African startups are getting cozy

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2024 has been a busy year for mergers and acquisitions in the ecosystem.

This week, we’re looking at what’s behind this trend and how M&As are giving startups a new lifeline.

Let’s get into it.

Last month, Nigerian fintech Risevest acquired Hisa, a Kenyan startup that lets people buy stocks in global companies.

Eke Urum launched Risevest in February 2020 to help Nigerians invest in dollar-backed assets.

At the time, Nigeria was struggling with crazy-high inflation.

And the Naira had lost 1000% of its value over the past two decades.

This meant that anyone saving money in Naira was losing out.

Seeing that the dollar is more stable, Eke figured that dollar-based investments could help people protect their money.

So he launched Risevest - a wealth management startup.

In one year, Risevest pulled in over 60,000 users.

Four years later, that number has gone up tenfold.

And now, with Hisa in their pocket, they’re rolling up their sleeves for East Africa’s biggest market.

This acquisition means a lot for the ecosystem.

It helps Risevest break into the Kenyan market, while Hisa gets the backing it needs to grow even bigger.

But, it's not the first time in the past year we’ve seen two African startups team up:

• In May, South African payment company Adumo was acquired by Lesaka for $85.9 million.

• Two months ago, Kenyan e-commerce startup Wasoko merged with Egypt's MaxAB.

• And last month, global accounting software giant Xero began acquiring South African AI financial platform Syft for $70 million.

We’ve had a busy year for mergers and acquisitions on the continent.

But what’s behind this trend in an ecosystem famous for its few exits?

First, a trip back to 2023

2023 went savage on growth startups across Africa.

Venture funding hit $2.9 billion, down 39% from 2022.

And when we look closely at equity funding, it took a bigger hit, dropping 57% to just $1.7 billion.

With the cash drying up, startups had to make some tough choices to keep the lights on.

Chipper Cash slashed its valuation by 70%, down to $450 million to raise money.

Cellulant and mPharma laid off employees multiple times to reinvent their businesses.

And sadly, some big names like Sendy and 54Gene didn’t live to tell the story.

But tough times don’t just knock us down. They teach us things.

One of the big takeaways from last year was how startups can stretch their runway without relying too much on VCs.

And in response:

• Debt funding went up by 47% to $1.1 billion.

• While founders and investors rallied around one message: get lean, get profitable.

Getting lean and profitable has pushed more startups to focus on what makes them money. Not just scaling.

Which is why, others, like Wasoko and MaxAB, are coming together to share the load and chase after a bigger piece of the pie together.

When Loss + Loss = Profit

M&As let companies do more with less.

And nowhere is this lifeline needed like in B2B e-commerce, where startups are helping African retailers order goods online.

But the sector is tough.

It has very slim profit margins, and it’s taken down even big players like Copia.

As investors become less confident, the startups still standing are under pressure to prove they can turn a profit.

Wasoko and MaxAB are getting there.

Last December, when their merger became public, they had over 4,000 employees in eight markets.

Now, they’re down to only five and laid off about 10% of their staff.

Belala El-Megharbel, CEO of MaxAB, stepped up in Kenya and slashed monthly spending from $2 million to $500,000.

And Daniel Yu, CEO of Wasoko, says these changes helped them profit in three out of five markets.

“Both companies were losing money mainly due to overhead costs. By combining overheads, we’ve significantly increased the efficiency of these fixed costs, leading to better proportional profitability.”

Small startups are seeing the big picture

For startups like Hisa, getting cozy with a bigger, deep-pocketed player is not just about saving money.

It’s their ticket to scaling up in a tight market.

Kenya, where Hisa operates, has 1,477,959 registered retail investors.

Yet only around 6,840 have actually made trades each month this year.

And it’s not just a problem in Kenya.

Back in 2019, Nigeria had around three million retail investors in its capital market, making up just 3% of the total adult population.

Right now, only about 5% of Nigerians are investing in stocks.

Individually, these markets are small, especially with competitors like Bamboo in Nigeria and Ndovu in Kenya.

But Risevest, after acquiring the Nigerian trading platform Chaka last year and now Hisa, wants to be the biggest platform for retail investors in Africa.

Eke Urum, the founder of Risevest talked on X with Fatu Ogwuche about growing their potential market.

“We’re thinking about how to make investing more exciting all across the continent, and what this will look like for our products.”

2023 was a tough year.

But, it made everyone in the ecosystem think differently.

The increase in mergers and acquisitions is one way startups are reacting to a cold funding climate.

They're focusing on being leaner and more profitable, instead of scaling aggressively while bleeding money.

We can already see Wasoko and MaxAB making gains, and we’re watching Hisa and Risevest to see how they handle what’s next.

Do you think M&As could cut how much the African ecosystem relies on venture capital?

Hit reply and let us know.

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