Launch Base Africa

In 2016, Mahmoud Nouh abandoned his ship building venture barely a year into it, and even after raising $300k in just two months of operations. He was headed for SWVL, a

bus-booking startup his friend Mostafa Kandil had just started. At that time, SWVL had industry giants, Careem and Uber to confront. Uber alone had more than 40,000 Egyptian drivers working on the platform every month, and new drivers joining up at the rate of 2,000 a week. Somewhere else far away, Ahmed Sabbah, owner of Goyastores, which he had tilled hard at for more than two years, was also about leaving, to join SWVL as Chief Technology Officer.

Yet, four years after taking the risk to join SWVL, both men still have one strong thing in common: quitting even SWVL and moving on.

“Mahmoud has been a major pillar in the company since day one,” SWVL noted in a farewell statement on Nouh in October, 2019. “His contributions to building SWVL from being a small startup in a tiny room to a major player in the transportation scene are countless. He is the mastermind behind building SWVL’s bus fleet and its operations.”

For Sabbah, it was such an emotional moment to leave.

“Yet.. everything in life has a beginning and an end and after four thrilling years, my SWVL ride is ending,” Sabbah wrote in a social media post.

“The SWVL journey has pushed me, and many of us, to be better than we ever thought possible — from challenging us with intense hard work and executing at breakneck speed to tapping into our grit and resilience,” he said. 

Even though it is arguably expected that founders would, one day, seek exit from the startups they founded, it is important to comprehensively understand how most African founders, of both existing and non-existing startups, have handled this point in their lives.

Finding A Space On The Board

One recurring thing most African startup founders have done when it comes to exiting startups they founded is to find a space on the startups’ boards of directors.

This is usually the case where moving away from a startup entirely may be counterproductive, especially if the exiting founder previously oversaw the technical or other key departments of the startup, and there have not been adequate succession plans in place to absorb the impact of any exit.

Also, where there is uncertainty as to how the remaining percentage of the shares held by the founder may vest, especially if the founder quits before his or her shares in the company become fully vested, moving to the board may become an option.

Migrating to the board gives founders the chance to assist startups in absorbing the impact of their exit as well as re-negotiate their unvested shares.

Being part of the board, whether in an executive or non-executive director capacity, will also give founders the time to explore other opportunities as there is no limit to the number of companies they can be part of as directors, provided the multi-roles would not hamper the performance of their roles for the startups and that they have negotiated good deals in their contracts of directorship with the startups.

Notable African CEOs have taken the route of board membership upon exit from the startups they founded.

One founder whose exit via the board is worthy of mention is Grant Brooke, former CEO of Twiga Foods, who ran the Nairobi-based agritech startup for 6 years before handing over to Peter Njonjo, who has years of corporate experience, including a 21 year stint at Coca Cola Company where he led the multinational’s West and Central Africa business unit as President.

Upon resignation as CEO of Twiga Foods in 2020, Brooke moved to the board of the startup, and has remained there since then.

The board membership has allowed him to found, in 2020, another startup, Shara, which is building tools for SMEs in Kenya, Nigeria, and Zimbabwe.

This, he would not have been able to do if he were still the CEO of Twiga Foods.

“If my leadership was the period in which Twiga was proving a point that there’s a better way to build food safe and secure markets, Peter’s leadership will be about institutionalizing this way of doing business and scaling it. Peter’s experience in building efficient supply chains and last-mile distribution in over 33 African countries makes him uniquely suited to lead us,” said Grant Brooke at the time he left.

In essence, exiting as a founder via the board may also be a way of giving way for more experienced hands to drive a startup to the next stage.

Every founder wants to feel needed by their company. So there is one thing they just don’t want to let go of. Usually the thing they are best at. But often, a specialist will be better than them, and it’s better that they oversee that thing.

— Mark Essien (@markessien) October 14, 2019

Falling Back To A Whole New Venture

The best thing Marie Lora-Mungai, former CEO of Buni.tv could do when her startup was acquired by Trace Tv in 2016 was to fall back to Restless Global, a strategic advisory and content development company specialized in the African entertainment space, which she had founded a year before Buni.tv’s acquisition, in 2015.

Similar strategy was used by former Chief Operating Officer of Nigeria’s Jobberman, Olalekan Olude, when he resigned his position with the startup in 2017.

Olude moved that same year to Rovedana, a staffing and payroll financing services platform for SMEs in Nigeria which he had previously founded, and later to CicoServe Payments, a grassroots bank in Nigeria.

