Back in 2018, a group of three very ambitious entrepreneurs from Angola, Ghana, and Nigeria launched a trading platform that was going to change the game for crypto exchanges. They resigned from their jobs and used up all their savings to build KuBitX.
Over the next three years, money from angel investors, friends, and relatives trickled in. Altogether, the company raised over a million dollars, however, things were not as smooth as you would hope, trying to stay alive proved hard, the startup pivoted from being a crypto exchange and into a blockchain payments system to be used across Africa. KuBitX did not survive though, with the CEO resigning in May 2021.
French entrepreneur Robin Reecht founded a food startup, Kune Food in 2020 that aimed to provide busy, modern Kenyans with access to freshly prepared meals at affordable prices by delivering ready meals at almost half the typical price of restaurants and fast food.
By January 2022, Kune Food had raised $1 million in pre-seed financing from local and international investors. Just like KuBitX, things were not panning out so the startup pivoted from being a fully integrated foodtech platform (including everything from food production to delivery) to become in effect a virtual restaurant relying upon delivery aggregators it had sworn to disrupt before finally closing shop in June 2022.
Building a startup without the technical know-how
Africa is a very fascinating continent with so much opportunity, founding and growing a startup in the continent is perhaps an even grander adventure than scaling Mt. Kenya or rafting on the White Nile.
Whether you’re from here, or you’ve just come to visit, there’s a very active startup scene to take advantage of. Being a very young continent means underdevelopment, this means securing financing is a little easier than most. It actually appears like there’s a wave of venture capital (VC) financing flowing all the time into the entrepreneurs who are trying to solve some of the continent’s biggest challenges.
But then comes the big problem, it’s the money, it’s always about the money. Just like any other business, startups need more than money. For some reason, most of the founders out here seem not to know about this, or they do and just don’t care a fig, it’s most likely the latter. Of the numerous reasons why the state of startups in Africa is in shambles is because some of these startups have no real value to the continent, they fix problems that don’t exist and are honestly just cash cows.
There is no innovation and the leadership is just meh. How these startups keep raising funds on weak business models with poor planning, faulty customer insights, and lack of original ideas, focus, agility, and capability leads me to assume there is a deeper rot than we know about.
Valued at $3 Billion, Flutterwave recently became the highest valued African start-up. the Nigerian fintech company came under scrutiny on April 12 after West Africa Weekly, a Substack newsletter by journalist David Hundeyin, stated the startup’s founder and current CEO Olugbenga Agboola was involved in dubious business and personal practices.
David says Agboola created a phantom ‘co-founder’ identity to give himself more shares in the company’s early days and offered share prices below the company’s valuation to employees who wanted to cash in on their vested options. These employee stock sales then went to an investment vehicle Agboola controlled.
Agboola refuted these claims.
This week, a High Court has frozen more than $52 million spread in 62 bank accounts belonging to Flutterwave on fears they are proceeds of card fraud and money laundering.
On March 1st, dozens of African startups banking with Mercury, an American neobank for small businesses had their accounts suspended. In emails sent to the affected companies, the bank noted that its compliance team had flagged the accounts for suspicious behavior.
Investors (read criminals) are funding some of these startups because the scene is fairly new and maybe because authorities target very large-scale money laundering operations, these investors can evade scrutiny quite easily.
The money is then layered, separated, and spread around and finally, the leaders of these startups cook a bunch of books to make it look like these cash infusions have been earned legitimately by say, fixing a problem that doesn’t exist.
The startup owner’s predicament: After finding an investor for your startup, raising a few rounds, and misusing funds, your business which is fixing air must come under scrutiny, business is slow and you can’t possibly cook enough books to make a return on the investment. You come under investigation, you’re up against the investor, no cash, and the government and eventually, you’re forced to close, well unless you sell or get new investors which is unlikely to happen.
While Africa is sizzling with startups at the forefront of their industries, leading change and solving some of the continent’s most pressing problems like food security, cybersecurity, and of course payments, there is a rot in the system that needs weeding out.