Beating COVID: African Startups Share Business Model Tweaks & Funding Plans

Startups

Beating COVID: African Startups Share Business Model Tweaks & Funding Plans


July 7, 2020

The global pandemic has undoubtedly been a nightmare. Just as the humanitarian toll is staggering, the impact on the global economy has been devastating. There’s hardly any indication that the worst has come and gone, but it does seem like the initial shock has subsided.

However, that takes nothing away from the fact that the rapidly spreading coronavirus pandemic has put immense strain on large businesses and startups alike. Investors are on edge, valuations have shrunk, and skilled workers have been laid off across industries.

Indeed, the largest economies in Sub-Saharan Africa are expected to contract by the highest margin in 30 years. Sub-Saharan Africa, as a whole, is set to slip into its first recession in 25 years.

In the best-case scenario, the highest economic growth forecasted for any African country is 1 percent. Many countries are now seeking relief funds from institutions like the World Bank, the International Monetary Fund (IMF), and the African Development Bank (AfDB).

But it seems all those tales of doom and gloom are now giving way for optimism and the recognition of opportunities, as exemplified by a number of African startups that have opted to see the silver lining in the form of unique openings that the crisis has created.

When the virus first hit Africa in February, many nations went under total lockdown while others imposed strict curfews as part of social distancing measures. This crippled many industries, even as it promoted a few others.

While travel startups, agritech ventures, ride-hailing companies, and coworking spaces took a hit, e-commerce, logistics, edtech, and, to an extent, healthtech, sort of thrived. But even at that, economic constraints meant that pay cuts, layoffs, and furloughs happened across the board, as working-from-home (WFH) became the new normal.

In any case, many African startups have since moved on from the shock and grief, so to speak. Instead, as the pandemic rages on, these startups are now bracing for innovation opportunities; making the proverbial lemonade out of lemons. 

WeeTracker spoke to 10 tech startups in Nigeria and Kenya that have collectively raised more than USD 125 Mn to date — from industries such as fintech, healthtech, e-hailing, agritech, e-commerce/marketplace, and logistics — to learn their views on their business prospects and fundraising strategies for the coming year amid the uncertainties. 

Generally, the startups interviewed — which include Sky.Garden, Flutterwave, Farmcrowdy, Medbook, Paystack, Onesha, ThriveAgric, Plentywaka, Sokowatch, and Kobo360 — are looking to make the most of the present tough realities, and some are even conditioning themselves for further fundraising despite perceived investor edginess, which manifested in March especially when total funding dropped to USD 16 Mn.

How the startups adapted to COVID-19

Once nationwide lockdown and curfews became the government’s go-to COVID-19 management policy in various nations, many startups went fully remote; both those that had prepped for it and those that were blindsided by the directive.

As working-from-home became the norm, it became imperative to keep staff motivated and fashion out new ways to get around the hurdles while addressing the pain points that emerged.

A common theme among the startups interviewed is the adjustment of operations and the launching of new offerings that address the demands of the times (with a particular interest in online commerce). It was a case of staying nimble enough to swim with the tide, instead of against it.

Since social distancing was talked up as a way of minimizing physical contact, which in turn checks the spread of the highly-contagious virus, startups took the initiative to innovate around providing society’s most pressing needs “contactlessly.”

“We had to switch to our business continuity plan which supports the whole team working remotely over our cloud-based servers with real-time interactions within the team and other external stakeholders,” said Onyeka Akumah, Founder/CEO of Nigerian agritech startup, Farmcrowdy.

“In contributing to slowing down the contagion in Lagos state particularly, we launched a new solution called Farmcrowdy Foods to get fresh food to the doorstep of residents of Lagos,” he added.

Does the “e” in “e-commerce” actually stand for “everyone”?

With movement restricted, online commerce offered a reliable conduit for the continuation of trade and provision of necessities. And many startups got in on the act.

Just like Farmcrowdy, another Nigerian agritech, ThriveAgric, went beyond facilitating individual/corporate investments in agriculture to providing for the online purchase of food, as well as the supply.

“The first thing we did was check for pain points and we found out that a lot of consumers did not have access to food because of the restriction in movement. So we partnered with logistic companies to deliver essential food items to people in their homes from the farms. To make that happen, we built a simple webpage where people can order food items and have it delivered to their doorstep,” said Uka Eje, its CEO.

Olugbenga “GB” Agboola, who co-founded Nigerian fintech, Flutterwave, mentioned the swift execution and roll-out of the startup’s e-commerce solution, Flutterwave Store, as something that was informed by the need to keep other businesses and by extension, its own business, going.

“With lockdowns in place, businesses had to find ways to sell online, so we created a simple product called Flutterwave Store. It is an e-commerce solution that helps businesses get online with minimal hassle and coding involved. Businesses are able to post their inventory online, send links to their Flutterwave Store to customers, and have deliveries handled by our delivery partners,” he explained.

