CanGo/SafeMotos, the startup that delivers orders to its clients no longer exists, at least as long as taking up any further delivery orders is concerned. And it is not going to wear the shoes left behind by Jumia in Rwanda as it had previously announced anytime soon. In a quick succession of events, Barrett Nash, co-CanGo founder had heaved the final sigh that let go of the four year-old startup.
“We’ve decided to make the challenging decision to stop while there is still enough money in the bank to pay our employees what we owe them,” said co-founders Barrett Nash and Peter Kariuki in an email sent to investors.
While Peter and Barrett had tilled so hard at CanGo, announcing this ground-shaking bad exit for one of Rwanda’s most valuable startups reveals so much about the difficulties of running a logistics or transport startup in parts of Africa.
Read also:CanGo Builds First SuperApp in Central Africa
For one thing, it is better to first understand how big CanGo was when it was still around and why its failure is so remarkable that it cannot just be ignored.
Volume of Transactions
First off, Barret let us into what the startup was worth on daily basis.
‘‘December [2019] was an incredible month for us,’’ he wrote in a statement he sent to CanGo’s numerous clients before winding down. ‘‘We reached trip volume of more than 4,000 trips per day, grew by 260% month on month and were achieving the sub metrics on user retention, resilience to increased pricing, low customer acquisition costs and high brand awareness that reaffirmed our deep belief that Kinshasa and Central Africa are ideal markets for a super app.’’’
If any of these disclosures are anything to go by, it could be summarised that CangGo was relatively healthy, by all business standards.
To further buttress the point that CanGo did not fail for bad business strategies, the founders noted that…
‘‘……[CanGo’s] traction results since launch…were on par or better to highly successful comparison companies throughout the developing world and [CanGo] did it at a fraction of the unit economic price.
Funding
It is better to understand that CanGo had the funding by its side, at least until its closure. In terms of funding, the startup raised $1.1 mn in 2019. CanGo therefore qualified in its own rights to constitute a relatively well funded startup. However, whether the funding is enough to disrupt the East and Central African markets, or even its recently reported expansion to West Africa through the Nigerian market is another point to be considered separately.
Having established CanGo’s prowess in terms of funding and volumes of transactions successes, it is necessary therefore to proceed to critically analyse the factors that brought about its downfall and possible lessons startups can learn from them.
Funding Deficit
Quite noteworthy is the comment of the founders that CanGo’s failure to move on to its next stage was because it was unable to secure funds to leverage its success into increased runway for the company.
The founders stated that one of the startup’s goals was to secure at least close to $1mn by the end of 2019 to make way for a further $3–5mn Series A in the 2nd or 3rd quarter of 2020. Its inability to raise the estimated amount within the time frame therefore meant a big failure for the startup.
For a startup that had been in operation since 2015, raising barely over $1 million over the course of four years is definitely a major hindrance.
Consider its competitors elsewhere in Africa (although not in the same geographical region) such as Gokada which was founded in 2018 only to raise $5.3 million a year after in 2019. Similar to Gokada is MAX.ng which was founded in 2015 and has raised about $9 million dollar since then. Gozem, the Singaporean mobility startup operating in West, East and Central Africa has raised more than $3-million in funding since its launching in 2018.
A research by DigestAfrica in 2019 shows that it takes every highly valued startup in Africa approximately between 420–455 days to reach above a million dollar in funding threshold.
Therefore, the fact that CanGo only raised about $1.1 million in total funding since its inception four years ago shows that to a large extent, it was fast depleting its available funds. Hence, it was obvious from Barret’s tone in his final letter to investors that this was exactly what was at stake, and that CanGo was not ready for any further pivot.
‘‘Tectonics in venture capital investing change quickly,’’ Barret said. ‘‘While investor enthusiasm and interest has been high, it has not translated to checks being written.’’
A Big Question On The Viability of Logistics and Mobility Startups In East and Central Africa
CanGo’s news did not come as a surprise. It merely repeated what Africa’s first unicorn Jumia did. Jumia recently shut all its logistics and ecommerce operations in the East African countries of Rwanda, Tanzania, and the Central African countries of Cameroon and Congo. This means that Jumia now operates in just 12 of Africa’s 54 countries, with Egypt and Nigeria counting as its largest markets. Jumia’s action, particularly in the East African country of Rwanda where it shut down its food delivery business goes a long way to show that logistics, and by extension, mobility are still loss-making machines in that region.
