2023 Year-in-review

Startups, Scandals, and Security Snafus

When we look back on 2023 decades from now, one event will help artificial intelligence understand what was happening in the African tech ecosystem: the spectacular implosion of Dash, the Ghanaian fintech startup that claimed to have 1 million customers across three African countries. 

Dash, which spun a strong yarn about connecting mobile money wallets to bank accounts–a real problem if you ever needed one–is one of those stories where the con was right in front of everyone. 

Take this TechCrunch article announcing Dash’s $32 million “oversubscribed seed round” in March 2022, for example:

“Dash claimed to process over $300 million in TPV in January, up 300% monthly from Q4 2021. In total, it has processed over $1 billion since its launch in 2020 from 1 million customers...” 

If you missed the math, the number of users on the Dash app increased 5x in six months. Its transaction value also increased 4x within the same period. 

Here’s the thing: if many new users start moving large amounts of money through your newish fintech app, you should not be happy. You, my friend, have attracted a merry band of criminals. 

Amanda Peyton, whose fintech company, Braid, is now defunct, explains it even better:

“You know who doesn’t move $500 into a brand-new app they’ve never heard of, within 10 minutes of signing up? Real consumers. They need time to learn about the product, build up trust, move $1 or $10 in and out, and make sure everything works.”

What was spectacular about Dash was that it was a bit like Tingo; you didn’t need the benefit of hindsight to feel like something wasn’t quite right there. Throughout the Techcrunch article, you can feel the writer’s skepticism.

At some point, this wasn’t a failure of due diligence. It just felt like a willingness to want to be sucked in. I may or may not be victim-blaming. 

Yet, two weeks after the very publicised collapse of Dash in October, one investor told me a lot more stories of “bad behaviour” would come out. I did a double-take because 2023 was a year of really wild disclosures. 

• Leave investors with the carcass of a genomics company after raising over $40m and making a $20m windfall from Covid testing? Check. 

• Talk up a potential acquisition by one of Nigeria’s biggest fintechs only to get sold for pennies to a young crypto exchange. Check. 

• Disclose that you lost $2 million of user funds a full year after the actual incident and then attempt to convert said funds to equity without customer consent. Check again! 

• Play dangerous FX games with client funds and lose well over N7 billion? That too…

And true to that investor’s prediction, in November, I listened in befuddlement as a fintech startup CEO tried to explain away a ₦600 million loss that he claimed was the result of bad loans to small and medium business owners.

Despite talking up his company’s unique approach to lending and earnestly stating in a few articles that they had their loan decisions down to a science, it ended up being just your run-of-the-mill “We’ll lend a few people money and see what comes back.”

That founder learned the hard way that giving out loans is the easy part. Don’t give interviews as a digital lender unless you’ve gotten that money back. 

Unfortunately, the founder isn’t really talking to his investors right now and you can take your pick of stories about what happened. One person in the know said investors lost around ₦1 billion. I blinked and choked on my Heineken. 

Pretend that’s a brilliant segue to talking about food and drinks. 

By the end of 2023, only Glovo and a handful of the YC-backed companies like Chowdeck and FoodCourt remain in the food delivery business. Jumia Food, the one-time market leader and notorious “late food deliverer” has hightailed it out of the market. Bolt Food too. 

What’s interesting about food delivery is that profitability is a global struggle. It’s not one of those businesses where you can solely blame Nigeria’s infrastructure for all of its problems. Doordash, which one publication termed the “poster boy of unprofitability” has seen its total number of orders increase exponentially in the last few years but still hasn’t cracked a profit. 

You can take your pick from an array of reasons why food delivery is difficult: it’s largely an undifferentiated service, which means people just flock to whatever company has the most number of popular restaurants or the cheapest delivery for said restaurants. It incentivises market players to compete on pricing.

In August, for instance, Chicken Republic, arguably Nigeria’s largest fast-food chain, announced Glovo and Chowdeck as food delivery partners. 

I’m going to lean into excerpts here again:

Here’s what GrubHub wrote in its 2019 shareholder letter: “We didn’t then, and still don't believe now, that a company can generate significant profits on just the logistics component of the (food delivery) business.” 

Here’s Francis Dufay Jumia’s CEO, on the decision to shut down Jumia Food: “We were fighting very hard in a difficult and extremely competitive market with many competitors having very deep pockets and being aggressive…some of these markets are small and crowded.”

Weirdly, these exits are probably where success lies for the remaining food delivery players. With fewer competitors, food delivery could shape up as a winner-takes-all market where customers don’t have a lot of choices to pick from and have to grudgingly pay true value for having food delivered. 

Another sector that may benefit from having a “last company standing” is B2B e-commerce. Barely three years ago, the idea that startups could fashion a more efficient distribution process for retailers using technology took hold. Think about your security man whose side hustle is selling odds and ends at that corner shop attached to your building. Every other week, he closes his shop and heads to the market to restock or waits for another informal distributor to come to him. A few startups figured your security man’s method was inefficient. 

