The shutdown of some once-promising startups in the African tech ecosystem has dealt a severe blow to investor confidence at a time when funding has slowed down globally.
After raising significant amounts of funding, several companies including Payday, a fintech startup; 54gene, an African genomics company; and Dash, a Ghanaian fintech company, have shut down their operations.
“Two months ago, I heard that a founder was paying himself $15,000 monthly, the company packed up. This past weekend, I heard another founder was paying himself $50,000 monthly, the company packed up. Both of them, on investor funds,” Kola Oyeneyin, co-founder and director of Volition Capital, said on social media platform X.
“Like many people like me who invest in and/or back early-stage companies, I was horrified if I’m being honest. I think it’s about time we begin to talk about what it really takes to build successful companies,” he said.
When a founder, owner, or entrepreneur does not understand or practise the principles of “delayed gratification”, the death of whatever they are building is around the corner, according to Oyeneyin.
“I’ve recently found that there are really only a few founders in Africa who set out to solve real problems and create thriving businesses, others are just offering “entrepreneurship as a service”. They set out to solve their own problem, poverty,” he added.
Recently, Dash, a Ghanaian fintech startup, had to shut down after raising $86.1 million in five years from big-name investors. In 2021, the company raised $32.8 million funding from Insight Partners, Global Founders Capital, 4DX Ventures, and ASK Capital. It went on to raise additional funding with convertible notes and debt financing from October 2021 to 2022.
Dash, founded in 2019 with a mission to connect mobile money wallets and bank accounts across Africa, began sharing impressive growth numbers and claimed to have processed transactions worth $1 billion and acquired a million users from Ghana, Nigeria, and Kenya in 2021, which represented a fivefold increase in its users in only five months.
Suspicions about the company’s user numbers and metrics led to the suspension of Boakye Boampong, its CEO, in 2022. Internal audits of Dash’s numbers proved that Boampong misrepresented and exaggerated user numbers. He was eventually fired and replaced by Kenneth Kinshua.
However, the damage had been done as upon another audit of the company’s accounts, there was a shortfall of at least $25 million that was unaccounted for. There was a reported burn rate of $500,000 per month and no revenue.
As reported by WeeTracker, Boampong was earning $50,000 per month and allegedly diverted at least $8 million.
Although Payday is currently in a sell-off stage after six months of raising a $3 million seed round, led by Moniepoint, the fintech startup announced in September that it was in talks with buyers.
Favour Oni, CEO of Payday, allegedly paid himself $15,000 but slashed salaries of some Nigerian staff in July, three months after the company raised $3 million.
The company also faced serious allegations of fraud from customers who said their accounts were restricted without any explanation.
After raising $45 million across three funding rounds in two years, 54gene, an African genomics startup, shut down amid controversy and financial challenges.
Less than four years into its creation, the company fell into disarray, and Abasi Ene-Obong, its CEO, was replaced in October 2022. Over the past year, 54gene had three CEOs, including Teresia Bost and Ron Chiarello, who took office in March 2023. Chiarello left the role in July.
Davidson Oturu, a venture capitalist, said some founders started with good intentions but along the way, the need to survive pushed them towards unethical practices.
“In the past, some investors have been careless with due diligence. Or when they see that a larger venture capital firm is investing, they get relaxed and presume the other guys have things covered. So due diligence is key,” he said.
According to Oturu, investors are bothered, but if they have overextended themselves by taking on too many portfolio companies at once, their attention can’t cover each company evenly. Once these companies present good numbers, they relax, he said.
Charles Rapulu-Udoh, a tech startup lawyer, described the African startup ecosystem as nascent, pointing to the fact that the affected startups all raised millions of dollars before their failure.
“The most obvious implication of this is that the morale of investors will be severely dampened, even more concerning, given the precarious situation in the fundraising market at the moment. So, this is making matters more difficult,” he said. “However, this will not completely destroy the confidence of investors in the ecosystem.”