According to Analytiqa report “Africa Logistics: Keep Cool for Growth; Charting growth trends in logistics markets to 2016”, logistics spending in Africa by manufacturers and retailers was estimated to increase by almost $28.8 billion, or 5.19 percent, in a four-year span, from $128.5 billion in 2012 to $157.3 billion in 2016. The PWC report also observed that African retail markets would grow significantly over the next decade.
The implication of this is that logistics holds a large opportunity for investors, however there are a lot of issues still facing the industry in Africa.
A 2016 Agility Emerging Market Logistics Index report shows that Sub-Saharan Africa remains a challenging frontier for many companies. Only 21.2 percent of more than 1,100 logistics industry executives surveyed said their companies have operations in the region. Another 12.7 percent said they are in the planning stages to enter African markets, while more than 43 percent said they have no plans to set up in Africa.
In truth, Africa probably isn’t the best destination for companies just looking for quick revenue boosts but it holds huge potential for businesses with long-term strategies who are willing to work with local governments. The reason is not far fetched — the continent needs better transport infrastructure, more connectivity across borders, and an improved business environment to reach its vast but largely untapped potential.
For example, according to the OECD report, only 27.6% of Africa’s 2 million kilometres of roads are paved (19% in sub-Saharan Africa, versus 27% in Latin America and 43% in South Asia). It will therefore require considerable investment to fix the thousands of kilometers of roads that need attention.
Again, Rwanda where CanGo previously operated has about 3,724,678 internet users as of December 2018, representing about 29.1% of the population, with about 39 percent of the population living below poverty line and 16 percent living in extreme poverty. The figure is even worse in Congo Kinshasa where poverty rate is 63.9 % (meaning that only about 29 million people out of a population of over 80 million are living above poverty line). It also means that out of these 29 million people, only about 5 million people, representing a meager 5.9% of the entire population have access to the internet.
Barret noted this in his farewell message to CanGo’s clients.
‘‘Kinshasa is among the most hostile environments on earth,’’ he said. ‘‘it needs proper capital to make a company successful here. This is not a shoestring environment. We’ve decided to make the challenging decision to stop while there is still enough money in the bank to pay our employees what we owe them.’’
Perhaps, CanGo’s choice of African markets to invest in was its greatest undoing. This also explains the fact that at a time when other foreign investors were busy scrambling for the Nigerian, Kenyan, Egyptian or South African markets (the same industry it was playing in) CanGo received little or no attention from them.
Remarkably, the 2016 Agility Emerging Markets Logistics Index singles out South Africa, Nigeria, Kenya and Ghana as being the most promising logistics markets in sub-Saharan Africa.
The fact that even with introducing a USSD-based system for customers in Kinshasa, instead of relying solely on internet-enabled devices shows that in a country as complex as Congo Kinshasa, one factor would not always give way for others. Therefore, solving internet penetration issue is one, but poverty rate remains largely one such strong factor that can shake up the entirety of a business model.
Pivot Would Always Be The Most Dangerous Point In A Startup’s History, Especially When It Was Forced
Take it or leave it, CanGo’s accidental pivot to win the trust of investors probably went beyond the limit of the startup’s elasticity.
Before altering the business line, the startup had been into transport operation in Rwanda since 2014, operating a commercial motorcycle business called SafeMotos.
The pivot or change in the company’s business model in September of 2019 meant that it became a taxi-moto hailing company stretching operations to Kinshasa instead of a bike-hailing platform. The result of this move was completing 500,000 trips in Kigali, even when industry giants such as Uber was already on ground.
“We are expanding into Kinshasa later this year with a partner that has more than 50 years experience in DRC,” Barret Nash said in an interview in 2018.
This expansion vastly depended on investors who poured in hundreds of thousands of dollars in 2019.
CanGo had previously tested e-Bikes and targeted “Amazon-like” delivery and e-Payment services; however, the ground did not meet the horizon as it got no further funds from investors.
In simple and clearer terms, the startup changed its business strategy to meet the ends — leaving the rags behind and “bootstrap with a brand new pivot”, but the results were not favorable.
The point is not always that CanGo pivoted to a new business model but that it did so out of desperation to meet the interests of investors. This practice by founders therefore calls for caution when looking for or accepting investors since they can make or mar the startup’s existence altogether.
The Bottom Line
The bottom line of all of these is that CanGo, in desperation for funds, embarked upon an expansion, under the spell of heavy promises of breaking even, in a new, largely untested and extremely unfavorable environment that already had strong competitors such as Uber on ground.
Would CanGo have still existed but for its expansion out of Rwanda; and is Congo Kinshasa a bad market for CanGo’s business model?
These questions would remain open-ended for a longer time to come; but in the meantime, CanGo is no more.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.
He could be contacted at udohrapulu@gmail.com