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Per an article from The Information on July 14, “In June, the founders of Duplo, a Nigerian fintech company started last year, received some disappointing news. Insight Partners, a New York-based private equity and venture capital firm, in the spring had signed an offer to lead the company’s seed round, a step that would have cemented Duplo’s relationship with one of the biggest private investing firms in the world. But after Insight did its reference checks, the firm balked—and pulled the term sheet, according to two people familiar with the talks.”
It’s crazy how fast things change; one minute you’re at the club excitedly using all your salary to pop bottles because well, your well of money cannot run dry. The next day the debit alerts start rolling in and you suddenly realise that the next salary day is 100 years away. Such is the story of today’s funding environment; one minute everyone and their dad could get funding from VCs without so much as a product, today, we’re starving for funding news.
Funding has slowed down partly because of what experts are calling “broader macroeconomic conditions” a.k.a money no really dey like that. Startups that want VC funding must be ready for a ton of scrutiny; it’s like 2018 all over again.
To be fair, getting a term sheet pulled doesn’t suggest a startup has problems but it is certainly indicative of how jittery everyone is at this time. You could have raised money last year with a million skeletons in your cupboard, but this year’s different, even being squeaky clean is no guarantee.
What’s the moral of this almost tired story of funding slowdowns? My sense is that some of the best and luckiest businesses will still continue to attract funding anyway. But you can safely wave goodbye to the idea that anyone will sign a term sheet in 24 hours without doing any due diligence–I’m looking at you Masayoshi Son.
Kenya is serving more legal trouble for Nigerian startups
In last week’s newsletter, I talked about how Nigerian fintech startups have been running into legal troubles in Kenya since April 2022. RemX Capital, Multigate and Flutterwave have had their accounts in Kenya frozen over allegations of money laundering. This week, KoraPay and Kandon Technologies also had their bank accounts frozen by a Kenyan High Court on allegations of money laundering.
KoraPay denied the allegations, insisting that the $250k seized by the courts is a payment it made as a requirement by the Central Bank of Kenya pending the grant of an operational licence. KoraPay’s rebuttal, on the surface, seems in line with one observation I made in last week’s newsletter: “It points to the fact that this case may be a way to incentivise Flutterwave and other Nigerian fintechs in Kenya to get the appropriate licensing. I wonder if we’ve seen this before in other African countries 👀.”
But there’s one small problem with this theory since KoraPay is already in talks with the CBK for a licence. Why is the regulator still giving them trouble? KoraPay may say, like some Nigerian startups caught up in this mess, that the recent happenings are politically motivated. With Kenyan general elections due to hold in August, some people claim that these court processes are to boost the government’s popularity. I’m not quite sure how this theory holds up.
Since no one’s the wiser, I might as well throw in an additional theory I’ve been working on all week as to why some of this stuff is happening. It remains pretty tricky to move money around Africa; the payment rails largely don’t exist. If you have a GTCO card that’s issued in Nigeria for instance, best believe that it will not work in Ghana.
To settle transactions cross-border transactions for merchants, some fintechs seem to work around it by moving money from their dorm accounts in Nigeria to their dorm accounts in Kenya. The actual workaround involves more steps than this, but moving money around in this way raises all sorts of compliance and anti-money laundering red flags. To be clear, this is only a theory and it does not suggest any of the startups mentioned have done this. In the end, there’s not much to do but sit and watch while these events unfold; only the conclusion of these court cases will validate or make nonsense of all of the theories.
With that out of the way, let’s talk about inflation….
Nigeria’s inflation spikes again
Before the global rise in prices caused in part by Russia’s war on Ukraine, Nigeria’s headline and food inflation were already deep in double digits territory. Questionable policies such as border closure and insecurity affecting the movement of produce pushed prices of food to record levels. The price of frozen chicken and turkey, popular in many households has quadrupled from N1,200 to N3,500 in one year.
Unpredictable FX policies have also meant that airline providers have raised the prices of domestic flights by over 100%. Nigeria’s inflation is so steep that it’s noticeable across all income levels.
The bad news is that it only continues to rise. In June, inflation rose to 18.6% compared to 17.71% in May. Food inflation also hit 20.6% in the month of June, making last month’s inflation figures some of the highest we’ve seen in five years.
In all of this, there’s only one question: where is Godwin Emefiele and how is Nigeria’s Central Bank quiet in the middle of such damaging inflation?
What I’ve been reading
I really like this article about how Medium got stuck in the middle. It gives me the same vibe as this DigiDay article on how Quartz got caught in the mushy middle.
If you don’t live in Lagos, you hear a lot about what it takes to survive in this chaotic city. This pragmatic and fun article teaches you how to live well in Lagos.
This week, 124,000 documents, known as the Uber files were leaked and the Guardian did several pieces on the ruthlessness and unethical practices through which Uber became a ride-hailing giant.
Edited by: Jimi Osheidu