Capiter and the shitshow
Good afternoon,
About two years ago, a founder reached out saying that they had raised a new round and would like MENAbytes to break the story. I asked them for details. Responding to one of my questions, they requested that they wouldn’t want me to mention the name of one of their previous investors in this piece about their latest round.
I explained that they’re being mentioned as one of the previous backers and there’s nothing wrong with that. The founder then called to share that this investor never wired the money, “They backed out.”
When I asked him how come they were part of the investor list he had shared with me when he was announcing his previous round, he explained that they had committed and signed a termsheet. The founder was pretty confident when he was announcing the round that the money would come in but it didn’t. Thankfully, the other investor(s) in the round had wired their part of the funds which made up most of the round. The investor who backed out was a relatively small contributor.
There have been multiple similar incidents.
A co-lead in one of the pre-seed rounds I had covered, backed out after the round was announced and ended up investing in a rival.
A startup that announced a significantly large round had raised that ‘round’ by giving up over 70 percent of their company. So it was basically an acquisition deal that they announced as an investment round. I found out about this a few months after writing about it, from someone close to the startup.
Here’s the thing about fundraising coverage: anyone doing that can ask questions but would have to take the founder’s (or whoever is communicating on the behalf of startup) word for it. They won’t go and ask them for receipts. That’s how it works anywhere in the world.
There are a lot of details that are missing or go unreported in coverage in spite of the best efforts of editors. The status of deals, sometimes change, even after they have been announced publicly.
I don’t have any numbers on this but I’d say it is safe to assume that the majority of coverage doesn’t have these issues.
But here’s another problem. The majority of what we are reading, at least in MENA around startup investment deals, are press releases.
(I am going to state the obvious but it is important).
It is often misunderstood here but there’s a difference between a press release and a news piece. A press release is a document prepared by a business or an individual (or an agency that it may have hired to do it) to share its story. The business has complete control over what’s in the press release. A news piece is written by an editor or reporter who after receiving or seeing the press release would normally research more on the topic, ask questions from the business (that sent it) - may even request an interview, and then write a story by taking important bits from the press release and adding a lot of relevant details that they have learned in the process.
Here’s a quick example: A business that is launching today sends a press release with a headline that reads like this, “Xyz launches world’s first beauty ecommerce platform, to hit $1 billion GMV in 18 months”.
When an editor receives it, they’d know at first glance that the headline is full of bs so they’ll either skip it or reach out to the sender with questions like, “There are thousands of beauty ecommerce platforms in the world. How are you guys the first one, what’s your plan of getting to $1 billion GMV in eighteen months, etc.”
If they run a story, they’ll make sure that they don’t call this the first beauty ecommerce platform in the world or talk about $1 billion GMV target without saying how tall of a claim it is. And obviously, there would be a lot of other details in the story that was not part of the press release.
A website that publishes press releases would publish this press release, as is.
So when you read a press release, you should know that you’re basically reading a document by the company in question and you should treat it as such.
A quick insight: B2B ecommerce for retailers has attracted hundreds of millions of dollars of venture capital in the Middle East, North Africa, and Pakistan.
When Maxab started in 2018, very little was known about business-to-business ecommerce (for retailers), in the Middle East & North Africa. They were apparently inspired by the likes of Udaan and Sokowatch to start their mission of making it easy for small retailers to procure inventory for their shops. As far as I can tell, they were the first notable player to bring B2B ecommerce for retailers, to this part of the world.
But what followed was the emergence of multiple players across different markets of the region who have gone on to raise over $430 million (aggregate).
There have been at least nine startups in Egypt and Pakistan in this category that have raised $1 million or more. In Pakistan, four startups all of which are part of the chart below, have raised $10 million or more.
Sary, the Riyadh-headquartered Saudi B2B ecommerce marketplace is the best-funded player in this category with over $112 million in funding. It raised its $75 million Series C late last year.
