Raising our $40M Series A, thoughts on the economic situation and how to come out stronger.

In February 2022, we announced the closing of a $40 million Series A round, the largest Series A round of it’s kind in East and Central Africa. The raise came 7 months after our Pre-Series A and 20 months after concluding our Seed round, which I wrote about here (My top lessons from fundraising for our startup in Africa). We have surely come a long way, and I cannot say thank you enough to our families, friends, early angels, customers, investors, and the African tech community for the support you have shown throughout our journey. As the popular African saying goes, “It takes a village to raise a child.”

Before MarketForce: Mesongo Sibuti and I met in 2011 as undergraduate students of Computer Science at the University of Nairobi. We graduated in late 2015 and spent the next two years building a software consulting business together, before we ventured into our second startup, Cloud9xp (a travel technology company), which we later sold to HotelOnline before beginning the MarketForce journey. We were approached severally with a similar problem, businesses lacking reliable information on the performance of their field sales teams, products and services in the market. This inspired us to develop MarketForce, a sales and distribution automation platform that gives businesses a complete view of their sales cycle and helps them increase efficiency, save costs and identify opportunities in distribution. Since then, the business has morphed.

What we do at MarketForce: In sub-Saharan Africa, approximately 90% of household retail transactions are in cash, and delivered through a network of about 100 million MSMEs. Retail payments on the continent are expected to top $2.1 trillion by 2025, and MarketForce aims to digitize a large portion of these offline transactions. Co-founded in late 2018 by Tesh Mbaabu and Mesongo Sibuti, MarketForce is a leading B2B Commerce and Fintech marketplace that empowers informal merchants in Africa to order, pay and receive inventory digitally and conveniently, access financing, collect digital payments and make extra money by reselling digital financial services such as airtime, electricity tokens and bill payments. 

We are now operational in 5 markets in Sub-Saharan Africa (Kenya, Uganda, Tanzania, Rwanda and Nigeria), with over 200,000 merchants and 50 consumer brands trading on the platform. Our goal is to be the ultimate partner for informal merchants, empowering them to maximise their profits and grow in a digital age by getting better service, assortment, and access to new revenue opportunities, outfitting them with the technology and support they need to transform themselves from simple FMCG outlets to comprehensive financial service hubs for the continent’s last-mile communities.

With the latest round of funding, MarketForce plans to scale merchant inventory financing through a BNPL offering, grow deeper in existing markets and avail more digital financial and banking services through its extensive merchant network. MarketForce has a team of 400 and intends to double the team before the end of the year. 

On the 2022 economic situation and how to come out stronger: This post was inspired by Marie and Melalite (investors we are proud to have at MarketForce) through a note they shared with all their portfolio companies. They graciously allowed me to share their thoughts on preparing for a rough market outlook. I hope it helps.

Over the last few years, the world has been challenged in so many ways. We’ve lived with a pandemic that’s affected millions of lives. We’ve seen war. We’ve experienced a cost-of-living crisis in countries around the world. And as you all know, we’re now facing the likely prospect of a recession. There is likely to be market instability for some time, and a funding environment that’s quite different from what we’ve seen in Africa over the past few years. As of now it’s hard to predict the full impact on local tech startups (especially at the very early stage), but seeing fellow VCs rethinking their pace of deployment, we think it’s important that you’re prepared. We always hope for the best, but it’s also important to plan for the worst.

We know that starting a business is monumentally hard, even when markets are strong. So above all, we’d like to remind you that you are the pioneers – the ones who had the guts, heart, and vision to step into the world of entrepreneurship. While large company CEOs have been paying lip service to innovation and digitization for years, you are at the frontier making it happen and changing the way we work on the continent!

In daunting times like this though, your determination and grit will enable you to stand fast, adapt quickly, and solve the new set of challenges you’re facing. Here are some thoughts on how to navigate this downturn and come out stronger once markets normalize:

Out of crisis comes opportunity. Remember that many great companies have risen from the ashes of distressed periods. Google, SalesForce, and Facebook were started just before a period of financial stress. Uber, Venmo, Slack, Airbnb, and Pinterest all emerged from the 2008 financial crisis. There are advantages to building in a less heated economy: hiring great talent gets easier, there is less “dumb” competition purely fuelled by capital, one learns to think smarter to build an edge into the upturn, and more. 

It’s still the best time in history to innovate. Turbulent markets won’t stop the extraordinary era of innovation we’re in, led by transformational technological advances that will impact every industry. New companies will continue to disrupt long-standing ones. It continues to be one of the best times in history to build a business, but you’ll need to approach it differently than you’d have a year ago.

The best will win. In the recent boom years, luck to a certain degree has determined outcomes. Now the best will win. That means being laser-focused on fundamentals, including spending and growth, capital requirements, and articulating a crisp and clear vision. As scrutiny and expectations intensify, winging it won’t cut it. There still is private capital in the market that will be looking for quality over quantity – for good companies with great teams that are creating clear value. The ones that embrace those principles will win.

Survival is priority one. When it costs more to fill up the car, put food on the table, and pay the mortgage, discretionary spending vanishes, and economies contract. In light of this, cutting your costs and thinking more about profitability will be crucial.

Keep the lines of communication open. It’s difficult to generalize over market conditions across different regions and stages of startups. Build your own specific view and be ready to share it with your investors and stakeholders. Also, keep an active dialogue with your team members on the ongoing situation. Clear, transparent communication is vital.

Cash, cash, cash. The ability to generate and conserve cash is mission-critical when times are tough. Downturns tend to be protracted, with the dot-com bubble and financial crisis both taking ~10 quarters to go from peak to trough. The more dry powder you have to weather this storm the better.

Extend your runway. We strongly advise you to review your roadmap and take measures to prolong your runway to reach the metrics and milestones you need to hit. This should include reducing your non-mission-critical burn. Reviewing payroll and other costs should be in scope. Seek to increase your runway to an additional 12 months as a fall-back plan to ensure you can continue to operate through the cycle.

Understand the new fundraising environment. Raising funds in the coming months may be challenging. That said, there are many pockets of funding for strong, high-performing founders and startups. Monitor hard metrics that investors would like to see, such as GMV, revenues, customer acquisition, retention, etc., very closely. Also, keep track of soft funding opportunities that can apply to you as an option to extend the runway without diluting yourselves. 

Be rewarded for being ready. Many of your competitors will be less prepared for this challenging environment and will fall away. By contrast, if your company is able to act fast and adjust in these choppy waters, you will emerge stronger and with more market share. 

While the road ahead won’t necessarily be easy, you are better equipped than anyone on the planet to be agile, move fast, adapt to changes, and continue to innovate. Believe in yourself, and trust the process!

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