Sink or Swim: African Startup Edition

Hey, Sheriff here 👋 

When was the last time the most promising African startup you know shut down?

For me, it was a few months ago. And it got me thinking, some markets in African tech have higher casualties than others.

Today, I’m writing about those markets.

Now, on to this week’s story….

Welcome to the graveyard

Every year, hundreds of startups launch in Africa.

Some raise millions. Some launch with a big headline, a lot of hype, and a strong promise.

And a good number of them kick the bucket.

But failure isn’t the end. It’s feedback.

So, we decided to take a walk through Africa’s startup cemetery.

To learn from the dead, and maybe save the living.

First, let’s start with…

The “everything stores” for Africa

In 2009, three brothers helped launch the first shopping site in Africa–they called it Jumia.

It was modelled after Amazon, a company the brothers had spent time cloning across different markets with massive success.

They had good reason to come into Africa.

• Internet penetration was on the rise, growing 20% a year

• Six of the world’s ten fastest-growing economies were African

• And traditional retail was already a big thing

Add these all up, and the continent seemed ripe for e-commerce.

But they weren’t the only ones reading the leaves.

Because a year later, Konga launched in Nigeria with the same promise—to help anyone buy anything they wanted, on demand.

So the space heated up.

And other players even trooped in

• Efritin launched in 2015 as a way to buy “everything” online—from phones to cars

• OLX launched its huge classifieds platform

• And DealDey had spent a few years being the marketplace for discount sales in Nigeria

With those companies came capital.

Jumia raised $850 million and was initially valued at over $3 billion when it went public.

Konga was valued at $200 million in 2014.

And between 2015 and 2022, e-commerce companies in Africa raised $4.2 billion.

Along the way, the cracks started to show—and they were big.

OLX Left Africa. Efritin shut down.

Konga ended up selling for ~$10 million, thanks to a recession in Nigeria.

And Jumia’s valuation fell 90% to $330 million after failing to turn a profit.

These companies tried to digitise retail in Africa and stumbled.

It turns out that in Africa…

People want to buy from other people.

African markets are deeply offline. 

They’re built on physical connections, trust, and familiarity.

And even when we adopt tech, it’s not a substitute for trust. 

That’s what happened with e-commerce in Africa. 

In 2022, Jumia was active in nine countries with a total population of 600 million people.

Yet, it only had 3.1 million users after running for ten years.

At the same time, more Africans were buying from informal shops on Instagram and WhatsApp.

Today, social media is the biggest e-commerce channel in Africa. 

And a new crop of startups is betting on this trend instead:

• Bumpa raised $4 million to build digital stores for physical businesses

• Catlog is helping social media businesses organise their inventory 

• And Tappi is using AI to help Kenyan businesses convert leads to cash

Whether they’ll win or not, we’ll see.

But not too far off from e-commerce is another scary market…

Logistics—where money goes to die

Delivery costs in Africa are 50% higher than the rest of the world, thanks to poor road networks, insecurity, and the occasional driver who disappears. 

Globally, a 1000km trip would take a truck two days. But in Africa, it takes six.

For companies, this costs money, time, and lost productivity.

As you’d expect, many startups sprang up to solve this problem.

• Kobo360 was founded to be the “Uber for trucks”, so big companies can move their goods faster and cheaper

• Twiga Foods set out to help Kenyans get their groceries delivered to their homes

• Sendy tried to build the DHL for manufacturers and big businesses

And these companies raised big bucks.

In 2021, over $200 million was invested in African logistics startups.

But they’ve always had one problem: unit economics.

They tend to spend more money serving customers than they make from them.

And here’s why.

In Africa, logistics is plagued by stubborn physical problems. 

Fuel prices could spike overnight, road networks are bad, and companies often rely on informally trained drivers.

For instance, Nigeria has 193,000km of roads, but only about 15% of that is paved.

When startups build workarounds, these underlying issues remain, and they’re costly.

They often absorb these costs and subsidise the real costs for users.

But, something has to give. Usually, it's their bank account.

In 2023, Sendy considered a firesale, after burning $1 million a month to serve its customers. Today, it’s bankrupt.

Marketforce, a company that helped retailers buy from manufacturers, shut down after raising $40 million.

Some spaces are money guzzlers, and logistics is one of them.

The next one is a five-letter word market that’s missing in Africa.

Giving credit where none is due

Money makes the world go round. But most of it is other people’s money.

Most economies are built on credit.

The US has $18 trillion in consumer debt within its economy.

And the world owes $100 trillion in total.

Most of this goes to investing in businesses that generate income, create jobs, and grow the economy. 

So it’s safe to say that most times, more credit equals more growth.

Africa has a big credit gap—about $330 billion.

And most of this is because banks and formal institutions won’t loan money to small business owners, who make up 80% of the businesses in Africa.

Their reasons? They mostly can’t pay back.

These people are informal workers who are mostly underbanked and have no credit scores. 

In the last decade, startups have stepped up to fill this credit gap.

They offer small, unsecured loans to everyday people to fund their businesses, cover their expenses, and get healthcare.

But the promise of these startups hasn’t matched up to reality.

On average, these small businesses pay higher interest rates (as high as 30%) to cover the defaults.

So, most people either take loans and default, or don’t take loans at all.

And the pool of viable borrowers is so small that these businesses don’t make a dent in the problem.

So we’ve seen a few storms:

Kuda Bank lost billions of naira to overdraft defaults

And Lipa Later went into administration after raising over $12 million to help Kenyans buy products on credit

Amidst the rubble, though, we have some winners.

Some players, like M-KOPA, cracked it by tying credit to products they make.

They build their phones and gadgets, and sell them using their financing platform.

People use these gadgets for their businesses, earn money, and are more likely to repay.

Now, there are many more markets where companies have tried to build and stumbled.

And they’re proof that while startup failure is normal…

Some ideas are like quicksand

In Africa, big problems don’t always mean a big opportunity.

Some problems look solvable from the outside.

They attract hype, funding, and even the smartest founders. But once you step in, you can easily get stuck.

We call these ideas tarpit ideas. And we’ve trawled the cemetery of startups in Africa to find where they are.

Here’s a quick tour:

Now, this isn’t to say that all companies in these markets will fail, or have even failed.

Some of the startups in our chart even found ways to solve these challenges. 

• Jumia is inching closer to profitability with cost-cutting measures and more focus on profitable markets. 

• Safeboda has now closed its unprofitable operations in Nigeria and is doing good in East Africa.

• And Twiga Foods clawed its way out of debt by downsizing, making new partnerships, and deeply cutting costs.

But it’s a guide to where the bumps in the road are for those building in the same areas.

So, what do you think about tarpit ideas? Do you know any other markets that fit the bill?

Hit us back with a reply.

That’s it for this week. See you on Sunday for a breakdown on This Week in African Tech.

Cheers,

The Tech Safari Team

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