A single point of failure

A.k.a events that make your life flash before your eyes

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An eventful two weeks

The last two weeks have had everything: a rumored sale of Chipper Cash, Fluttterwave asking the police and courts to block hundreds of accounts after denying a hack, and even the tired annual spat between founders/investors and Africa’s tech media. Yet, nothing sent Africa’s tech ecosystem into collective survival prayers than the dramatic closure of Silicon Valley Bank.

It happened over the weekend, and for once, it was easy to get information on startups and who had what. In a few hours, we learned that startups like Chipper Cash, OnePipe, and NALA had money in SVB. Several other African VC firms also had significant balances in the bank. One source close to the situation at a B2B e-commerce startup that had almost $20 million in SVB described a tense weekend with management teams constantly refreshing their news feeds. It was a single point of failure for the tech ecosystem as Alex argued here.

It’s a similar argument to one that Abubakar Idris made in this April 2022 edition of the Notadeepdive newsletter. Here’s an excerpt:

“The Nigerian startup ecosystem is made in America. While some may argue that this is a cheeky sentiment, it’s a hard truth—and founders know this too. The average Nigerian startup is a US-incorporated entity with foreign investors who often ask startups to register as corporate entities in the US state of Delaware. Investors will balk at the thought of transferring funds to a Nigerian corporate bank account. So local startups are walking around with US bank accounts and mostly keep funds in Nigeria for operational purposes, like salary payments.”

But back to last weekend and SVB. Before the weekend ran out, regulators came to the rescue and we heaved a sigh of relief. But all of the signs show that the worst has not passed. In conversations with sources close to the situation, many companies took last week as a sign to think long and hard. At OnePipe, a company that provides embedded finance and banking as a service solution, the company laid off 10 people, reducing a team of 58 people to 48. The company’s leadership team also took significant salary cuts. 

These layoffs, expected to continue well into Q2 are all attempts to extend runway, especially at a time when fundraising has become more difficult than ever. Flutterwave, for instance, is reportedly mulling a Series E round, but will likely need to take a significant haircut in order to do so. Per one Bloomberg report, Chipper Cash was exploring one of two options: raising money or selling the company. There’s no doubt that the fintech unicorn will also see a valuation slash if it successfully raises money. In the interim, it has also conducted two rounds of layoffs, proving how far-reaching the challenges are. 

As an aside, what was with how publications reported the story of Chipper Cash exploring a sale? One publication went with this headline: African Fintech Startup Financed by FTX, SVB Said to Weigh Sale. Another publication used this one instead: An African unicorn backed by SVB, FTX, and Bezos said to explore sale.  All those headlines had me like this:

There’s no better place to bring this newsletter to a close than some comments on Nigeria’s Naira redesign policy, which was thrown out of the court two weeks ago. On March 3, I titled the newsletter, “a pointless policy meets an unexciting end” and said in that newsletter:

“January’s inflation figures also mean that said the economic expert on TV the other night was full of hot air. In the end, the Supreme Court has put an end to the madness, calling Buhari’s democratic principles into question and extending the validity of the old notes to December 31, 2023.”

14 days after the court judgment, there are still queues all over banks in Lagos and this week, I still saw people at ATMs at 6 am, hoping to get ahead of the rush to get cash. This week, NBS data also showed that headline inflation jumped to 21.91% in February, defeating any arguments that this may have been a play to control inflation. In any case, the cash scarcity continues, with no acknowledgment from the CBN on how it intends to stop all of this madness. 

What I’ve been reading 

Bolt’s plan to introduce branded cars is seeing mixed reactions 

Nigeria’s tech workers got used to big salaries and high demand, then the crash came 

Pyschological paths of least resistance 

Several bank accounts frozen at Flutterwave’s request in connection to denied hack