Most former CEOs and founders of African startups have equally explored the route of venture capital and angel investing, immediately after quitting their startups.

This is the case of Mark Forrester, former co-founder of WooCommerce, a South African startup that was sold in 2015 to web development company Automattic (WordPress) in a deal estimated to be worth over $30 million.

Forrester has since moved on to become an investor, investing in startups such as IoT security and automation platform Sentian; mobile creativity app Over; community-based security solution Jonga; and online grocery delivery service Yebo Fresh.

No matter what route exiting African founders took, one thread almost always runs through: they already have wall chests of resources and well-drawn-out plans about their next moves.

A majority of them ended up proceeding to found new companies as they had promised in their farewell speeches; with some moving on to entirely different endeavours.

However, it is not often easy for co-founders whose exits were forced, such as in cases of outright dismissal or resignation on the ground of gross misconduct, to move on from their exits.

A year after Kennedy Nganga — the technical person once in charge at Safi Analytics (a Kenya-based smart metering startup) — was asked to go, by foreign co-founders Lauren DunfordandWeston McBride, all appears not be well for the young man, even though he has since moved on to Techpreneur School, a platform that facilitates training and mentoring of upcoming entrepreneurs by experienced ones.

#StartupbillKE #businessnow

I only hope this bill will help stem the culture of exploitation and technology theft from local innovators. Still out here fighting for justice about this issue. https://t.co/MoyHGtKqF4

— Kennedy Nganga (@kenwes254) October 12, 2020

Similar fate seems to have also touched African founders asked to go on grounds of fraud or sexual misconduct.

Ever since Anthony Kariuki, former CEO of the Nairobi-based fintech startup Alternative Circle was asked to leave the startup in 2017 — after barely a one-year stint as CEO — on grounds of sexual misconduct allegations, he has disappeared completely from limelight.

This is also the case for Daudi Were of another Kenyan startup, Ushahidi, who was asked to go in 2017 after nearly a ten-year stint as CEO.

The best way of explaining the after-effects of such disappearances forced by dismissal or crime allegations is that the affected founders were literally caught off-guard and had never, maybe, thought of leaving their startups soon.

In light of that, it is therefore imperative for startup founders to design solid personal succession plans from the outset of their participation in startups.

A good succession plan should cover all the possible permutations of their lives on the startups.

But then, a well-intentioned approach, aimed at first assisting the startup to fulfil its vision and mission should always be preferred, as most times beginning with ulterior motives in mind has, almost always, killed so many startup teams — and startups themselves — around the globe.

Moving In-House Under A Holding Company Structure

This is the second option — apart from moving to the board — often explored by African founders whose startups were acquired.

In most cases, this is enabled by a provision in the acquisition agreement that allows the founder to become automatically employed in a new role at the acquiring company upon acquisition.

The agreement may allow the founder to exit after some time, usually after the acquired startup has properly settled into the acquiring company.

This path has been hugely explored by most South African founders.

Hannes Van Rensburg, former CEO of South African startup, Fundamo City — which was bought by credit card company Visa in 2011 for $110 million — moved over to become Senior Vice President, Visa from 2011 to 2014.

Same for Chris Pinkham, former CEO of Nimbula — which was acquired in 2013 by software titan, Oracle for $110 million. Pinkham went on to Oracle as Senior Vice President, Cloud Product Development from 2013 to 2014

When Every Other Thing Fails

African startup founders faced with exit dilemma have also explored different paths, apart from those stated above.

Former CEO of Nigerian ecommerce company Konga, Sim Shagaya, saw a cool-off period — during which he was still sitting on Konga’s board as chairman — of almost three years, returning only in 2019 to launch uLesson, an edtech startup.

Tonjé Bakang, CEO of failed music streaming startup Afrostreams, has since assumed a lecturing role at Sciences Po, a research-based university based in Paris, France. Tonjé is, today, also a serial seed investor.

Tricia Martinez, of failed crypto startup Wala, has equally moved on to work for the U.S. Department of Energy’s Artificial Intelligence and Technology Office as a policy fellow.

However, it is worthy of note that not all founders of failed African startups shunned entrepreneurship entirely, afterwards.

Barrett Nash, whose startup CanGo (formerly SafeMotos) folded up in 2020, has found a new life since March 2020 at InfiniteUp, a startup that is digitizing MSMEs across

sub-Saharan Africa.

This is also the case with Abdulhamid Hassan, who ran two failed startups — OyaPay and Voyance.

