degree live streams of concerts, sports, interviews, destinations, and more. They’ve also participated in Lablabee’s $1.36 million pre-seed. In their own words, they’re a hands-on labs platform for telco cloud, “We are a practice-oriented skilling platform that allows telco operators, industrial companies, and training centers to insert practice into their training while cutting the costs of the process.”

Algebra Ventures: $100 million (first close)

Cairo-based Algebra Ventures has hit the first close, $100 million, for its second fund. They had originally targeted $90 million for the entire fund. The LPs in their second fund, according to TechCrunch, include International Finance Corporation, which is investing $15 million, Dutch Entrepreneurial Development Bank FMO ($10 million), British International Investment (formerly CDC), European Bank for Reconstruction and Development (EBRD), Egyptian American Enterprise Fund, Egyptian Micro, Small and Medium Enterprises Development Agency, The Dutch Good Growth Fund (DGGF), and some family offices from the region.

The fund will invest $500,000 to $2 million in seed-stage to Series B companies primarily in Egypt. Algebra’s second fun has already made four investments, only one of which is public: Sylndr, an online used cars retailer in Egypt. It had raised $12.6 million in a pre-seed round earlier this year.

Algebra’s notable portfolio companies from the first fund include Halan, Trella, Elmenus, and Dsquares.

The team includes managing partners Tarek Assaad and Karim Hussein, and general partners Laila Hassan and Omar Khashaba.

Termsheet Numbers

I was expecting the open rate to drop with the previous issue but it was good 48 percent. The number of subscribers has increased to 2,845.

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That’s it for today. Please don’t forget to hit the like button and share your feedback.

See you next week.

Zubair