There are still a lot of questions around economics of these businesses especially because of the thin margins and large field workforce that they have to work with. And maybe that’s why we’re already seeing consolidation in the space. There have been three acquisitions so far - all involving Egyptian players.
Egypt’s Maxab acquired Morocco-based WaystoCap
Egypt’s Halan acquired Cairo-based Talabeyah
Egypt’s Tanmeyah (an EFG Hermes company) acquired Cairo-based Fatura.
Saudi’s Sary acquired Cairo-based Mowarrid.
Not an acquisition but Sary invested in Pakistan’s Jugnu
And now we have Capiter which is looking for a buyer after exhausting the $33 million it raised a year ago. Here’s the chart.
What’s up: Capiter and the shitshow
A quick recap for those of you who haven’t followed the news: Capiter, which as the chart above highlights is one of the best-funded B2B ecommerce startups in the region, fired its CEO and COO, according to Enterprise and different other local media outlets. The publication reported that company’s board issued the following statement:
“The board of directors of the parent holding company of Capiter Egypt LLC, a Cairo-based B2B e-commerce startup, approved a motion to remove Mahmoud and Ahmed Nouh from their positions as CEO and COO, effective immediately.
This action follows the Co-Founders’ inability to fulfill their fiduciary duties over the past week and not reporting to representatives of the Board and shareholders during on-site in-person due diligence meetings for a potential merger.
The Board has since asked Majid El Ghazouli, Capiter’s CFO, to act as interim CEO until the Nouh brothers return and allay the concerns of employees, suppliers, creditors and stakeholders. In the meantime, remaining leadership works to operate the business and continue conversations with potential acquirers, who remain interested in the Capiter asset.”
The employee accounts, rumors and reactions to those rumors had started coming out at least a week before this statement came out. But they caught pace on Friday. The social media was full of postmortems, expert opinions, and how ‘if what we are hearing about Capiter turns out to be true is going to be the death of Egypt’s startup ecosystem’ kind of takes.
To give fuel to this fire, some local news outlets started reporting that Nouh brothers have fled Egypt after stealing $33 million they raised in September last year. The same outlets also reported that the company had over 2,000 employees.
The irresponsible reporting by some outlets turned this into a complete shitshow, if it wasn’t already one.
There were apparently a lot of issues at Capiter as pointed out by some of the company’s employees on LinkedIn and other platforms. They also reflect in company’s Glassdoor rating which is 3.4. Here are excerpts from some of the reviews:
As there is no clear process for everything causes rumors and toxic environment sometime. (March 2022)
Layoffs without notice, salary or dues. (August 2022)
Everything is bad. Micromanagement in all departments and in all levels. No strategic planning. Company has no money at this moment. Horrible experience. (July 2022).
Here are bits from some of the good reviews.
The diversity of cultures and languages has given us a better experience at work and in gaining greater experience among co-workers. I started at Capiter about two years ago, and I had a complete change of field because of the opportunities I had inside Capiter with my direct assistant managers, who were and still are very influential in my growth. (March 2022)
Good salary (Maybe the highest in market). The company is growing rapidly. Work from home [option]. (February 2022)
Most of the recent reviews have given company a poor rating. The positive reviews have one theme in common: excellent salaries.
It is obvious that there were issues at the company and anyone can question how they were able to burn $33 million in a year. But stating that the founders have fled with $33 million is utter bs. They may have committed financial fraud but we don’t know that yet. Even the statement by the board doesn’t mention it but a lot of people were quick to jump to the conclusion that the company has gone down because of financial fraud.
Startups fail everywhere. Sometimes even those that have raised hundreds of millions of dollars (in fact billions of dollars). But we hardly see anything even close to the kind of reactions we’re seeing in the case of Capiter.
The founders are responsible for messing things up but if they have committed (or not committed) financial fraud remains to be seen. Mahmoud Nouh, the dismissed CEO of the company has completely denied all the allegations circulating on social media including the news that he and his brother have been dismissed.
