While last year saw many startups soaring in valuation with higher stock prices and plenty of funding, the same cannot be said of 2022. Things have slowed down, and with the overhiring that took place during the covid pandemic, many companies are having to let people go. The trend has even made its way to Africa, where it has impacted multiple startups, which now include Kuda.
Kuda, a digital bank based in Nigeria and the UK, just laid off around 5% of its 450-person workforce. According to the company, it is positioning itself for pan-African and international expansion. That move requires it to make some “strategic changes” aimed at helping it serve its customers better and achieve sustainable growth.
But the layoffs at Kuda are only a fraction of what has been seen at other companies. Swvl, an Egyptian bus-hailing company, let go of around 400 employees, which amounts to around 32% of its workforce. The decision was made in an attempt for the company to become cash-flow positive by next year.
Other companies to experience a heavy amount of layoffs include Wave, 54gene, Vezeeta, and Marketforce. The number of employees laid off ranges from around 50 to about 300, but it is just part of a larger trend since many companies are feeling the pain of the current global economic crisis.
One interesting thing to note is that these companies have all gone through successful funding rounds since their inception. Kuda raised $55 million just last August in a Series B round that included a $500 million valuation. Meanwhile, 54gene has raised a total of almost $45 million, with $25 million of that coming in September of last year.
An explanation for layoffs despite successful funding is that these companies expanded too quickly, hiring and planning for further investments that did not come. After all, the global economic crisis has made raising funds more difficult, so organic growth and profitability are the priority. That means evaluating workforces and cutting people where it is needed to optimize for profit and stability for the foreseeable future.
As for where the funding went, the founder of Lendsqr and a trustee of Open Banking Nigeria, Adedeji Olowe, said that funding is decreasing due to investors moving their money to safe places in these uncertain times. He also believes that things will get worse before they get better, with funding rounds continuing to decrease toward the end of the year before potentially picking back up next year.
It makes sense when you consider that a large chunk of the VC investments for African startups come from foreign investors. Therefore, even if there is still record funding, African startups are feeling the pressure as the funding seen in previous years dries up.
Moreover, the same thing is already happening in the US. Startups are struggling and finding themselves forced to cut costs and employees to stay afloat and reach a point of profitability that will keep them going in the long term.
While startups might find it difficult to adapt, the current situation will not likely go anywhere. The previous funding environment was manic and record-breaking, so even if things improve, it is likely to return to something closer to the norm.