These predictions and comments were shared with TechCabal by Tosin Eniolorunda via MHP Group. Eniolorunda’s comments represent his personal views and do not reflect TechCabal’s views of Africa’s technology and business ecosystem.
Tosin Eniolorunda’s comments are italicized and placed between open and end quote marks.
Rising stars: Nigerian fintech startups
Fintech remains the sector darling in Africa’s technology ecosystem. In 2020, Nigeria was home to over 200 fintech companies and 50% of the total share of funding that poured in Africa’s tech space went to fintech startups. Furthermore, Nigerian fintechs startups raised more than $600 million in funding between 2014 and 2019, according to a report by McKinsey.
But despite record-breaking funding rounds and a plethora of Nigerian startups building financial services and products for a largely underbanked but youthful and digitally savvy population, the fintech space is young and has a long way to go where scale and growth are concerned.
“2022 has been a year of global headwinds for nearly every sector, and fintech has been no exception,” said Tosin Eniolorunda in an email to TechCabal.
“For start-ups, these challenges have manifested themselves in the form of a slowdown in VC activity, resulting in both depressed valuations and a reduction in VC funding.”
Layoffs and cuts are imminent
“In the absence of external funding, many founders and fintech leaders have opted to streamline their businesses by reassessing their strategies and cutting costs – sadly, often in the form of job cuts – and in extreme situations, it has forced founders to shut down their operations.”
Sudden layoffs have been happening across Nigeria’s burgeoning startup ecosystem. Nigerian food procurement startup, Vendease, recently laid off 9% of its workforce and Quidax, a Nigerian crypto exchange startup, trimmed its workforce by 20% in November. Eniolorunda predicts that more startups will adopt a “do more with less” approach on the road to profitability in 2023.
“Compared to the ‘growth at all costs’ mindset that characterised 2021 and even the first few months of 2022, profitability and unit economics are now top of the priority list for investors across the world,” Eniolorunda concluded.
Digital mode: Small and medium-sized businesses
But it isn’t going to be all doom and gloom for Nigeria’s startup ecosystem in 2023. Eniolorunda commented on the increasing number of SMBs that digitized their business operations in 2022. As more end users purchase smartphones and demand for cashless payment options, small businesses are feeling the pressure to go digital sooner than later. As such, we are witnessing a new wave of B2B-focused founders who are building operational products for smaller merchants and businesses.
“These businesses have historically been left behind by traditional providers and as a result, we’ve seen a significant number of disruptive, technology-led players emerge in the space. VC money has tended to follow across the SMB digitisation value chain, from payments to business management tools,” added Eniolorunda in his comment.
2023 expectations: partnerships, customer experience and more
Africa’s tech ecosystem has had its fair share of business-related scandals this year. In June, TechCabal published an investigative piece that started many conversations on workplace culture in Nigerian startups. Kloud commerce recently made the news after its former CEO, Olumide Olusanya, announced to employees that the company would be shutting down on September 30. The story of Kloud commerce’s abrupt demise revealed a gap in due diligence on the investors’ side of the table.
“There will be longer timelines for investing as VCs will be keen on doing deep due diligence. Valuations will continue to be pegged to the fundamentals of a company, such as their unit economics, and there will be a focus on high quality transactions where the business models are proven.”
Furthermore, Eniolorunda forecasted that larger fintechs will partner with smaller fintech startups in 2023. The good news is that Nigerian fintech operators are big fans of strategic partnerships and acquisitions.
“Consolidation will start to happen in the fintech space in the form of collaboration with banks, but also larger fintechs forming strategic partnerships with smaller ones.”
Conclusively, Eniolorunda makes a case for strengthening customer experience by deploying fraud detection tools and using verification technology in their apps and digital platforms.
“Finally and most importantly, fintechs must focus on customer experience to make sure they continue to protect their customers from any fraudulent activities in the months and years ahead.”