African Tech: 54Gene, Swvl, Wave… Start-ups are laying off staff at every turn

By Quentin Velluet

Posted on Thursday, 17 November 2022 14:41
Based in Nigeria, 54Gene is the first private African laboratory to sequence the entire human genome ©54gene

The time is ripe for austerity for the continent's start-ups, which are not immune to a global trend favouring profitability over growth.

Its fall has been as meteoric as its rise. At the end of October, Abasi Ene-Obong, co-founder and CEO of 54Gene, one of Africa’s leading biotech start-ups, announced he was stepping down from the management of the venture he had founded in 2019.

This follows the decision of its co-founder, Ogochukwu Francis Osifo, who resigned in September. The 36-year-old Nigerian geneticist remains a senior advisor to the company, which in just four years of existence has had to weather two major external crises.

The first, caused by the global coronavirus pandemic, actually contributed to its development. With initial fundraising at $15m in April 2020, when Lagos was under lockdown, the company that had been founded to accelerate the sequencing of African genomes quickly adapted by opening a lucrative Covid entity to support the Nigerian authorities’ screening efforts.

A valuation drop from $170m to $50m

The second, which is far less favourable, is linked to the global economic slowdown. Weakened by less sustained demand and the stabilisation of the pandemic, 54Gene chose to shed 95 people in August and reported that it had laid off 55% of its current workforce (i.e. 100 people) in the wake of the departure of Abasi Ene-Obong, who was replaced by lawyer Teresia L. Bost.

This is a major blow to the Nigerian company, which is considered one of the most innovative and promising in continental tech, and whose work is considered crucial to global medical research.

Since its inception, 54Gene has raised $45m in two rounds of funding. The start-up, based in both Washington and Lagos, joined the incubator Y Combinator in 2019 and reached an estimated valuation of $170m at its peak, according to the trade magazine TechCrunch.

With the difficulties it is facing, 54Gene may now be worth only $50m.

Africa, which was once spared from the drop in investment on its territory, is no longer a global exception, as it has seen a 53% year-on-year drop in investment in the third quarter of 2022, according to information from the database ‘Africa: The Big Deal’.

The continent is doing better than Europe or the United States on the growth front (3.6% increase expected for 2022 according to the World Bank, compared to 2.7% for Europe), and whether they be African or foreign, venture capital funds now prefer to follow the austerity precepts defined earlier this year by the sector’s giants, such as Tiger Global, Softbank, Y Combinator or Sequoia.

A single watchword: prudence

In an economic note distributed to its portfolio of entrepreneurs in May, the investment fund Sequoia, which helped launch success stories such as Google and Apple, was blunt: “Don’t look at layoffs as a negative thing, but as a way to conserve cash and grow faster.”

“The priority now is to focus on profitability rather than growth at all costs,” says a manager of a major North African start-up. Even before Africa was hit hard by inflation and felt the impact of higher central bank interest rates, investors had a watchword to prevent a bubble from forming in African tech.

Their new principle: To distribute better-targeted tickets and to release them according to one main criterion, watching expenses in relation to the turnover growth rate.

Their caution has been reinforced since March, when the Fed raised rates six times, bringing them to 4%. As a result, many of Africa’s success story heroes have been cutting back on staff to reduce expenses for the last few months.

Don’t look at layoffs as a negative thing, but as a way to conserve cash and grow faster.”

In addition to 54Gene, Swvl, the Dubai-based Egyptian company listed on Nasdaq, also laid off a third of its staff in May (400 people), just two months after its listing.

A month later, its compatriot Vezeeta, a medical platform that has raised at least $71.5m since its inception, shed 50 people, or 10% of its workforce. The company announced in October that it had completed a funding round with Dubai-based Gulf Capital and Sweden’s VNV Global.

The amount raised was not disclosed, but it may not be as large as the other rounds. “All the start-ups that have reached unexplainable valuations are going to pay dearly. They are going to have smaller financing rounds than the previous ones,” says the North African manager.

Calming investors’ ardour

In July, it was Wave, the mobile money troublemaker, that cut back in its turn – in Mali, Burkina Faso and Uganda – before announcing that it had taken out loans totalling $90m to secure the future. A few weeks earlier, the penguin brand had decided to abandon its planned launches in Togo and Benin.

In Nigeria, the neo-bank Kuda, which had raised more than $90m since 2019, decided in September to lay off about 20 people, or about 5% of its team. The same scenario applies to the logistics company Sendy in Kenya, which admitted in August to the Nigerian media outlet TechCabal that it had to let go of 10% of its staff.

No region on the continent has been spared from staff cuts. “Some companies did not need to lay off employees but wanted to clean up their finances. Others simply did it to avoid [certain] death,” says our interviewee.

If it is to last, this period of imposed austerity will nevertheless have the advantage of calming the ardour of investors who, until now, were ready to do anything to finance any hot start-up, at the risk of neglecting the necessary verification steps. The African technology bubble, which had been inflating slowly, is already deflating, for better or worse.

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