What Does Flutterwave's Fall From Grace Mean For Africa's Tech Ecosystem?

 Africa's most valuable startup, Flutterwave, has been in the news for all the wrong reasons this month. It all started last week with a workplace bullying accusation against  Olugbenga ‘GB’ Agboola, the CEO of the $3 billion valued fintech startup. A former employee put out a Medium post and a series of tweets chronicling her experiences with the alleged bullying antics of GB. These included refusal to offer her the agreed package upon her resignation as well as refusing to amicably settle a dispute whereby Flutterwave, by their negligence, cause her and her family to be harassed and investigated for fraud by authorities.

Then yesterday, a lengthy expose by award-winning Nigerian independent investigative journalist David Hundeyin brought up a barrage of allegations against the company's executive management including insider trading and moonlighting by GB, lying under oath at a Securities and Exchange Commission hearing, sexual harassment of employees, corporate fraud enabled by executive management, cheating employees out of their stock options, intimidating former employees pursuing litigation against the company,  a faux COO? and much more.

As much as the fall from grace of Africa's largest unicorn is unfortunate and sad to see in terms of the growth of the African tech scene, it does bring up a lot of questions about several issues in the ecosystem including questionable corporate governance standards in startups, treatment of startup employees, as well as ballooning valuations in the sector which have seen investments of over $1 billion in the first two months of 2022 pour into the continent.

There is no denying the value of venture funding in the growth of tech in Africa. VC money has helped startups in the continent not only build incredible life-changing products but also scale at an accelerated rate which has, in turn, facilitated the creation of wonderful innovations. However, as with everything else, too much of a good thing kills.

An interesting excerpt that caught my eye in Davis's Flutterwave expose was this quote supposedly by one of the sources:

 "The thing with how the African tech investment space works is that there’s one white boy who comes in, then the other white boys rush in because of FOMO. There are only a couple of people who do proper due diligence when they come in".  

My concern is the implication of this fact if it is indeed a fact. Is it saying that tech investment in the continent has been based on overvalued startups which would point to a possible bubble in the continent's tech ecosystem?

Last year in August, I wrote about my concern about a possible bubble in the African fintech space due to ballooning valuations of startups by mostly American venture capital firms. The sources in David's expose seem to corroborate this fact which is that valuations of African tech startups are led by people who lack the knowledge and experience of the African tech market, a dangerous breeding ground for overvaluations. Flutterwave, for example, despite recently raising a $250 million Series D round, still has a significant amount of bad reviews on its most basic services. You can see some of the reviews hereherehere, and even more here. Obviously bad reviews here and there are normal in any business but when they start forming a widespread pattern, thats a cause for concern.

If VC money, despite its obvious contributions to growing the sector, is also enabling the growth in valuations of mediocre startups all in the name of getting higher valuations for the next round of fundraising, in the long term, that will eventually cripple the ecosystem because when that bubble bursts and investors run away from the continent, that is going to affect even legitimately innovative startups who would have made strides with VC money.

Flutterwave's recent track record also brings forward the debate about revenue-based vs VC-backed startups. In the aftermath of the expose last night, some people were pointing out that VCs backing startups without doing any due diligence were going to be the demise of the African tech ecosystem because startups that are doing great work but ignored because they have not raised enough money to be lauded as so-called "unicorns". They suggested that startups need to focus solely on increasing revenue to fully finance their operations without taking in any external funding.

I personally disagree with that stance. As much as I shun fundraising-obsessed startups who diverge attention from the most important task of a startup, building the product,  as I mentioned earlier, I believe that external funding in the form of venture capital is an important factor in the growth of tech startups. 

It is by no coincidence that most of the top tech companies of all time like Facebook, Microsoft, Google, Amazon, etc have all been backed up by venture capital. However, this is also not saying that bootstrapping a startup up until a valuable acquisition or IPO is not impossible. Startups like ZohoShutterstock, and most recently, MailChimp have all reached that promised land without taking a penny of VC money. 

All-in-all, every startup is special, and whether or not it can weather the storm and reach nirvana without VC money or whether it is going to need backing to get there will depend on its special and unique set of circumstances. I do not believe that any one of the two is better than the other.

In conclusion, if the accusations against Flutterwave are indeed legit, like any other business, they should face the consequences of their actions. They should not be given a pass just because they are the darling on tech in Africa. However, I do not believe that one startup's mess should affect the entire continent's ecosystem. I believe that legit investors should continue to back legit startups building life-changing products and that only those investors who want to cut corners to maximize ROIs should leave the continent which would actually be a blessing because the ecosystem can do without their bubble-rousing antics.


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