💬 In this issue:

  • M&A Strategies: Opportunities for founders and investors.
  • Frugality and cost-cutting: 6 cost-effective ways to run your startup.
  • Your reminder to prioritise Product-Market Fit: Metrics to measure and plot PMF success.

Welcome to the first African Preseed newsletter for 2024! 

If 2022 was the year of the bear, and 2023 was the year of the Great Reset, what is the theme for 2024? Depending on what you’ve already read, you may have seen some of what VCs, founders, industry experts and journalists are throwing at the wall on how 2024 will play out. At the end of the year, we’ll evaluate what stuck. 
But December 2024 is a long wait, so I thought it would be useful to share some of the most interesting predictions I’ve read or discussed already. - Olumuyiwa (Writer & Contributor, African Preseed Podcast).  

🚀 M&As need to evolve beyond survival strategies 

In most of the 2023 roundups, much attention was given to the increase in M&A activity. This roundup, for instance, talked about how M&As were used as “survival strategies” with 7 deals in Q1 2023 alone. While the most celebrated of those deals included the $680m acquisition of Tunisia’s Instadeep, many other deals seemed to be driven by a need for survival. 

“Limited funds and the fragmented nature of the African tech market are major drivers,” one publication said. 

The nature of these acquisitions almost always meant that financial terms were not disclosed; one Nigerian founder argued that without more transparency from these deals, the wider ecosystem might not learn anything.

One prolific African investor slightly disagrees. For him, M&A deals getting done means startups and their founders are becoming more pragmatic. Yet, there’s one key thing that needs to change in 2024: more M&A deals need to go beyond survival and be geared towards producing strong category leaders that can ensure VC returns. 

MaxAB and Wasoko, for instance, have merged to create what they say will be a category king, in a deal they say investors were happy about. Both companies have raised significant amounts of money in a very contested space, and with no one player emerging as the clear leader yet, a merger may produce results. 

💡 What can early-stage startups learn?

Where there is little product differentiation in a contested space, consolidation, even in the early stages, is the name of the game. 

If 2022 was not enough of a wake-up call, 2023 emphasised the hard realities of a changing tech ecosystem. You can take your pick of data points to tell you how funding has slowed in the African tech ecosystem and how, more than ever, not losing your head when you raise some money is crucial.

It is no longer a startup cliche to raise money and act like you may never be able to raise again – that may be the reality. The critical mandate is to find product-market fit and extend runway until you find it. It will require incredible frugality. 

Deji Olowe, the founder of Lendsqr, an early-stage startup, puts it in more dramatic terms: “Be frugal or die.” 

Thankfully, he goes beyond that dramatic title to provide 6 actionable ways for startups of every size and scale to manage resources and get the best bang for their buck. Here’s one gem: “Don’t be quick to take pricing at face value. Sometimes, you could just call the vendor and haggle your pricing. I have saved as much as 50% on some critical software or services just by haggling with the provider.”

💸 Frugality will drive cost-cutting and the dreaded L-word 

As startups try to extend their runway and frugality takes centre stage, the dreaded L-word - layoffs - will likely continue in 2024. For some startups, salaries remain a big driver of overhead costs, and layoffs are the quickest way to extend their runway. 

There’s almost no positive way to spin layoffs, so if you’re early enough and you have money in the bank, one key thing to avoid is overhiring or hiring really expensive talent way before you need them. With startups, the shiny object syndrome of hiring the biggest and best names can be tempting, but remember, firing people after a few months because you didn’t consider the financial implications can be super uncomfortable. So here’s one situation where, as Nigerians say, “prevention is better than cure.”

Bonus: I’ll leave you with this impactful quote that stuck with me immediately after I read it: “Outwork the players on your team. Take care of yourself — eat and sleep right, and exercise — so you can take care of one another. If you can’t swim, you can’t rescue the other swimmer, and you’ll both go down.” 

📚 What Olumuyiwa has been reading:

🔫  Parting shot

What's on your mind? Drop us a note via connect@africanpreseed.com to let us know. Or, tag us on socials using #africanpreseedpodcast, #APSnewsletter or #APSVibeCheck.

That's it for now. See you next month! 😉