Another Nigerian fintech startup that was interviewed, Paystack, is also making similar moves with the newly launched Paystack Commerce which, as the startup revealed, comes with a direct Wix integration.

As fintechs forayed into e-commerce, an industry that is experiencing a boom in Africa due to the pandemic, Sky.Garden (a Kenyan e-commerce company) strengthened its capabilities.

“As online shopping becomes the go-to medium, we are seeing an upsurge of new customers and as a result focused on optimising our UI and UX processes,” said Daniel Maison, CEO of Sky.Garden

“We are working to make our checkout process easier especially to customers who might have not previously interacted with any e-commerce platform prior to ours.”

Similarly, Daniel Yu, Founder of Kenya-based B2B e-commerce startup, Sokowatch, told WeeTracker that his platform rolled out an e-voucher scheme to ensure essential goods were made available to those who were most affected economically.

This gave a lifeline to households and local shops in slums that do not always have smartphones or addresses where goods and foods can be delivered.

Bernard Momanyi Nyagaka, Co-Founder/CEO of the Kenyan marketplace for creatives, Onesha, told WeeTracker that they “renegotiated with creatives to reduce their rates on services such as e-commerce web development and social media marketing since most businesses will be looking for partners to help them shift to digital.” 

He also said Onesha has been able to help a number of businesses shift to digital and is looking forward to helping more digitize their operations.

How about transport and logistics?

Along with agriculture, retail, and services, transport is among the sectors worst-hit by the socio-economic fallout of the pandemic. 

E-hailing, in particular, went bust in March and April when ride-hailing and bus-hailing startups were forced to suspend operations. But even before halting their services, there were indications that e-hailing had taken a beating.

Additionally, unclear directives around essential services exempted from the movement restrictions put in place also affected logistics companies for a while, though on-demand delivery services in Kenya have registered a tripling of orders within 2 months of the lockdown period.

For Kobo360, the e-logistics platform for trucks with operations in Nigeria, Ghana, Kenya, Togo, Uganda, and Ivory Coast, the pandemic amplifies the need to keep goods moving despite the hurdles at the ports and on roadways.

“We are continuously speaking to our network of port authority operators, suppliers, drivers and manufacturers, even struck key player partnerships to pool our resources to ensure that movement could continue; from cross-border to intra-state and last-mile deliveries,” said Ife Oyedele II, co-founder of Kobo360.

He also explained that the startup is helping to reduce the logistics spend of its customers by optimizing for transporters by bundling trips and negotiating reasonable discounts with its value-added services vendor partners.

Plentywaka, a bus-hailing service that only kicked off in Lagos last year, revealed that, like other e-hailing operators, it halted operations during the lockdown. But the startup didn’t fold its hands during the hiatus.

“Once the state government imposed the lockdown and all public transport was suspended, the team worked from home. The 30 days of lockdown gave us the time to rethink how we can work for a post-COVID existence,” they said.

“A measure we took to sustain our business was to provide our customers with the assurance of our precautionary actions to curtail the spread of the virus before and after lockdown.”

African healthtech finally got its big break?

Compared to segments like fintech, e-commerce, transport-tech, and even edtech, African health-tech has seen relatively much less action in the years past.

But COVID-19 may have served up an unlikely opportunity for health-tech startups in Africa, which seem to now be coming to the fore, having been provided with the perfect storm, in a manner of speaking.

Since the outbreak of the novel coronavirus, healthtech startups like LifeBank, Helium Health, Redbird, Illara Health, Medbook, Ouicare, RecoMed, DrugStoc, Field Intelligence, 54gene, Flying Doctors, and many others have been in the thick of the action.

And it bodes well for the sector that healthtech funding in the first half of this year alone has already eclipsed the combined amount raised in the last five years.

Kenya’s Medbook Limited revealed some of the strides the startup has made in telemedicine and healthcare delivery with the virus in mind.

“With the current pandemic situation, most private clinics and hospitals have either limited or cancelled patient visits in a bid to reduce the spread of COVID19 infections.  Many Kenyans are also observing the social distancing directives by the government and are also opting out of their regular hospital visits,” they explained.

“Kenyans are, however, still in need of healthcare and therefore as a company, we have developed a telemedicine feature being used by over 400 facilities in the country. The doctors are able to set up their schedules on the platform which is visible to the patient-user. The patient can then book their appointment from the comforts of their homes and receive online consultation with the doctor.”

They further explained, “On the platform, the patient is able to pay for the service, access, and share his/her health information. The doctor is also able to do home visits for the patient’s consultation. 

“In case the doctor has requested a patient’s lab test, the facilities are able to send someone to collect the sample from the patient who is at home and once the test report is out, have it recorded on the platform. We have also included a delivery service for any prescriptions that the patient may have,” they added.

The business outlook for the coming year

The startups interviewed are generally optimistic about their business prospects for the coming year, though they are staying cautious by cutting costs as they build for the post-COVID world.

