Overview
Frustration! That would be an accurate description of my state of mind right now. Why? You may ask. In late 2024, demand for food tech was skyrocketing but Vendease still halted its operations in Ghana. People were surprised. The firm had moved to Ghana in 2023 after securing a whopping $30 million Series A. Then, barely a year later, it shut down its Ghanaian operations despite high demand. How does a startup with customers “lining up” end up shutting down? A combination of limited funding, execution mistakes, and tough market conditions can fell even a high-demand business. There’s talk about Vendease losing its Ghana market, just like Kune and Sendy in Kenya. This article offers some advice to ensure that this does not happen.
What Went Wrong for Vendease in Ghana?
Vendease did not have a lack of customers; weekly demand in Ghana went over $1 million, but the startup could only fulfill about 25% of orders (Vendease shut down Ghanaian operations in 2024 despite high demand). They lacked the capital and the infrastructure to meet that demand. Vendease got back its initial investment in Ghana quickly, but it couldn’t put in more money to scale operations. Vendease’s attempts to get credit from local banks were unsuccessful, leaving them with no other choice than to shut down operations in Ghana in 2024 despite demand. This indicates that high demand is meaningless if you cannot finance inventory and expansion.
Execution missteps compounded the cash crunch. Vendease became a major supplier of foodstuffs to restaurants and other businesses in Nigeria. Like other e-commerce ventures, theirs was a low-margin game, and initially, they chased growth at all costs. Thus, the company fulfilled every order, even if it was unprofitable. It tried to stay afloat, offering a generous buy-now-pay-later credit service (more than $72MN in loans). However, many clients defaulted on it, forcing Vendease to chase repayments in court. Sustainability was also hurt through costly management decisions! Vendease spent a lot on wages for new senior executives, including even leadership publicly bragging about the high salary enjoyed by senior Vendease personnel. The company’s new CFO imposed tough payment rules, requiring some clients to make repayments upfront. The effect was to boost repayment rates to 95%. He also slashed staff costs by 20%. But by the end of 2023, the damage was done, and Vendease’s Ghana venture became untenable.
Seems Like The Same Old Story For Startups
Vendease’s plight isn’t unique. Kune Food, a Kenyan startup, closed down in mid-2022 after using all its seed funding. Kune’s founder blamed the “current economic downturn” and tight investment market – they weren’t able to raise their next round, while rising food prices dented their margins. Kune’s model was not sustainable as their pricing of $3 per meal was not enough for growth. As the founder admitted, “it wasn’t enough to sustain our growth… many things could have been done differently.” Kenyan logistics company Sendy had its expansion halted in 2023. The startup even expanded into Nigeria, but the firm is now out of money and has been scrambling to cut costs for the past year. Sendy anticipated raising $100 million but ended up acquiring only a small portion, which left it in financial crisis, and then a receiver was appointed to manage its assets. Kune and Sendy show that rapid growth, low profit margins, and dependence on VC funding can collapse in tough market conditions.
It’s worth mentioning that these failures took place during a worldwide funding decline – startup funding in Africa fell by about 40% in 2023 . In tough times, startups built on weak unit economics and bad management soon end up on life support.
How to Prevent the Next Startup Failure
African tech ecosystems can learn from the world’s warning stories. There are some procedures that are put in place.
- Governments should focus on improving access to local financing and working capital to improve a supportive environment. This could involve credit guarantees or funding that aids competent start-ups in covering short-term cash needs (so as not to deprive a popular venture such as Vendease of inventory funding.) Moreover, it is important to stabilize the economy. Inflation and exchange rate fluctuations should not be too high otherwise the cost will shoot up. Making tax laws simpler for startups can help them quickly enter new markets.
- Startup Founders Should Focus On Sustainability. It is important to check unit economics early—every sale should become profitable eventually without ongoing subsidies. Steer clear of hiring too many people or spending on things that don’t impact your business when you’re loaded with cash through fundraising. These bills will come due quickly. Grow steadily and don’t depend on an everlasting supply of VC cash – have a break-even or alternative revenue generation strategy in place if funding dries up. Be Quick To Adapt: If something isn’t working, pivot or tighten before it sinks the business, as was the case with Kune’s pricing and Vendease’s credit policy.
- Investors and ecosystem players need to investigate business models more closely in the context of the market. Is there a product-market fit that is real? Is there a path to profitability? Investors need to push and coach for responsible growth targets. Venture Builders can also mentor young founders on financial management and governance to steer the ship effectively. Ecosystem enablers may also create forums for failure stories, so others do not repeat the same mistakes, and best practices. Lastly, investigate new financing (like venture debt or revenue-based financing) to help with working capital without excessive dilution or unsustainable growth.
Conclusion
Vendease’s Ghanaian experience demonstrates that even with strong demand, a startup can still fail due to poor execution, lack of funding, and unfavourable conditions. Startups in Africa – be it foodtech, logistics, or otherwise – have enormous potential; however, to turn potential into profit, one must get the basics right. Startups will benefit by learning from failures of high-profile and putting in safeguards so that the next big idea doesn’t fizzle out. Eventually, Africa’s startups will only become big if the ambition is balanced with reality. That is, they will grow big and fast, but smart.
