Free money is expensive 🥵

Kenya is a very special country in Africa for the amount of funding it’s startups have received.

In 2023, 62 Kenyan start-ups raised an estimated $675 million from local and international investors.

Let’s take the ones that have raised 10M+ in 2023:

• Sun King - $260 million (Energy)

• M-Kopa - $250 million (Fintech, Pay-as-you-go solar)

• Wasoko - $125 million (E-commerce)

• Twiga Foods - $50 million (Agritech)

• Copia Global - $50 million (E-commerce)

• Koko Networks - $35 million (Energy)

• Lami Technologies - $17 million (Insurtech)

• MarketForce - $14 million (Fintech, B2B commerce)

• Pezesha - $11 million (Fintech)

• Sendy - $10 million (Logistics)

• Apollo Agriculture - $9.5 million (Agritech)

One year later, one-third of these companies have either shut down or are facing significant financial difficulties.

These startups share a common story: they raised substantial capital during the post-COVID boom when venture capital was abundant, primarily focusing on rapid growth.

However, when the market shifted and investors began demanding profitability, they found themselves unprepared and caught in a difficult position.

A common factor among them is their reliance on highly operational and capital expenditure-intensive business models, which operate with very thin profit margins.

Let’s take the example of Copia.

Copia Global was a Kenyan-based e-commerce company ($60M+ raised) that aimed to serve the underserved rural and peri-urban populations in East Africa.

Founded in 2013, Copia Global aimed to solve the logistical challenges of delivering goods to underserved rural and peri-urban areas in Kenya and Uganda.

The company relied on a network of local agents—often small shop owners—who helped customers place orders, bridging the digital divide in regions with limited internet access.

Copia managed its own logistics and delivery network to ensure timely delivery, offering a reliable service where traditional e-commerce struggled.

However, operating in these remote areas proved costly due to poor infrastructure, which significantly increased delivery expenses.

The high capital investment required for logistics, warehousing, and maintaining the agent network strained the company financially and Copia had to close 🤕.

From Hero to Zero 🦸👉🤦‍♂️

This week, I met with a founder who had a startup in Kenya that had raised tens of million of $$$ before going bankrupt last year.

It was a very interesting conversation, not only because it's rare to meet someone who has raised such significant amounts of money, but also because we rarely hear feedback from those who have experienced this kind of failure.

After closing their companies, founders often disappear for a while 🫠.

When his startup failed, he not only lost his house but also his wife.

He shared that one of the most challenging aspects was how quickly perceptions can change: from being celebrated as a successful person among friends and family to having your failure publicly dissected in the news.

The abrupt shift from believing you’re on the path to becoming a millionaire to suddenly needing to find a job was a harsh reality check.

Some of the bad decisions they made were heavily influenced by their investors: one day they were asked to expand into 10 different countries, and six months later, they were pressured to become profitable and cut costs.

We rarely hear these stories, but they are important for founders to know, especially first-time founders.

There is no magical money🪄❌💰.

When you take the VC track, you either go big (…and profitable) or go home.