“Organisational agility” may prove more important to African tech startups than “tactical cutbacks” in terms of surviving the COVID-19 crisis, says Muthoni Wachira, investment director at EWB Ventures.
Wachira, who was a guest on the second edition of the Disrupt Podcast, said the future would be tough for African entrepreneurs, with investors choosing to focus on their existing portfolios.
She estimates the slump will last for 18-24 months, but does expect business angels and P2P funding platforms to play a bigger role in the meantime. Though the environment is set to become challenging, Wachira does see some positives, however.
Her view is that previous global financial crises were not setbacks for VC, but rather positive events as they “cleared the noise” and spurred the creation of global brands like Uber, Spotify, Airbnb and Square.
“This is a first global crisis for the African venture market, and so similarly we expect to see entrepreneurs with bold ideas and tools and services to emerge and adapt to the new trends that we are seeing,” said Wachira.
Though consumer spending is down, there are opportunities for entrepreneurs to innovate and provide meaningful services. In times of market uncertainty, tech solutions that provide value will thrive, Wachira said, adding that we are already seeing this as work from home, food delivery and telehealth solutions have become major contributors in just a few weeks.
“I think it is starting a trend that will continue into the future,” she said.
That said, ventures will need to manage their cash. Wachira said “cash is king” for the foreseeable future.
“In the immediate term ventures need to do whatever they can to extend their runway. Reduce fixed costs, accept lesser terms if you are raising a financing round, and only spend if there is a clear return on investment,” she said, adding she expects to see more job losses across the space.
“Manage your cash flow, that is the number one financial statement that you need to be on top of. Your existing revenue streams and the partners you have – maintain those, grow those. Whatever it is going to take to maintain a customer, we need to have that flexibility built in to all the conversations.”
However, her view is that a venture’s survival will depend far more on radical innovation than tactical cutbacks.
“What I feel is fundamentally important right now is organisational agility. The ability of ventures to explore adjacencies to their existing products and services, and create value. And for those whose work is related to COVID, to seize on the need and the opportunity,” said Wachira.
The second episode of Disrupt Podcast is available now, featuring in-depth interviews with Wachira as well as Helium Health CEO Adegoke Olubusi.