Tech's leaner times

Brimore Is Taking A Huge Valuation Cut As Tech Rout Impacts African Startups

By  |  August 3, 2022

Egyptian social commerce startup, Brimore, is taking a significant valuation cut in the process of raising fresh funding, people familiar with the matter said.

The Cairo-based startup, which is seeking new capital injection to sustain the growth of its promising social commerce and parallel distribution platform boasting 75,000 sellers and 300 suppliers across Egypt, is settling for a major down round due to changing market realities, WeeTracker understands.

Brimore, last valued at around USD 100 M at the point of its USD 25 M Series A announced in January, has had its valuation slashed by “at least half,” per informed sources.

A combination of factors, including a recalibration of the ecosystem in which Brimore operates and the ‘fat-shedding’ happening in the wider tech market on a global scale, has been revealed to be responsible for Brimore’s valuation trim; somewhat epitomising recent cases of the tech rout impacting African tech which, itself, had seemed largely unaffected earlier.

Mohamed Abdulaziz, Brimore’s Co-Founder and CEO, did not respond to a request for comment. One of the startup’s main investors would refrain from commenting on the matter while reiterating that they prefer to “focus on supporting the company during these difficult times.” Two other investors declined to comment.

Brimore holds its own as one of the leading players championing the ongoing social commerce wave in Africa; a trend piggybacking on exploding social media usage on the continent. In Egypt alone, the startup is looking to capture a market estimated to be worth over USD 14 B by 2024.

Thus, Brimore has made significant strides in harnessing the swelling appetite for small-time individual vendors selling via Facebook, Instagram, WhatsApp, etc., and a proliferation of small brands seeking cheap distribution channels in Egypt.

In tapping the opportunity, Co-Founders Ahmed Sheikha and the earlier-mentioned Abdulaziz, have raised over USD 30 M from several investors since Brimore’s inception in 2017. However, the sharp correction sweeping through the global tech market after years of capital splurging, frothy projections, and runaway valuations, has the industry tied up in a bearish cloak at present.

The pace of private financing has slowed due to a protracted market sell-off, which saw big technology stocks suffer their worst decline in almost a decade – after a period of soaring digital appetites especially heightened by the impact of the Covid-19 pandemic.

Fears of a recession have also exacerbated the downturn, sparked by an unfavourable macro environment that has come with interest rate hikes and galloping inflation.

With startup funders paring down and becoming more finicky and frugal with deals, startups have been forced to trim cost centres and lay off employees – ostensibly in a bid to put themselves in the best possible position to ride out the storm.

Valuation cuts have also come into the picture as the funding pool shrinks and funders reassess businesses and reevaluate terms in the current environment, thus impacting some startups that saw their valuations soar meteorically in the tech boom cycle.

A high-profile example exists in the form of the Swedish BNPL company, Klarna, which saw its valuation fall sharply by a staggering 85 percent to USD 6.7 B from its last round as it raised USD 800 M in fresh funding last month. Klarna had been valued at USD 45.6 B a year ago.

Similarly, fintech giant Stripe, which became the most valuable U.S. startup at one point on the back of the tech boom, was reported to have recently cut its internal valuation by 28 percent.

Such reversal of fortunes now appears to be manifesting in the African tech landscape, albeit to a yet-isolated degree, as with the case of the huge valuation slash at Brimore. The tech boom had, as in other markets, brought about an unprecedented influx of capital into African tech and valuations had soared, apparently with scarce merit in some cases.

“We are seeing a return to fundamentals and reasonable valuations,” shares Eunice Ajim, Founding Partner at Ajim Capital, an early-stage venture capital fund investing in African tech startups.

“The global economic downturn made a lot of investors reevaluate their portfolios, and we are starting to see a move away from risky bets, and towards more sustainable businesses,” she added.

Africa’s budding tech scene has maintained some degree of resilience in the face of the downturn, with operational adjustments at local tech startups remaining mostly bullish and news of layoffs still few and far between.

Funding appears to be keeping pace, too, as local funders are achieving significant closes for their funds and over USD 3 B was poured into African startups in the first half of the year. However, it is worth noting that the monthly totals seem to be flattening out. Indeed, African startups raised ~USD 269 M in July, approximately 22 percent less than the previous month, per data from WT Data Labs.

African tech analysts have long maintained it was always a matter of time before some impact of the downturn is felt on the local scene, though they do not expect the sort of upheaval observed in western markets.

This is due to a sense of strong merits held by African startups solving hard problems across finance, logistics, healthcare, commerce, and education in underdeveloped, underserved markets. The growth potential of Africa’s digital markets remains attractive, as does the value that would be accrued in tackling glaring gaps.

“Despite some drawbacks in the ecosystem, a positive narrative around Africa is starting to gain traction, which is helping to change perceptions of the continent,” Ajim said.

Nevertheless, African tech is also adjusting to the changing landscape and navigating what appears to be leaner times, as observed in Brimore’s valuation adjustment and a number of local startups trimming their headcount and operational scope to various degrees.

Such developments around the latter, as reported in the public domain, have involved Swvl, Vezeeta, Wave, and Sendy most recently. Rumours of similar happenings at several other startups are rife but remain unconfirmed.

On their part, investors (both local and foreign) are going tough on deals, eschewing froth, decoupling the fundamentals, and optimising for startups with a realistic path to break even and numbers that work.

A recurring recommendation from investors to startups at this time is to prioritise a longer runway even if it means trimming costs or seeking alternative financing, as well as exploring strategic partnerships while choosing healthy unit economics over growth in the coming year.

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