Why six promising Kenyan tech startups collapsed in quick succession

Difficult market conditions, as well as funding difficulties, have wiped out at least six Kenyan tech start-ups this year alone and hurt the country’s vision of becoming the Silicon Savanah of Africa.

Kune Foods, Notify Logistics, WeFarm, Wasoko, Sendy and Sky-Garden all closed in quick succession in just four months through October.

This month alone, two tech companies have exited the Kenyan market, signaling an ongoing deterioration in the sector.

Bobby Gadhia, CEO of Anza Now, whose original tech company PC World Limited collapsed in 2016 after 21 years in business, blames the entrepreneurs’ above-average ambitions at launch for the rapid collapses.

“Most startups and entrepreneurs are emotional and overly optimistic about their business ideas. They start these ideas without proper planning and are disillusioned with the success of Silicon Valley,” says Mr. Gadhia.

Read: How the serial entrepreneur reinvented himself after the sinking

In his view, the majority of tech investors are driven by greed for a quick buck and therefore don’t make any real arguments for their company before launch.

“The technology sector is one of the most stressful and demanding you can ever venture into. You must own steel balls to navigate and survive. It’s not for the faint of heart.”

Online e-commerce platform SkyGarden is the latest casualty in this growing list.

SkyGarden sent termination notices to employees early last week ahead of its planned closure after five years of operation.

“Five years after launch, Kenyan e-commerce platform Sky.Garden may have to shut down operations after a failed funding round,” the company announced.

The revelation came shortly after Sendy announced it was closing its retail and supplier platform known as Sendy Supply, which saw 20 percent of the workforce cut. The company attributed the move to a funding crunch hitting Kenyan startups, blaming developed economies for raising borrowing costs.

“We have suspended Sendy Supply services, our solution that provides a platform for general retailers to purchase inventory at competitive prices from multiple suppliers and manufacturers,” said the founder and CEO of Sendy Mesh Alloys.

Read: The logistics start-up Sendy is affected by a drought and is laying off 20 percent of its employees

In September, Kenyan retail tech startup Wasoko, which provides delivery services for essential goods, announced its move to Zanzibar after the Wasoko Innovation Hub opened on the island in partnership with the Zanzibar government.

“As a pan-African technology company, Wasoko was looking for a location where we could bring together the best talent from across the continent and beyond to innovate and create new products and services for our customers,” said Wasoko Founder Daniel Yu.

The retail company was founded in Kenya in 2016 and was then known as Sokowatch.

Notify Logistics and WeFarm called it quits in July, with the former citing an inability to continue to breakeven due to high operating costs, while the latter attributed its decision to difficult market conditions that had made scaling difficult.

Notify ran a rent-a-shelf model, renting space before renting it out to a number of small businesses that couldn’t afford a physical point of sale. The business has been running for almost five years.

“It has become extremely difficult to maintain and the thing is that we have not been sustainable with the providers,” said Helen Nyambura, one of the company’s directors.

Read: Startup Notify Logistics closes high costs

WeFarm ran a shop in the form of a mobile application that was developed to help farmers buy products online and share reviews and information.

“We have made the difficult decision to discontinue one of our services: the WeFarm shop. While our shop has seen incredible demand and growth over the past nine months, current market conditions make it difficult to set up and scale this path,” Sofie Mala, WeFarm’s Director of Growth, told media outlet CIO Africa at the time of the closure.

The company has been in operation for eight years since its inception in 2014.

The first company to shut down in June was food-tech venture Kune, founded by Frenchman Robin Reecht. The start-up dropped out after failing to raise Sh30 million in investor funds at the height of rising operating costs.

“Given the current economic downturn and tight asset markets, we have not been able to top up our next round,” Mr. Reecht said in a statement.

Kune also revealed that it had failed to raise funding from investors to boost its operations, pointing to a lackluster tendency by venture capitalists, particularly from the developed world, to spur investments on recession fears and interest rate hikes.

Read: The Frenchman is shutting down startup Kune after failing to raise Sh30m to operate it

An annual FT ranking of Africa’s fastest-growing companies, conducted in March, showed that Kenyan firms that use technology to offer products and services set a successful record, with two making it to the top of the continent.

Interestingly, Wasoko was then ranked as the fastest growing company in Africa in the FT survey, closely followed by another Kenyan brand called Flocash.

Multinational tech giants like Microsoft, Amazon and Google have also raided local companies, offering fat salaries and attractive terms of employment.

The continued bullish strengthening of the dollar has had a devastating impact on local business profits as it becomes expensive for businesses to withdraw in hard currency.

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