“I deny the false allegations and that I haven’t received any official notice of what’s above [referencing the statement about his and Ahmed’s dismissal],” he stated in a statement to TechCrunch.
Earlier this week, Mahmoud shared company’s documents (dated Sep 11, 2022) on his Facebook profile saying that he and his brother are still executives of the company. The post starts with the caption ‘Fake propaganda.
The document he has shared is from the Egyptian company (normally also known as Operating Company). The statement above that was issued by the board says that they have been dismissed from the Holding Company (wherever it was incorporated - most of the startups in their region have their HoldCos in the US or Singapore). So the document that Mahmoud has shared doesn’t really prove anything. The board normally does not have any direct control over the OpCo anyway.
Mahmoud also made an appearance at a local TV show, joining in through a phone call, denying all the allegations. The interview is in Arabic but Waya has covered a lot of details (in English) in this piece. Here’s an excerpt from Waya’s report.
Nouh said Capiter have spent most of the raised $33m in their Series A round last September on operations and has records to prove that. He also shared how he and his brother attended board meetings virtually from Dubai, where his job responsibilities require him to be most of the time.
Nouh was reluctant to share details on the company’s struggles, including last year’s mass layoffs, blaming the brunt of Capiter’s challenges on the war in Ukraine and current economic struggles.
According to him, most of what’s being said on social media is false, and the majority of Capiter’s challenges were caused by the “war in Ukraine” and “current economic struggles”.
What I find baffling here is that he went on to a TV show to talk about how all the allegations circulating on social media were not true but hadn’t addressed his employees yet.
Capiter had almost no runway left towards the end of August. They had been speaking to multiple potential acquirers over the last few weeks. At least two of these companies, I have learned, were not based in Egypt.
The website of Capiter, as Racha has pointed out in this tweet has been unavailable since yesterday. I have also learned that Capiter employees are not able to access their email accounts and Slack for almost a week now.
Mahmoud who had previously co-founded Swvl with Mostafa Kandil and Ahmed Sabbah and was the COO of transportation startup until October 2019, started Capiter with his brother in late 2019.
The startup didn’t originally start as B2B ecommerce marketplace. Capiter, as this story by MENAbytes points out, originally offered on-demand cash flow solutions to small businesses and vendors, paying vendors immediately for the goods they sell to small business buyers and then collecting payments from the buyers using flexible payment plans.”
They later pivoted into a B2B ecommerce startup and raised $33 million in a round led by Quona Capital and MSA Capital. Savola, Shorooq Partners, Foundation Ventures, Accion Venture Lab, and Derayah Ventures had also participated in the deal. Foundation Ventures was the only local VC in the round. Shorooq, Derayah, and MSA had previously invested in B2B ecommerce marketplaces in Saudi and Pakistan, before investing in Capiter.
Interestingly, Shorooq and MSA Capital don’t have Capiter listed on the portfolio page of their websites anymore.
No one knows what would be the outcome of Capiter after all of this but everyone would agree that their employees didn’t deserve this.
And sorry to disappoint some of the experts out there, but this won’t be the death of Egyptian startup ecosystem. It is home to some of the best startups, founders, and tech talent in the region and it won’t go down because of one ugly failure.
Termsheet Numbers
I have added 15 new subscribers since sending out the last issue and almost all of them came from the issue as I didn’t share anything around Termsheet on my socials.
The open rate for the previous issue stands at 44 percent today which is just fine. The first and second issue had 72 percent and 56 percent respectively.
Please don’t forget to share feedback and hit the like button below.
Shukriya,
Zubair
The post and chart in it were updated to include Sary’s acquisition of Mowarrid. Thanks to a reader for pointing it out.
Lovely issue!
There was also a change in founders for Capiter in 2022, when 2 of the founder are no longer associated with the company. Would be interesting to know their thoughts on the topic.
Educational, objective and well articulated, Zubair.