After refreshing at Paystack as Product Manager, Hassan came back to co-found a Y Combinator-backed fintech API startup, Mono in 2020.

“…I just took another risk leaving one of the leading companies in the AI space in Europe to move back home for no salary but I love every minute of this new hustle!” Wrote Hassan in 2018, on the occasion of the death of one of his first startups.

What Happens To The Unvested Shares?

There are no hard and fast rules about vesting shares, but standard practice is that once the founder has exhausted the period of such vesting and the ownership of the shares have fully accrued to him or her, then no further rules apply except, of course, that the founder is at liberty to dispose of the shares in any manner he or her desires.

Problems however arise where the founder exits before the shares become fully vested in him or her.

The general rule in all cases is, however, that a company has an option to repurchase unvested shares if a co-founder ceases to work for the company for any reason or fails to make the expected contributions he or she has agreed to make.

In any case, the agreement between the founder and the startup may also make room for accelerated vesting, in which case the shares held by the founder go against the natural course of time earlier agreed between the founder and the startup, allowing the founder to be entitled to all the shares due to him or her in a shorter time period.

But this mostly happens if the startup is going through Initial Public Offering (IPO), take-over, mergers and acquisitions, sale of more than half of the company’s assets, among unlimited possibilities.

At the end of the day, what matters in vesting shares is always the agreement between the founder and the startup; and it is important that the founder’s agreement covers this; and at the same time, leaving room for future amendments.

This is one way to take care of uncertainties arising out of a founder’s exit.

This article first appeared on Afrikanheroes.com, written by Charles Rapulu Udoh, a Lagos-based lawyer and writer.

Uganda’s Numida knew nothing would ever stop it from implementing its business model. It had secured partnership deals with microfinance institutions in the East African country, and was supplying data on a regular basis about small and medium scale businesses desiring to obtain credit from the institutions. At first, it was a smooth sail, but not until nine months into the deals. The microfinance institutions froze their communication channels with Numida, placing them incommunicado for countless days. Piles of new loan applications and data points were mounting, and Numida’s life was hanging on a cliff.

The issue was simple: there was no confidence that the loan applicants could pay back. Their books had all the facts to support that, against whatever data Numida was throwing about. The businesses simply lacked sufficient collateral and carried with them huge credit risks. As a result, Numida had to take the most significant detour since its inception: becoming a microfinance bank itself.

“…we thought among ourselves that if our mission is to unlock access to resources that these mom and pop shops need in order to grow their businesses, we’re not going to do that by partnering with these traditional MFIs; we had to do that ourselves,” said Mina Shalid, Numida’s co-founder.

After multiple revisions, the firm went live in October 2019, with the CEO claiming that startup’s lending had increased by 6x. To date, it has disbursed about $250,000 a month of unsecured credit to 3,000 micro and small enterprises in Uganda, totaling more than $2 million (the CEO explained that this is due to outstanding collections, repayment rates, and customer retention.)

From Numida to Nigerian ride-hailing startup MAX, pivot is usually the most critical point in a startup’s history, because it could as well signal the very end of the startup’s entire journey.

The now dead East African delivery startup, CanGo, understands this better. CanGo’s accidental pivot to win the trust of investors probably went beyond the limit of the startup’s elasticity.

Before altering the business line, the startup had been into transport operation in Rwanda since 2014, operating a commercial motorcycle business called SafeMotos.

The pivot — or change in the company’s business model — in September of 2019 meant that it became a taxi-moto hailing company stretching operations to Kinshasa instead of a

bike-hailing platform.

The result of this move was completing 500,000 trips in Kigali, even when industry giants such as Uber were already on ground.

In simple and clearer terms, CanGo changed its business strategy to meet the ends — leaving the rags behind and “bootstrapping with a brand new pivot”, but the results were not favorable.

We dig deeper below, identifying and analyzing some of the most successful pivots in the African startup ecosystem, as well as the lessons learned from them.

Pivot By African Startups Is In Most Cases Inspired By Learnings From Existing Products

Unlike in most cases where changes in business models were forced by government policies or certain unforeseeable events, such as the COVID-19 pandemic, most pivots by African startups stemmed out of natural learnings by startup teams.

This is central to the pivot experienced by Ugandan asset financing startup Asaak, which recently closed a $30 million pre-Series A loan and equity capital from Resolute Ventures (USA), Social Capital (California, USA), HOF Capital (New York, USA), Founders Factory Africa (South Africa), End Poverty Make Trillions (California, USA) , Decentralized VC, and a number of angel investors.

