Mostafa Kandil is the co-founder and CEO of SWVL, an Egyptian mobility startup. As a reminder, SWVL is a platform that aims to revolutionize public transportation in major cities. Kandil started this journey in 2017 as a university student in Egypt, living in Cairo. At that time, he noticed a gap in the public transportation system, and together with his friends, decided to address this issue. SWVL made waves by going public on the American stock market in 2021 through a Special Purpose Acquisition Company (SPAC), but since then, the company has faced challenges, with a significant drop in its market value. In a recent interview with Swalif Business monitored by Afrikan Heroes, Kandil shared his latest experience at the helm of affairs of SWVL.
Woeful Outing on Nasdaq
In 2021, we decided to go public. It’s logical for many companies not to want to go public, as no one might be interested in acquiring them. At that time, people couldn’t envision it, but we decided to go public right away. We benefited from coverage, but we faced a tough market, and the business dropped by half. In 2020, we lost 93% of our revenue. Only 3% of revenue remained. It went down significantly, and we persevered for four months without any income. This occurred during a time when there were no lockdowns. For instance, Cairo’s economy wasn’t affected, and people there weren’t staying at home. We had to weather the storm for four months until things started to normalize. During this period, the community declined significantly, and we saw investors and employees losing faith. We remembered our initial commitment not to let anyone profit during this challenging period. We didn’t cut employees’ salaries, but we did cut other expenses. I was personally covering nearly 100% of everything, excluding employee salaries, as we had discussed earlier.
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SPAC and its Fallout
Numerous issues arose, or went unresolved with companies that went public through the Special Purpose Acquisition route, as those companies failed to meet their promised targets. Many companies, especially those solely on paper, were unable to deliver on their claims. Several might have even profited from these schemes. When they entered the market, they were primarily companies with just ideas and lacked substantial operations. As people often say, nobody was fixing these problems. Unfortunately, we got embroiled in this entire situation. We became part of a war; and the internet boom, among other factors, greatly impacted us. The markets were highly volatile, with fluctuations as high as 60%. In currencies and other areas, it felt like a storm. Like idealism, the SPAC market collapsed within the first six months of the IPO.
We had investors, including significant ones from Russia. However, the war caused them to reconsider their investments. They decided not to put more money into the company or, if they did, they demanded the ability to sell their stock. The very next day, we already knew the market was collapsing. We stood firm and refused to let them withdraw their commitments. Those investors were the first to sell off their stocks, and as the markets plummeted, even the stock we bought from them was rendered almost worthless. The global financial crisis had begun, and everyone was panicking. Investors abandoned the ship, which in turn exacerbated the situation.
This, in addition to other points we’ve mentioned, had an impact on employees. Employees were not previously concerned about the stock’s value. They understood how the company operated and knew it was a robust business. Our faith was unwavering, and the stock’s value didn’t mean much to us. Regardless, it created a crisis, and it was disheartening to see how the employees who had worked diligently saw their stock options lose value.
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The employees began to sell their stocks and depart. There was no clear objective behind it. It wasn’t my stock, and I had no control over the situation. Those were the investors, and some of them were major players like Apple. They initially invested in the IPO, but the market was no longer favorable for them. They made their exit. In a crisis, employees often sell and move on. Purely from a financial perspective, I believe they sold because they saw little value in the stocks. I didn’t have any say in the matter, as the investors were the ones in control. Initially, our investors included large players like Apple.
On the Strategies Behind SWVL’s several acquisitions
We purchased companies, and we did so without using cash. We acquired these companies through stock transactions, paying their value in shares only. We bought all these companies at a fixed price per share, all done without cash payments. We paid them based on certain multiples that were considerably lower. Therefore, we made a profit with every acquisition, buying these companies without needing to expend cash, only using shares. We continued buying companies using shares without any out-of-pocket expenses. At present, these companies are part of your business. Yes, these companies are now integrated with us, and they were instrumental in our growth. We did have to let go of some companies as our performance declined, but others remained and played a crucial role in our success.
SWVL’s stock was at risk of being delisted?
It didn’t reach that point; we implemented a stock split, a technical financial maneuver. Instead of having a stock valued at one dollar, we divided it into two one-dollar stocks. It was a precautionary measure to prevent delisting. When you’ve been listed for more than thirty days, it’s possible to merge stocks and start afresh. But this is a real danger indicator. It signifies that you’re not meeting the numbers. Even when things get tough, we don’t plan on leaving Nasdaq. Nasdaq is a financial market. To be there, you must comply with legal regulations, essentially behaving as a public company. There are others in this market too. But stock prices in Nasdaq can recover, and the merger process continues.
