Overstaffing And Investor Demands Triggered The Layoffs At Chipper

African fintech unicorn Chipper Cash (aka Chipper) slashed its staff headcount by around 13 percent this week in a move tied to ongoing efforts at further fundraising at a significantly reduced valuation – of which shedding bloat emerged as an important precondition among courted investors, according to people familiar with the matter.

Around 50 employees across Product, Marketing, and Compliance were let go in the recent layoff exercise at Chipper, WeeTracker has learned, though the biggest cuts were meted out on the Engineering roster which sources say had been especially turgid before now and was rightly downsized. One source shared that Chipper’s engineering managers and teams were “just too many” and it made sense to trim the headcount.

These changes, the sources say, are connected to an effort to raise additional investment while taking a significant valuation cut, with Chipper’s leadership and would-be investors aligning on the company’s new focus of being lean and profitable.

Investor pressure and recommendations in the face of ongoing fundraising efforts played a part in triggering the recent layoffs at the startup, according to persons informed on the matter. Chipper’s Co-Founder/CEO, Ham Serunjogi, did not immediately respond to a request for comment.

Chipper, a startup launched in 2018 to ease digital payments and money transfers for Africans, became the fastest to reach unicorn status in African tech when it crossed the billion-dollar valuation mark in May last year, and it promptly hit a valuation of USD 2 B following a wave of impressive growth and a raft of mega rounds that drew in marquee investors including Jeff Bezos’s fund Bezos Expeditions, SVB Capital and Ribbit.

However, recent reports suggest Chipper’s valuation was slashed by more than 37 percent earlier this year by the now-bankrupt crypto firm FTX which had led Chipper’s USD 150 M Series C extension round last year with a USD 40 M investment and was looking to add follow-on funding.

Documents cited in reporting by Techcrunch have FTX offering Chipper an additional USD 35 M in SAFE this year at a marked-down valuation of USD 1.25 B. However, there have been some speculation around whether the investments did indeed land in Chipper’s coffers and if Chipper had a material exposure to FTX in the wake of the collapse that has crippled several other companies, though the African fintech unicorn maintains it’s untouched by the FTX contagion.

After clawing in around USD 250 M in funding last year, sources say Chipper has been in the market for new investment for much of this year in response to the current tech market headwinds.

Having turned up spending on marketing, hiring, and licenses in the past year to grow to 4 million users across the continent and USD 169 M in gross revenue as of Q1 2021, Chipper is targeting additional funding to consolidate its position and deepen its penetration. Most recently, it announced its intention to acquire beleaguered Zambian fintech Zoona in a strategic expansion play.

However, conversations with funders have put improved profitability and decreased expense high on the agenda as a part of ongoing fundraising negotiations, according to persons familiar with the matter, who also shared that a down round is imminent with Chipper’s valuation taking another significant cut.

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.

Threats 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 investors paring down and becoming more finicky and frugal with deals, startups have been forced to cut costs and lay off employees – ostensibly in a bid to put themselves in the best possible position to ride out the storm. Job cuts have happened at Wave, Sendy, Swvl, Twiga, 54gene, Moove, Vendease, Quidax, and several other startups in Africa’s bubbly tech scene.

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. Brimore and 54gene are among African startups that, like Chipper, are known to have had their valuations reviewed downwards in line with the times.

It would appear African tech is adjusting to the changing landscape and navigating what appears to be leaner times, as observed in valuation adjustments and several local startups trimming their headcount and operational scope to varying degrees.