Keep your friends close, and your employer closer
Tech's long predicted winter is here
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If 2022 had a theme, the leading one would be how quickly things change. We entered the year with VC firms signing cheques with some serious vim; tech publications praised the brave approach of the Vision Fund’s Masayoshi Son. Tiger Global’s strategy of giving startups more money than they wanted while outsourcing due diligence and deciding to not take board seats was disruptive. It gave me the vibe of the LA Lakers assembling Carmelo Anthony, Westbrook, Lebron James and Anthony Davies at the beginning of the NBA season. These guys are veterans, there was no way in hell they shouldn’t at least make the playoff finals.
But therein lies the tricky nature of predictions. Instead of playoff glory, the Lakers imploded and failed to make it to the playoffs. Today, the same media publications that praised Tiger Global and Vision Fund are writing pieces on the problems with their strategy –it’s a tough business I tell ya.
Beyond the VCs, there are other interesting aspects to how quickly things can change, such as this Motley Fool article asking: “Could Jumia technologies be a millionaire-maker stock?” It’s a big departure from November 2021 when Motley Fool reported that the leading US investment bank, Morgan Stanley, recommended that people sell Jumia’s shares at a target $11. To be fair, Jumia is currently trading at around $7, way below the sell price Morgan Stanley predicted. But there now appears to be some renewed optimism for the company’s future.
“Holbrook is concerned about Jumia's 2019 pivot away from relatively profitable tech goods to lower-margin -- if higher-volume -- products. This move, combined with high spending on marketing and technology, is negatively affecting the company's overall non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) margins.” - Motley Fool, November 2021.
What’s exciting about a company that lost $66m in Q1 2022?
Jumia’s Q1 results showed that the company made a loss of $66 million, yet its share price jumped on the news of that result and has continued to inch forward since then. While there are many positive indicators for Jumia, one reason investors reacted positively is that its losses were lower than analysts’ expectations.
Beyond that, the company has improved some key metrics: its number of quarterly active subscribers is now 3.1 million, up from 2.4 million a year ago, while the value of all the items it sold within the quarter a.k.a Gross Merchandise Value (GMV) also grew 27% to $252 million. It spent quite a bit of money achieving this growth, but what investors seem to care about is that its cost of advertising is reducing.
Here’s how investors are thinking about the math: if Jumia continues to grow active users and GMV while reducing its advertising and customer acquisition spend, it could crack a profit soon. It helps that Jumia’s management is saying all the right things, promising to gradually reduce their spending on advertising and customer incentives as they keep their eye on profitability. Remember, Jumia has almost $500 million in cash and other short term monetary instruments so they can keep losing money for quite a few years a.k.a they have a long runway. It’s not a luxury many startups have right now, and Y Combinator has taken the time to remind everyone that we’re now in trying times.
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Winter is here, so watch your runway
Two weeks ago, I wrote that “Layoffs and hiring freezes are now the order of the day as startups try to extend their runway and correct the overhiring a few were guilty of in the last two years. Amazon, for instance, admitted in its Q1 earnings report that it was overstaffed.” It was a trend anyone reading the news would have noticed, but nothing brings home the reality of a bear market like an email from Y Combinator. “Things don’t look good,” Y Combinator says, and with that, if you’ve had your head buried in the sand before, it’s time to face reality.
At the risk of repetition, there’s going to be a lot of belt-tightening that’ll happen, and all that matters is for startups to survive the next two years. To think that it was barely two months ago we were pointing out that we had “funding raise news” fatigue –the long winter is going to make us beg for fundraising news.
Looking for fundraising news in the second half of 2022
This is the season to hold on tightly to your employer, because believe it or not, they’re trying to figure out if you're surplus to requirements. On Monday, Netflix laid off 150 employees and clarified that they weren’t fired for “individual performance,” but rather for business needs.
Nothing explains why job cuts are often the first thing to do when a company is trying to survive than this excerpt from a 2015 article:
“When a startup grows fast, it's usually because the product hits a nerve, in the sense of hitting some big need straight on. When a startup spends a lot, it's usually because the product is expensive to develop or sell, or simply because they're wasteful.
“If you're paying attention, you'll be asking at this point not just how to avoid the fatal pinch, but how to avoid being default dead. That one is easy: don't hire too fast. Hiring too fast is by far the biggest killer of startups that raise money.”
If you’re looking at your company’s Slack channel right now and realising that 100 people have joined the team in the last two months, this must make for tricky reading. That said, here’s what I’ve been reading this week
What I’ve been reading
I love everything from the Collaborative Fund blog, and this is no exception
Trust me to not miss a chance to blog an article from my company’s blog. I love this article because it talks about some of the struggles designers have to deal with. It’s helping me to be empathetic while I hound them for my deliverables
In these trying times, this 2015 article on getting to ‘default alive’ is crucial for every startup founder
I’ve missed TechCabal’s features and this one on Adora Nwodo’s journey into mixed reality and cloud engineering is a good way to get right back into it
Getting into Web3 changed my life’ — NFT Trish
See you on Sunday!
Edited by: Alexander Onukwue & Jimi Osheidu