Flourish Ventures' Ameya Upadhyay: Tough times don't last—tough startups do

In an era marked by unprecedented challenges, the landscape on which startups and venture capitalists operate has become more daunting. Economic uncertainty has offered up a new set of hurdles, particularly for startups that need to become more resilient and adaptive. 

In the new upstart world order, it is now much more than weathering the storm. Redefining how business is done in an environment where the ground constantly shifts beneath their feet has become paramount to survival. With less dry powder to blow around, it is no longer the status quo. 

At the heart of this shift lies Africa. In 2023, funding into African startups amounted to $2 billion, representing a 43% decline compared to the $3.3 billion raised in the previous year and a further shift from 2021’s all-time high of around $5 billion. However, this suggests a needfully maturing ecosystem. 

Still in hindsight, due to cost-cutting measures, at least 1,500 employees were laid off in the ecosystem, and 13 companies shut shop inside last year. In 2024, the trend has all but subsided. 

Unless this has come to be accepted as the new norm, there is a lot of work to do given the continent’s predominantly tough startup environment. The question, now, lies in how early-stage firms can innovate with a winter-shaped monkey on their backs.

In an in-depth conversation with Bendada.com, Ameya Upadhyay, Venture Partner at Flourish Ventures, one of Africa’s earliest investment vehicles, talks about the tough situations faced, stressing the need for startups to focus on making profits and managing their costs carefully. 

Flourish, a global, Silicon Valley-headquartered VC firm with at least a dozen portfolio African startups and 71 globally, has been instrumental in the continent’s tech growth.

“Founders are in terrible stress right now. Investors now care more about a company's profits than just its revenue. We want to make sure everyone is aware of this and doing as much as they can to help with innovators’ wellbeing,” Upadhyay posits. 

From the looks of things, the current environment is tough not only for startups. How would you generally describe the state of things?

In Africa, doing business presents inherent challenges, yet it also offers immense opportunities for resilient founders. Lagos, for instance, demands building from scratch, unlike San Francisco. These difficulties persist alongside mounting macroeconomic hurdles. 

Over the last couple of years, global capital pullback intensified due to rising interest rates. This was particularly felt in Africa, perceived as a riskier investment market. Nigeria and Egypt faced severe currency depreciations and rampant inflation, compounding the challenges for founders and investors alike.

Recent developments, however, provide a glimmer of hope. The region witnessed interest rate hikes and currency devaluations in countries like Egypt and Nigeria. Consequently, foreign portfolio investors showed increased confidence, evident in the Naira's recent gains against the dollar. Though structural issues persist, these developments hint at a stabilisation of the situation.

These macroeconomic challenges have shaped investor sentiment, leading to a more cautious approach. Yet, there's an emerging sense of optimism as the region responds with necessary adjustments. 

For instance, founders now navigate cost prudently, emphasising a sustainable bottom line. This shift is reflected in the metrics demanded by investors—favouring profitability over mere growth. Amid these challenges, technological advancements like AI offer promising avenues for efficiency improvement, potentially easing the talent scarcity burden.

The current landscape demands adaptability and strategic foresight from startups. Diversification beyond core markets becomes imperative, not just as a growth strategy but as a survival tactic. While daunting, these circumstances offer valuable lessons and opportunities for resilient founders to thrive.

Startups have had to work 10 times more to achieve the valuation or profits that they would normally have because of the kind of environment that they are in.

I empathise deeply with this situation, as illustrated by a live example from one of our Nigerian portfolio companies. Despite boasting a strong financial position, they faced a drastic shift from reporting revenues at ₦450 to the dollar in January last year to ₦1500 to the dollar between February and March this year. Such rapid depreciation is a formidable challenge for any business to navigate.

Investors and stakeholders must grasp the immense mental pressure and stress founders endure amidst such turbulent conditions. The current landscape demands empathy and understanding, recognising the human toll of these economic challenges.

For companies at the Series A or Series B stage, diversifying beyond core markets like Nigeria and Egypt is no longer a luxury but a necessity for long-term sustainability. While some may advocate for focusing solely on core markets to minimize risk, the reality is that diversification is essential for future-proofing the business and attracting significant investment.

