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In the rare event that you’ve been living under a rock, this week has been dominated by conversations about two startups from different ends of the continent. The first is Flutterwave, the Nigerian unicorn whose founder stands accused of bullying by a former employee. The other is Fast, a one-click checkout startup that raised $120m and was ultimately hoping to reach unicorn status. Spoiler: Fast did not reach unicorn status and instead imploded this week after it ran out of money and was forced to shut down.
Our guest writer, Nnanna, who’s contributing to the newsletter for the second time, argues that there are parallels between Fast and some startups in the Nigerian tech ecosystem.
Fast, high Valuations, mega-rounds and Nigerian companies
Fast, a 3-year-old one-click checkout fintech startup that raised $120 million from Stripe and other investors to compete with the likes of AmazonPay, Google Pay, Apple Pay, Paypal, Shopify, Bolt and even Stripe, shut down operations this week.
Its abrupt shutdown came after publications like The information, Business Insider, and NPR reported on how the company burnt investor monies in the last year. In one year, Fast hired over 500 employees and paid circa $10 million in monthly salaries despite acquiring less than 550 customers and earning a paltry $600k in annual revenues.
The failings of Dominic Holland, Fast’s CEO are not the purpose of this piece. Instead, I believe there are parts of Fast’s story that mirror the current happenings of the Nigerian ecosystem.
We are seeing more and more Nigerian companies playing valuation games and becoming obsessed with unicorn status, instead of building sustainable companies with real growth and tangible unit economics. And just like Fast, the employees and the ecosystem will bear the brunt of these valuation games.
With every wave of startup funding boom in our industry, companies are playing valuation games instead of building a sustainable business with proper unit economics in an attempt to blitz scale. What’s worrying is that startups are failing at both.
Almost every new tech startup launches by selling their services below market rate, selling ₦100NG services at prices ranging from free to ₦90, while applauding themselves for meeting and breaking their desired target vanity metric.
Startups are hard, and while Silicon Valley is filled with stories of startups who blitz scaled their way to market dominance(Paypal), success and burning lots of cash(Uber) on the way there, blitz scaling does not and cannot work in Nigeria. Yet this has not stopped founders from trying to build mythical unicorns in some of the hardest sectors and niches in Nigeria.
We have an example of this with Konga, and yet it seems our new-age startups are repeating the same mistakes burning investor monies competing with the likes of Opay, Palm Pay, and banks who either have unlimited pools of funding, and/or sustainable business models to last a generation.
Beyond these warning signs, there are events in Dominic Holland’s story that are similar to what we are seeing in the industry today:
Fast raised on a wonderfully crafted story and corporate swag(up till today, I have never seen a Fast checkout button, but their ads were 🔥🔥🔥).
Fast had no product before its first raise and had to underpay (Nigerian) talent to build that product.
Fast added a big name investor (Stripe) on their cap table and this was how they could finally afford to hire folks from Uber, Square, Meta, etc.
Fast however never achieved Product-Market Fit. $600k in annual revenue is just terrible.
Fast wanted to become a unicorn at all costs, even though the business fundamentals never supported it.
In all this though, Dominic Holland and his founding team sold dreams of high equity rewards to experienced talent. In the end, he reportedly sold over 30 Million in secondaries and basically became an angel investor/thought leader shitposting on the internet, leaving VCs and employees holding the bag.
It’s eerily familiar to what we see in Nigeria today.
In replicating Silicon Valley behaviour, we have seemed to only enrich one set of people with these behaviours—founders. Customers, employees and partners are left to deal with the consequences of these avoidable failures, while we celebrate founders.
I do not believe that most of the companies playing in the Nigerian space today should vie for Unicorn status, or play high growth games to get there. The only outcome from this is burned-out employees, unsustainable businesses, and a founder who has made a killing in secondary sales.
An excerpt from the last Access Bank earnings tells it better
“And our idea is that it’s not just a valuation game. It’s about adding value to our customers, and then the valuation is secondary. What we are selling is we are creating a proper payment platform and making sure that payments, whether it is online, your card business etc. through whatever channels across the entire sub-Saharan Africa happens seamlessly.”
One could argue that Access bank is too big of a choice to use for this quote, but a few other companies in this market have built lean sustainable businesses without playing valuation games while adding value to the ecosystem, investors and employees.
I assume this isn’t the last someone will speak on this topic, as Jason Njoku has been singing this tune for quite a while here and here(paywall). But it is worth revisiting in the wake of the frequent discussions on private company valuations, employee equity vs salary compensation.
The founders and executive team at Fast will be fine. They will launch new ventures and be chased with money by the same investors, rebrand as investors or thought leaders, and will have an audience. Justin Kan shut down Atrium 2 years ago after almost burning $75 million, yet this week, he raised 35Million for Fractal, a web3 venture from the same lead investors as Atrium.) For customers, partners and employees though, they have to dust up resumes or Biz Dev decks and start looking for new opportunities.
My stand is that all startup equity Nigerian companies wish to offer their employees is as worthless as the paper on which the employees sign those contracts, and for those who want to argue, all they need do is look at and compare outcomes between the founders and ex-employees of Fast, Konga, Fibre and a whole lot of other hyped startups.
For those playing the consistent long game of building sustainable businesses for customers, employees, partners, the ecosystem and investors, Goodluck and Godspeed.
My note: While Fast has been grabbing headlines, Better.com, a startup that makes “home ownership low cost” has also run into troubles of its own. The startup first gained notoriety when its CEO fired 900 employees over a Zoom call, but it has since fired another 3,000 employees.
There’s an interesting parallel between Fast and Better.com; both companies raised a pile of money and promptly frittered it away by going on a hiring spree. Here’s an excerpt from Better.com’s CEO's secretly recorded speech as he laid off some staff:
“Today we acknowledge that we overhired, and hired the wrong people. And in doing that we failed. I failed. I was not disciplined over the past 18 months. We made $250 million last year, and you know what, we probably pissed away $200 million. We probably could have made more money last year and been leaner, meaner and hungrier.”
What I’ve Been Reading
Nigeria-Born Tope Awotona Poured His Life Savings Into Calendly. Now He’s One Of America’s Wealthiest Immigrants
You’re Still Being Tracked on the Internet, Just in a Different Way
How hard is it to get a U.K. job from Nigeria? We asked a Nigerian who did it
Love Life: Our Love Reminds Me of Jon Bellion’s “Simple and Sweet”
I thought we all learnt from the WeWork IPO saga of 2019. It is sad to say this but startups are going to see a lot of reassessment of their valuations. This will lead to massive layoffs.
This is an incredibly pessimistic view "My stand is that all startup equity Nigerian companies wish to offer their employees is as worthless as the paper on which the employees sign those contracts, and for those who want to argue, all they need do is look at and compare outcomes between the founders and ex-employees of Fast, Konga, Fibre and a whole lot of other hyped startups."
How about you look at companies like Stripe, Flutterwave, Paystack and a whole lot of other viable start ups where employees have made a killing selling secondaries. You can also take a look at the plethora of tech start ups that IPOed in 2021?
I struggle to grasp what you intention behind your statement. Businesses are typically risky, they will either fail or succeed regardless of fund raised or not. Using a few failed startup as a yardstick for a whole industry filled with odds-defying success stories is mind boggling.