An Entrepreneurs Dream to make Africa Food Secure.
When I transitioned out of my role in The Coca-Cola Company on April 2019, this was at the height of the liquidity boom, driven by extended periods of low interest rates, low inflation, and a sluggish economy globally. This made many investors leave their comfort zones and hunt for growth and anything that would give them a return, especially in emerging markets. This was an unprecedented period for venture capital globally, valuations skyrocketed and provided the path to raise significant amounts of capital.
The cumulative value of Venture Capital deals reported in Africa reached US$5.2 billion in 2021. This equates to a 4.9x YoY increase from 2020 and corresponds to an overwhelming 51% of the total value of VC deals recorded on the continent in the eight-year period between 2014 and 2021[1].
I looked at the opportunity that existed for Twiga in formalizing the food industry using technology, which was and still is a significant opportunity, in a segment plagued by high commodity costs and significant post-harvest losses. This required a significant amount of capital, because it entailed setting up alternative ways of producing and distributing food in urban cities and the traditional local funding sources were not geared to provide the risk capital to develop this eco-system. The timing was right for Twiga!
In this period, we closed our Series B and C capital raises amounting to $120M in total and really ramped up the scale of the business, growing 20X in revenue from Q1 of 2019 to Q2 of 2022. Scale opened a significant number of opportunities in rationalizing cost, and building efficiency, which we did across the supply chain. We used this opportunity to set up the infrastructure required to build the transformation we sought in the market, we balked against the trend of asset light models that did not build competitive advantage.
We had a good understanding of the infrastructure required to make this transformation:
1. We needed a tech-enabled distribution center that could drive significant volume at the lowest cost possible. We managed to set this up with a state-of-the-art warehouse management system. We can now handle over six thousand tons of inbound and outbound volume per day, in both dry and fresh products. No one else in Kenya nor the region has this level of capacity.
2. Some of the most broken value chains in fresh produce production are tomatoes and onions. Kenya imports a significant amount of these products from both Tanzania and Uganda. We leased and set up a farm that could easily cover 20% of Nairobi city’s needs on these two products. We achieved yields of established farms globally, meaning that we could start reducing consumer prices.
3. Private label brands have done extremely well for retailers in advanced markets with established formal retail. It allows the retailer to offer lower prices and expand margins. So, we believed this same model could also work for informal retail. We launched our maize and wheat flour, tomato sauce, diapers and tea amongst others. The model worked!
As we geared to do our Series D in Q2 of 2022, inflation started becoming a topical issue in the US and within a short span of time, interest rates rose from 0.33% in April of 2022 to 5.5.% as I write this article. This is unprecedented! With the rise in inflation and interest rates, investors were now able to find higher returns in more conservative investments, such as government bonds, and may not be as willing to take on the risk of investing in start-ups, especially in emerging markets.
In 2023, down rounds (a funding round in which the valuation of a company is lower than it was in the previous funding round) in all global Venture Capital deals represented 15% of the total deals in Q1 and this has accelerated to 21% of deals in Q2. This is the first time the percentage of down rounds has surpassed 20% since Q2 2016.[2]
The global funding markets had shifted right before we closed our Series D. We spent the time between Q2 of 2022 and Q2 of 2023 iterating on the right strategy to pivot the business. This focused on strengthening our unit economics, anchored on three key pillars, and building on the infrastructure we already have in place:
1. Scale value chain transformation, allowing for pricing of basic commodities lower than market, while expanding margins.
2. Being aggressive on cost of operations, including organizational design, so operate at a significantly lower cost base. This was largely driven by the adoption of technology to drive significantly higher productivity.
3. Capital efficiency, through a blend of shareholder funding, internally generated cash and local financing, in achieving our audacious goal of transforming informal retail in Africa.
This then requires scaling the ability of the business to generate significant cashflow from operations. This means making tough decisions and getting the right talent. Entrepreneurs will need to be prepared to make difficult decisions to secure the capital needed to support and grow their businesses in this challenging environment.
We anticipate closing on the transformation in Q3 of 2023 and embarking on our new strategic direction, supported by my fellow shareholders, whom I’ve also backed by personally investing as the vision bearer of Twiga!
Here is to Twiga 2.0 and to the Future of Food in Africa.
Peter Njonjo is the Co-Founder and Group CEO of Twiga.
[1] Venture Capital in Africa Report, April 2022
[2] cooley.com Q2 2023 Venture Financing Report — Deal Count and Invested Capital Increase, Along with Down Rounds and Recapitalizations, While Late-Stage Pre-Money Valuations Decline