Today, startups like Wasoko, TradeDepot, and MaxAB, help small retailers restock mostly fast-moving consumer goods (Milo, Omo, Ariel, sweets, etc). 

When you unleash an army of well-funded startups on a sector where margins are already small and the average basket size is even smaller, you’re going to have a lot of losses and maybe a battle to the bottom. 

So the B2B e-commerce model has come under strain this year and we’ve seen layoffs at Alerzo and Wasoko and more recently, a merger between MaxAB and Wasoko. Anyone in the sector will tell you it’s harder than ever to raise money and that informal merger/sale/acquisition conversations have happened and continue to happen at several of these startups. Is the answer here also consolidation? You tell me. 

This is becoming a lengthy wrap-up but stay with me.

You can’t talk about 2023 without fraud. This is the year in which almost all fintechs and banks got hit by fraudsters—of course, they all denied getting defrauded. In conversations with people at these companies, they say denying the hacks will always be the standard response because they don’t trust that Nigerian consumers can hear news like that and not panic.

There’s nothing to suggest that these incidents of fraud will reduce in 2024. The banks have made fintechs like OPay and Palmpay the enemy, and while both Chinese-backed companies are not above scrutiny, all the signs support a theory that all financial institutions have a lot of work to do on security.

Per a report in BusinessDay, some of the victims this year include FCMB, Fidelity Bank, and Access Bank. Naturally, none of the banks responded to these allegations. I’d mention some of the fintech startups I know for sure got hit, but it’ll spark one of those unoriginal “media vs founder/startup” wars some people have been trying to push for like three years.

Except for an incident or two here or there, we’ve managed to avoid most of those fights in 2023. In the new year, we must continue to avoid these fights not because they’re unoriginal but because they mostly serve no purpose. 

The media will always have a duty to be better informed and to cover stories with nuance. I don’t think the media has always been perfect, but there has been more robust coverage of tech companies and their business models than in 2022. Founders and startups need to accept that more robust coverage means that even the most private things about their companies may be covered.

If you read stories about private American companies, giggle, and share them without any irony, surely you know that your startup is also fair game as long as journalists reach out and allow you a right to respond. Let’s stop all the boring arguments this year: “How do you define layoffs?” “We’re a private company. Must you report this?” “Why is this newsworthy?” 

Here’s how to think about it: if you’ve read it about another company, it doesn’t stop being news because your company is now the subject. The urge to turn every news story into public relations is bizarre. At best, write a rejoinder a la Jason Njoku and call it a day. But far be it from me to tell anyone else what to do.

Let’s bring this home…

Presenting the wrap-up of 2023 in this way is a nod to the nature of startups. Startups are supposed to be difficult, and most fail, but not always because of some foul play. In reality, startups solve big problems, turbocharge growth with funding, and most likely think about things differently than most people already on the scene. It makes failure the feature and not the bug.

Sometimes even the startups that fail may end up teaching us significant lessons. Other founders even have to be second or third-time lucky. 

But like one Notadeepdive reader always says, try not to make your employees or investors collateral damage by trying to sell a fraudulent dream. We don’t have to all build unicorns to make a difference and maybe not shooting for weird valuations will make us all sleep better at night. 

Ultimately, some really good stuff happened in the tech ecosystem this year that are more than worth mentioning.

• A recent EFInA survey showed progress in Nigeria’s financial inclusion drive. 3 in 5 Nigerians are financially included with a notable decline in the number of adults who rely only on informal financial providers.

• Financial inclusion also deepened and we’re seeing people going beyond savings to getting increased access to credit, insurance and even doing remittance transactions. The increases are between 2-8% depending on the transaction type, but it’s solid progress all the same.

• Jumia survived this year and now has a CEO who can make tough decisions. If you’ve read this newsletter long enough, you know I’m sentimental about Jumia’s survival and growth. Egypt’s Swvvl also survived, even ending the year on a positive note, posting the group’s first gross profit

• Nigeria finally lifted its “crypto ban” even though the new regulations around crypto companies are pretty stringent. Baby steps nonetheless.

• OPay, Palmpay’s focus on the financially underserved or excluded shone through during the cash crunch. But can we not have such disastrous policymaking again?

• Investing in technology has now become the PR tool of choice for African countries and may present opportunities to founders on the continent. Uganda, Rwanda, and Algeria are already trying to bolster their image, and in Rwanda, we can already see some interesting moves like the country’s innovation fund.

• Although the funding size in 2023 declined compared to 2022, we still see a couple of Africa-focused VC firms keep talking the talk on being bullish about Africa’s prospects. Of course, no one is signing cheques as quickly as 2021, but it’s not all gloom.

I’m sure I missed out on some key events in 2023, but feel free to share them in the comment section or write your newsletter and share them as well. Will I do a lot more newsletter-ing in 2024? Tough to say because leading a newsroom is way busier than I ever thought.

On the upside, I completed my Masters program and graduated in October and also completed a postgraduate diploma in professional marketing in the same month. So who knows, I just might find free time next year.

That said, see you in 2024, and happy holidays!

Edited by: Hassan Taiwo Yahaya