ThriveAgric said they have faced challenges in recent times due to supply chain disruptions and the delays of its off-takers in paying for goods delivered. 

“This operational challenge has caused temporary delays in paying a few of our users so what we did was to be transparent, and then commit to a time period for the payments to be made to our users,” said Eje.

Notwithstanding, ThriveAgric said it will continue to solve the problem of access to input financing, building tech-enabled extension services, and access to distribution and premium markets.

As Eje put it, “We are positive that these times indeed create a fantastic opportunity for us to address food security challenges and do better for the farmer while at it.”

On its part, Onesha’s CEO said the startup has reduced its operational expenditure to ensure it has more runway to cover the next 18 months, assuming revenue goes to zero, while planning for the worst and hoping for the best with strategic actions to keep business going.

“We aim to take market leadership in helping businesses shift to digital since that will be the top priority for most SMEs in Africa. We have enough supply of over 1,000 creatives specializing in e-commerce website design, social media marketing, design of key communication materials needed during this time, and supplying remote workers in these categories if businesses need to tap into them without having full-time people,” said Nyagaka.

Sky.Garden’s Daniel Maison is convinced that this has been a good audition for online shopping and e-commerce is finally on track to go mainstream.

“E-commerce prevalence is likely to rise both in the merchant and customer aspects. COVID has been a catalyst in enabling merchants to explore alternative ways to earn and income in a safe and efficient manner,” he said.

For Paystack, there is a strong indication that online commerce is the way forward and the startup is poised to key into that.

“Since the start of the COVID-19 lockdown, the search volume of people looking up online selling platforms in Nigeria has increased significantly. The number of business owners signing up weekly to use Paystack to collect online payments has tripled in the last two months,” the company claimed. Hence, it expects its e-commerce service to become even more prominent long after the pandemic is gone.

Medbook is sensing a shift towards technology and people becoming more conscious about their health, especially as a result of the pandemic. 

“We anticipate that we will see more people using technology to manage their health. We will see more people looking for doctors online, booking appointments with them through apps, and having their medical records with them. We, therefore, see a lot more Kenyans using the Medbook application,” the startup reiterated.

Plentywaka sees a “new normal” for e-hailing in which commuters look for higher standards of sanitation and no overcrowded buses. It is also anticipating a surge in logistics needs with businesses delving into online commerce. Hence, it has introduced the Plentywaka Staff Bus Solution and Logistics By Plentywaka, a B2C same-day delivery service. 

Sokowatch says it has recorded strong growth even in the midst of COVID-19 and expects continued growth. 

“Over the next year, our priority will be to build on our current growth which has seen us expand into nine cities across four countries in the past two years. The pandemic has led to a greater reliance on e-commerce and we know informal retailers across Africa can benefit from our services. With this in mind, we’re planning to move into new regions over the next year,” Yu told WeeTracker.

Kobo360 had its plans of entering 10 new countries by the end of 2020 delayed due to the pandemic but Oyedele II revealed that the startup is positioning to make invaluable global connections that could be leveraged for expansion and growth between now and the coming year.

Funding plans for the coming year

Like every large tech startup ecosystem around the globe, African startups have felt the shocks of COVID-19 too.

The year 2020 sort kicked off with a bang with the first two months of the year witnessing a healthy rush of venture capital. A total of USD 230 Mn was raised between January and February. The amount dwarfed the sum raised by African startups in the corresponding period of the previous year by over 40 percent.

But things went downhill in March as the virus began a massive spread. Only USD 16 Mn was raised in announced deals that month.

However, despite projections that African startup funding may nosedive by as much as 40 percent this year, things have begun to pick up as VCs flirt with the idea of investing remotely, in some cases.

Most of the startups interviewed had plans for fundraising in the coming months. Plentywaka said it will be building on the validation that saw it complete 100,00 rides within the first 6 months of launching to attract investments.

“This [validation] has put Plentywaka in a position to raise additional funding and right now, we are moving fast to close our seed funding for this year to allow for a bigger Series A round in 2021,” WeeTracker gathered from the startup.

Medbook stated that it is leveraging on the current grant partnership with Grand Challenges Canada for further grant funding and similar-minded donors.

“Although our primary income lines are profitable, we seek patient capital to continue to develop lifesaving health solutions at affordable pricing for the populations we serve,” they reiterated.

According to Akumah, Farmcrowdy is positioning for a new round of funding in the coming months as it continues to share with current and new stakeholders its plans for the future.

“In the next year, we hope to get some good success that will eventually drive the conversation to scale our growth with a new round of funding.,” he said.

However, Sky.Garden told us that there are to changes in its fundraising strategies as the company is still in active dialogue with VCs and other financial partners. Onesha currently has no plans to fundraise until there are enough data and actionable information on how this crisis shapes business. 

The likes of Sokowatch, Kobo360, Paystack, and Flutterwave elected to remain coy on their current disposition towards fundraising.

Featured Image Courtesy: VC4A

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