SWVL’s Current value?
I won’t provide exact figures, but some people have sold due to various factors, such as market sentiment or low daily trading volumes. Even if the trading percentage is small, it impacts stock prices. A high price is good because it signifies that even if immediate buyers are scarce, most initial investors saw the company’s true value beyond its stock price. We aim to reach the highest potential. Some companies have restrictions that prevent investors from selling before a specific time, like six months from now. We’ve been in a similar situation before, and the stock initially dropped from ten to four, but it later rebounded to a remarkable extent. Investors extended the offering period because they saw the company’s real value was much higher than the stock price.
Employee Reduction
In 2022, we let go of about a third of our employees. It was challenging, as I met many of these employees for the first time. We had to reduce costs to exit certain markets, such as Portugal. We focused on sectors where we were more profitable and cut back in areas where we weren’t. I believe in 100% transparency. I share everything that happens in the company with the employees. We consider ourselves the first employees of the company, and I emphasize that we’re all in this together.
Market Presence
Initially, we were in six countries, but by the time of the IPO, we had expanded to ten and then scaled back. Now, we operate in three countries.
On Delisting from Nasdaq, and Going Private
Indeed, there were such speculations. Some believed that the company’s diverse operations might benefit from being taken private. They claimed the company itself generates revenue. I won’t delve into specifics. I would consider starting with approximately half of the company, no more, I would say.
The challenges SWVL faced as it entered new markets and how it managed to overcome them
Our ambition has always been to be a part of the global community. We hope and aspire to it. For us, entering new markets is a challenge due to the differences in language and culture. We wanted to learn and engage with various cultures. At a time, we were in Kenya, four hours away from Cairo. It presented a similar time constraint. Our goal was clear, but Kenya posed a significant problem with the absence of public transportation services. Everything was disorganized, and I bought a bus and started a service on my own; there was no established public transport system. In Egypt, there was also a lack of public transportation services.
That’s how challenging it was. Within six months, we managed to acquire fifty buses. It was a daunting task, given that the existing system had been in place for decades. We entered the market and offered a vastly improved quality of service compared to the informal transport network. We realized that the organization needed proper regulation. The regulatory body is known as National Transport and Safety Authority’s (NTSA) if I remember correctly. The board of directors primarily consisted of individuals from the informal transport network.
The Kenyan Nightmare
The same regulatory framework was created by those who initially benefited from it. The members of the board of this regulatory body in Kenya were the same individuals who owned informal transport buses. Exactly, they were our initial competitors. They attempted to hinder our progress and work against us. We were competitors, but we were not compelled to operate outside the law. However, we had no other option. Our staff were arrested and released from prison on the same day. They even included my name in the records and placed it in a specific location. A significant number of them were corrupt. Thankfully, we managed to overcome these challenges. When you meet the right people in a country, engage with them, and provide a service that benefits the public, you can succeed.
How SWVL adapt its services to different countries with unique cultural and geographical aspects
The cultural aspects of people vary significantly. For instance, in Kenya, people are willing to walk to the bus station, and if it takes them more than five minutes to reach the station, they won’t use the service. We always had to be within a five-minute reach for our customers. If they choose to take cars, the service demand drops significantly if they have to walk for more than five minutes. For instance, in Kenya, people don’t mind walking a bit if there is a reasonable distance, as it aligns with their lifestyle. They wait for the bus and are comfortable with more passengers getting on. However, they do have a problem with long delays. Thus, each country has its unique characteristics, and the city’s geography plays a significant role. In some cities, the residents both live and work in the same area. In such areas, you can establish a public transport company that connects points throughout the day. However, in a city like Nairobi, there are suburbs where people commute from the outskirts to the city in the morning for work and return to the outskirts at the end of the day. In these cases, the buses operate accordingly. Coastal cities have their own dynamics. In a city built entirely along the coast, you can offer a service similar to that in Cairo, launching it from various locations. Our approach has always been to provide services that cater to the needs of the people in a specific geographic area.
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Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer, who has several years of experience working in Africa’s burgeoning tech startup industry. He has closed multi-million dollar deals bordering on venture capital, private equity, intellectual property (trademark, patent or design, etc.), mergers and acquisitions, in countries such as in the Delaware, New York, UK, Singapore, British Virgin Islands, South Africa, Nigeria etc. He’s also a corporate governance and cross-border data privacy and tax expert.
As an award-winning writer and researcher, he is passionate about telling the African startup story, and is one of the continent’s pioneers in this regard