Weekend Feature : COVID-19…. Funding for African Businesses & The Opportunities

a) Introduction

GFA has decided to acknowledge the most important issue facing the continent presently because of its significance & impact. Fintech as a topic remains relevant this weekend, as it represents one of the heavily funded business sectors in Africa, benefitting in these unfortunate circumstances we find ourselves in; the COVID-19 crisis.

One of the sections highlights the opinions of Afropreneur Idris Bello – Loftyinc Capital Management (www. idrisbello.com)  in addition to GFA’s views on opportunities.

The article indicates that startups are experiencing both negative and positive spikes. In the firing line are companies that focus on supporting travel, events, and other gatherings, and many that will be indirectly affected.

The feedback from 30portfolio companies, is that companies with “short runways will likely die, and even more jarring, companies that operate in certain industries could fold because of a  “foundational collapse” caused by these shocks.

These are Idris Bello’s ten takeaways for  startups/small businesses:

1. This pandemic will likely last at least 6 months to 2 years (from an economic perspective). Do not believe the lie this is going to end soon; If you wait and don’t act soon, your business may die. This is serious.

2. Investors will tighten wallets for two reasons: (a) Response to coming recession (b) Many African countries are not equipped for this and some are in recession E.g. SA has been in recession. Nigeria, SA, Egypt, Ethiopia, and Kenya = top countries that will be heavily compromised when we come out of this crisis

3. Non-critical businesses will have to make tough decisions (e.g. let people go, etc.) Many African countries will be closed for at least another month and borders closed to supplies too.

4. Figure out how your business is aligned for a COVID-19 response. Thought exercise: what existing assets do you have and what does it give you ability to do. Shift the use of these assets. For next couple of months, you need to help people stay alive (make money, eat, entertain themselves or learn while locked in, move food/material logistics etc.)

5. Need to be cash flow positive for next several months. If you have a deal or cash on the table, you need to hoard it now. Cash is king. Conserve what you have. Hold onto your cost of capital as much as you can.

6. Cut expenses completely that are not directly related to the bottom line. Cut them now. You will have to redefine what is essential. So you can react wherever the market goes.

7. For entrepreneurs: first priority should be to raise just enough capital if you need it to extend your runway and freeze non-essential expenses at this point. It’s not easy to raise capital at this point, but it does not mean you cannot raise. Look at “venture debt” = not for everyone, but raising debt financing on the back of having raised equity on the back of VCs. Provides collateral against debt financing.

For employees, being laid off is not the end of the world. View it as a new opportunity to retool and refocus. Identify which of your skills are needed in a different space. Perhaps, there’s that project you’ve been thinking of working on or you’ve not had enough time to explore, this might be that golden opportunity to put that idea to test while you explore other employment opportunities. My advice to you will be, time is of the essence and you can’t allow the event or situation overwhelm you because your productivity and abilities are beyond being unemployed.

8. This is a moment where the world is reshaped. It’s a pandemic and financial crisis at the same time. It will be a new normal.

9. Moving forward, build a continuity plan. No one anticipated this and so ask “Is my business equipped for the fallout”?

10. When we come out of this, there will be huge local opportunities, as countries now realise you cannot rely upon China or anyone for all your strategic needs, starting from food to basic medical supplies. Expect a boom in support for local manufacturing, healthcare and similar key needs as new supply chains are formed. Also, there will be new startups that come out of opportunities arising from the crisis. I remember Andela for formed in 2014 around the Ebola crisis, and Flutterwave in 2016 when Nigeria had a recession!

b)Snapshot of Statistics on COVID-19: Private Markets Globally

The graph below from CBInsights provides some forecast based on the impact of C0vid-19 on Private Market Funding globally.

The projected decline in Q1’20 will be the second steepest quarterly decline in the past ten years, second only to a 36% decline in Q3’12.

c) GFA Assesses Where More Funding/Investment Action Could Happen

As with everything in the world, different situations create different scenarios for all involved.

GFA lists below sectors where bright-spot African business opportunities benefiting from the COVID-19 Crisis, will likely attract funding in the short & mid-term: –

Fintechs, Online sales platforms; companies that can sell emergency services; risk management specialists; logistics delivery; information dissemination; investments in digital health; online learning & education; cleaning chemical solutions; pharma research; distribution facility; online blogging; online remote-working digital solutions; doctor-on-demand apps; mental health & psychological specialists; bio-tech business, online gambling, fund-raising platforms, on-line consulting & marketing, employment platforms; emergency medical services; medical supplies & equipment; funeral homes; home media services; physical security companies to protect isolated assets; digital transformation consultants

With what we project as huge hits to some businesses, there could also opportunities for new investors, for businesses that will be desperate for injection of new funding/capital to pick-up their businesses.