Asaak’s original lending model focused mostly on farmers and SMEs. However, the firm eventually pivoted its focus to motorbike finance in 2019.

The company’s co-founder and chief business officer Dylan Terrill said by financing these types of assets, Asaak is not just creating a pathway to vehicle ownership, which is good in itself, but also creating a stable source of income because of the reliance of drivers throughout the countries that the firm is in.

Since the pivot in 2019, Asaak has financed the acquisition of 5,000 motorcycles and has begun supplying the operators with smartphones and fuel funding. This is perhaps what convinced the investors more to throw their weights behind the six-year-old firm.

However, sometimes the learnings may take place in an organized, learning environment. This is the case with Nigerian e-pharmacy DrugStoc, which pivoted immediately a year after its incubation at Stanford’s Institute for Innovation in Developing Economies.

Prior to that, DrugStoc’s business model was built only around the concept of a tech-based platform that connects manufacturers and distributors. The pivot meant that DrugStoc had to be a distributor itself.

“I think we came out of Stanford with a better understanding of business modeling and value chains than we understood it as a pilot phase,” said co-founder Adham Yehiaon the incubation program.

“We decided we need to get a distribution license, and to do this the pharmaceutical way. And to do this the proper way, we needed to buy directly from the manufacturers and create the value chains internally,” he said.

The pivot into building an independent distribution network gave DrugStoc an edge. Barely five years after the pivot, DrugStoc connects 400 manufacturers with 3,200 doctors,

hospitals, and pharmacies. The platform’s monthly sales have also increased by over 1,500 percent in the last three years.

African Startup Pivots Almost Always Follow Funding

The general rule appears to be that pivots usually precede funding, and must be supported by traction, but in order to shore up the uncertainties associated with pivots, some startups in Africa have preferred major product pivots to immediately follow funding rounds.

Perhaps this is why it is still contentious that startups such as CanGo could not have failed if its pivot had come after funding. CanGo, for instance, pivoted into a taxi-moto hailing company, stretching operations to Kinshasa instead of its original bike-hailing model.

The startup raised $1.1 million to support its delivery business from inception in 2015 up until it shut down in 2019.

Therefore, its sudden transition into ride-hailing in an uncertain environment like the Central African markets, where the likes of Uber were already on ground, further put a major strain on the company’s resources.

Barrett Nash, CanGo’s co-founder, admitted this in his farewell address, stating that “tectonics in venture capital investing change quickly.” “While investor enthusiasm and interest has been high, it has not translated to checks being written,’’ he said.

One good example of this nature of pivot is that of Egypt’s food ordering platform Elmenus. The startup changed gears from food discovery to online food ordering and delivery services after it raised a $1.5 million Series A round led by Algebra Ventures in 2017.

However, it must be noted that this is more prevalent with startups looking at making vertical integrations within the same industry. This explains why it was relatively easier for Elmenus and Uganda’s gnuGrid to effect such pivots.

gnuGrid’s pivot was inspired by insights its gleaned from its solar energy business. The gnuGrid solar energy hardware is bundled with digital payments, predictive analytics, and so it was reasonable that the company had to make a seamless switch into a licensed credit reference bureau on the back of its $612,000 seed round.

In most cases, investors may, however, be wary of investing in startups that have not gained considerable traction from their pivots. This is especially true if the startup is moving entirely into a new industry. When this happens, the pivots must almost always be backed by investors, because their funds may be exposed to too many risks. A good example of this is Nigeria’s Crowdyvest which moved away from its original model of allowing users to sponsor high-impact opportunities with high yields to a digital savings model. The change in the business model followed a new investment and support by the investors for the startup to pivot.

Zambian fintech startup Zazu’s pivot in 2017 also followed a similar pattern. Before raising its last round of US$1.4 million, the startup made sure it altered its business model, entirely from that of an agritech firm allowing Zambian farmers with extra produce to connect with new markets, to that of a digital banking platform. Following the alteration in the business model, the startup’s fintech platform was used by over 1.1 million people prior to the investment.

More Pivots Have Happened Within Than Outside The Same Industry

It is usually very common for startups in Africa to pivot within the same industry than to move 360 degrees out of the industry.

In most cases, startups have often relied on pivots to expand the categories of product offerings available to them, such as South Africa’s Carry1st, which pivoted from being a game studio to a full-stack game publishing, distribution, marketing, and operations solution; as well as Stockup, which moved from an online platform for the purchase and delivery of beverages to an on-demand delivery solution in order to expand the categories of its product offering beyond just alcohol.