Relying solely on local currency revenues in markets like Nigeria and Egypt may not attract substantial investment from larger investors. Therefore, founders must proactively consider diversifying revenue streams early on, despite the associated challenges.

Seeking investors who support and understand this strategy is paramount. For B2B businesses, strategic partnerships with established players in multiple regions can facilitate expansion beyond core markets. Exploring opportunities to diversify revenue currencies, such as charging commissions in stable currencies like USD, can help mitigate risks associated with currency fluctuations.

Early diversification of operations and revenue streams, coupled with prudent expense management in volatile currencies, is essential for founders in Nigeria, Egypt, and other markets facing similar currency challenges.

Take Moove, for instance. It's more than just partnering with Uber for vehicle financing in Africa; it's about expanding globally. Similarly, Migo's recent acquisition underscores the value of having a presence beyond Africa.

It appears tougher for African startups compared to what is faced in other parts of the world. Lack of funding is a global issue, but perhaps currency and inflation drawbacks are not. 

Yes. That's my simple answer. African startups have it much, much, much harder. I can say that as a fund that invests globally.  It is particularly challenging at this time for all of the reasons mentioned.

What you said rang a bell, which is: Moove being a great example. It is an example of the type of company I was talking about, a B2B company, that can use its business partner to expand in other geographies.

Another example of that kind of company from our portfolio is Flutterwave, which works with banks and has a presence across many countries in Africa. Also, it has a remittance business, so it's able to extract revenues in dollars. Again though, if you're a B2B, then you don't have to be at the size of Flutterwave. 

From pretty early on, founders now need to start thinking about how to diversify, how to find the right partners, and what kind of currency mix they want to see when it comes to revenues. The business plan should include these things; they will help in pitching the company to investors.

With these in hand, investors will realisze they are talking to someone who is not only passionate about an idea but is also a realist, one who can see that these are the challenges and therefore wants to mitigate risk right from the get-go. 

How can startups demonstrate resilience to investors; the tools they can use to balance between growth and sustainability? 

Founders must showcase profitability metrics like gross profit and contribution margin, emphasiszing the ability to cover variable costs through product sales while managing fixed costs effectively. Planning for an 18 to 24-month cash runway is essential for budgeting and fundraising.

In today's market, discussions with investors should focus on achieving break-even within a short timeframe, typically four to five months, when launching products. In emerging markets, there's a shift towards valuing companies based on EBITDA multiples rather than revenue multiples. This underscores the importance of growing profitably amidst market challenges.

The valuation-to-revenue multiple has halved compared to 2021, with tech companies previously valued at 8x their last 12-month revenue, now at 4x. However, the multiple of the EBITDA is back to where it was. In 2021, when the companies were most highly valued, the valuation to the last 12-month EBITDA multiple was 14. Now, it's back up to 14.

Artificial Intelligence (AI) emerges as a tool for efficiency improvement, with AI-enabled tools like Copilot potentially enabling one engineer to do the work of several. However, questions about talent availability persist, prompting consideration of innovative solutions to address workforce challenges.

Mistakes are made during this downtime. And perhaps there are learnings local and global companies can take from what’s happening down here. 

From personal portfolio experience, the biggest mistake is overhiring in pursuit of growth and diversification with the belief that the good times will last. That may not be a common issue right now because companies are becoming a lot more prudent due to difficult times.

The more likely mistake is panicking and firing too many people or closing down product lines that are needed for the business. Cofounders and boards should put hands on deck to ensure there is no panic reaction. 

As things continue to improve, they need to make sure that exuberance does not set in, which everyone is eagerly hoping for, the mistakes will be made when we start seeing an upswing. There is a need to remain prudent enough to not be carried away by buzz. 

To speak to what can be learned, I think global ventures are seeing what is playing out in Africa and as a result, are reproachful of making substantial inroads into the market. Therein lies both a challenge and an opportunity because there is no playbook. 

Global companies can take the brown field approach rather than the green field, by partnering with local startups. Stripe acquired Paystack to expand to the continent, and I am hoping that the trend is only just starting. 


On February 14, 2024, Flourish Ventures launched The African Founder Well-being Survey, a first-of-its-kind effort to uncover the unique challenges founders face, raise awareness and support for their needs.