From the venture owners’ angle, they should be open to dilution of ownership to attract funds, which could become vital to the survival of the businesses as going-concerns.

d) Focus on Fintech & Mobile Money

As COVID-19 cases began to grow in the continent’s major economies, Africa’s leader in digital payment adoption — Kenya — has turned to mobile-money as a public-health tool.

The country’s largest teleco, Safaricom, implemented a fee-waiver on East Africa’s leading mobile-money product, M-Pesa, to reduce the physical exchange of currency in response to COVID-19.

The trajectory of the coronavirus in Africa is prompting more countries and tech companies to include mobile finance as part of a broader response. The continent’s COVID-19 cases by country were in the single digits until recently, but those numbers spiked last week leading the World Health Organization to sound an alarm.

“About 10 days ago we had 5 countries affected, now we’ve got 30,” WHO Regional Director Dr Matshidiso Moeti has said. “It’s has been an extremely rapid…evolution.” 

With the growth in coronavirus cases in South Africa, Yoco has issued a directive to clients to encourage customers to use the contactless payment option on its point of sale machines. The startup has also accelerated its development of a remote payment product, that would enable transfers on its client network via a weblink.

“This is an opportunity to start driving contactless adoption,” Maphai told TechCrunch from Cape Town.

In Nigeria — home to Africa’s largest economy and population of 200 million — the growth of COVID-19 cases has shifted the country toward electronic payments and prompted one of the country’s largest digital payments startups to act.

Lagos based venture Paga made fee adjustments, allowing merchants to accept payments from Paga customers for free — a measure “aimed to help slow the spread of the coronavirus by reducing cash handling in Nigeria,” according to a company release.

Parts of Lagos — which is connected to Nigeria’s largest commercial hub of Lagos State — have begun to require digital payments in response to COVID-19, according to Paga’s CEO Tayo Oviosu 

Paga’s CEO believes the current COVID-19 crisis will encourage more digital finance adoption in Nigeria.

GFA believes further investments in the fintech space  & mobile money space will surely continue to play a more significant role moving forward.

e) Planning for the Future In Crisis Scenarios

The resilience of a company’s business model is crucial when stacked against unforeseen shocks such as COVID-19. All of a sudden, the time, resources and priority not given to strategy structure, crisis management structure, input of consultants/external perspectives and an innovation structure to meet the “unknowns” becomes a stark reality.

While acknowledging that the priority is to focus on the daily grind, of cashflows, sales, accounting, business development etc…. organisations are encouraged to invest in formal strategy and business modelling structure as part of the existent Risk Management resources.

We can identify different levels of how organisations deploy Business Modelling:

Level 1 – Businesses depend mostly on the strength of products, technology and related service/products to get ahead

Level 2 – Understand the importance of using business models to compete against rivals and the business environment. They understand that competing on the strength of products and technology only is not enough

Level 3 – These often seek out ecosystem plays where they lock-in customers and maximise margins, crash costs and are positioned for market leadership

Level 4  – Companies are by default forward-thinking as a culture. They have new business models prepared, proactively –  before a crisis or technology change forces them to do so.

They create business models, even while they are successful. They do not get complacent by the good times of today, and work to prepare for the shocks of tomorrow – just like COVID-19. They have no issues, self-disrupting their present business model, even while performing so well.

GFA offers advisory on Business Modelling and how it can become more relevant to your business.

COVID-19 has re-shaped the African business environment, altering shopping, supply-chains, product creation, business relationship systems and consumer behaviour.

It is a game-changer – both good and bad, and it is our wish that your venture stays resilient, innovative & open to new investors to move forward and beyond whatever this crisis will throw in the direction of potential success and survival.

Referenced Articles: https://getfundedafrica.com/2020/03/27/referenced-articles-march-28/

See links for feature weekend articles here:

1) African Fintech Funding; 2020 & Beyond https://getfundedafrica.com/2020/03/20/gfa-weekend-feature-african-fintech-funding-2020-beyond/

2) Funding & Fintech in Africa https://getfundedafrica.com/2020/03/14/gfa-weekend-feature-funding-fintech-in-africa

GetFundedAfrica curates funding news across Africa and emerging markets. Subscribe for GetFundedAfrica Newsletters: https://getfundedafrica.com/pricing-plans/

Contact mary@getfundedafrica for questions on fund-raising for your business.