The table below shows that a majority of changes in the business models of African startups have happened within the same industries.

How African Startups Handle Brand Configuration After Pivots

In most cases, startups after pivots, have had to introduce new product suites to reflect the changes.

Immediately after pivot, Nigeria’s Crowdyvest, for example, introduced new products such as Flex Savings, Vault Savings, Pace Savings, Flex Dollar Savings. In majority of the cases, startups relaunch under different names.

However, where the new industry the startup is exploring requires a new operational license, the startup may bear a different name entirely. This is the case with Ugandan ride-hailing startup Safeboda which recently acquired a fintech license under a new name Guinness Tech Uganda Limited.

This article first appeared on Afrikanheroes.com, written by Charles Rapulu Udoh, a Lagos-based lawyer and writer.

Zumi, a Kenyan e-commerce site that sold non-food items, recently shut down after its funding ran out, adding to the increasing number of digital companies that have failed recently in Kenya.

William McCarren, the co-founder and CEO of the company, said on LinkedIn that the move would result in at least 150 people being let go due to fundraising challenges that threatened viability.

“With a heavy heart, I share the news that Zumi will be closing its doors. The current macro environment has made fundraising extremely difficult, and unfortunately, our business was not able to achieve sustainability in time to survive,” wrote McCarren.

According to Crunchbase data, Zumi raised more than $920,000 (Sh120 million) in investment since its founding in 2016, and according to McCarren, the company had 5,000 clients and over $20 million (Sh2.6 billion) in revenue during that time.

Zumi, which began as a women’s-focused digital magazine, withdrew from the media business and switched to e-commerce after experiencing difficulty generating enough cash from digital advertisements.

The company’s decision to shut down is part of an ongoing pattern in which promising digital firms have been going out of business one after another, with the majority of them claiming challenging market circumstances and financial challenges.

As Kune Foods, Notify Logistics, WeFarm, BRCK, and Sky-Garden closed their doors in the past year, hundreds of jobs were lost, making the latest shut down the seventh tech start-up with headquarters in Kenya.

Sendy, for its part, shut down Sendy Supply, a platform for trading between retailers and suppliers, and reduced its personnel by 20% in October.

Here are a few lessons to be gleaned from Zumi’s shutdown

• Fundraising is critical: Zumi’s demise serves as a warning that startups must prioritise and must continuously work on its fundraising strategies in order to stay in business. Startups may struggle to exist without proper finance, especially during difficult economic
• Another takeaway from Zumi’s experience is the need of creating an effective business model that can create long-term profitability. After failing to earn money from digital adverts, Zumi pivoted from a lifestyle and fashion-focused media platform to an e-commerce site. Nevertheless, the shift was not effective, and the firm was finally shut down. Before beginning on any substantial pivot, startups should verify that they have a sound business model that can produce sustained
• Additionally, founders must have a thorough understanding of the industry-specific difficulties and the market they are competing in before setting out on the startup It must be admitted that founder William McCarren struggled to identify more specific obstacles that Zumi experienced in the Kenyan market, as well as the strategies used to overcome those obstacles. The effect of Zumi’s transition from a media platform to an eCommerce platform (a 360-degree turn) on the company’s fortunes is also not extensively investigated.
• Additionally, startups must be adaptable and willing to pivot or modify their business models if initial strategies fail to provide positive Nonetheless, pivoting should be done with caution, taking into account the possible influence on the company’s operations and finances.
• Again, financial sustainability is important: Businesses must prioritise financial sustainability from the start, establishing a clear route to profitability. Failing to attain sustainability can result in closure, as was the case with Zumi. It is interesting to note that Zumi could not attain sustainability despite recording over $20 million in
• Tough market circumstances are a reality: Startups must prepare for the business landscape’s demanding market Startups need to have a robust business strategy that can endure market volatility and unpredictability.
• Learn from failure: Other business owners can benefit from Zumi and other Kenyan startups’ shutdown by taking note of their mistakes. When Zumi’s scenario is compared to that of other Kenyan startups, it is clear that they all face the same funding and market viability Yet, it is vital to remember that each of these firms had distinct obstacles that contributed to their death. Kune Foods, for example, had to struggle with high production costs and little market demand. BRCK, on the other hand, struggled with scalability because to the high cost of hardware fabrication. Understanding the causes of failure can assist avoid repeating the same missteps and improve the likelihood of success in the future.

This article first appeared on Afrikanheroes.com, written by Charles Rapulu Udoh, a Lagos-based lawyer and writer.