The Africa SMME Tech Report
Issue No. 33. Africa-Middle East local and small business tech news for 24 June 2022. This issue features Kune Food, Xero, Theeper, Sweetheart Kitchen, Careem, Kuunda, and more...
The Sad Demise of Kune Food
We didn’t expect to write about the Kenyan foodtech startup Kune Food again quite so soon. It was just two weeks ago that we reported on Kune’s apparent pivot away from being a fully integrated foodtech platform (including everything from food production to delivery) to become in effect a virtual restaurant relying upon delivery aggregators for the last mile.
The takeaway from our last piece was that Kune needed to close the $3.5 million seed round it was seeking in order to continue on its mission of delivering inexpensive, high-quality food to Kenyans.
In the LinkedIn post, Reecht said a perfect storm of rising costs and evaporating venture funding left him with no option but to shut the company down.
This is all happening almost exactly one year after raising a $1 million pre-seed round, a raise that sparked controversy over expat funding favoritism (Reecht is French) that dogged him and Kune to the end.
“With the current economic downturn and investment markets tightening up, we were unable to raise our next round,” Reecht said in the post. “Coupled with rising food costs deteriorating our margins, we just couldn’t keep going.”
Reecht has not responded to our efforts to secure an interview. He did say in the LinkedIn post that he may be willing to discuss Kune’s demise at a later date.
“Many things could have been done differently, better certainly,” he wrote. “The coming months will allow us to reflect on Kune’s failure, and I hope to share about it when the time will be right.”
George offered some candid thoughts on what happened with Kune. He believes Kune was frustratingly close to hitting the benchmarks required to raise the capital it needed to fight another day. And he insisted that Kune executed well. And finally, the aforementioned hate Kune received was unwarranted and uninformed, but probably ultimately irrelevant to the outcome.
George said the crux of Kune’s failure was that rising costs crushed the company’s margins, a particular problem when a core value proposition was fresh, authentic meals home delivered for about $3. Inflation became the skunk at Kune’s garden party.
According to the World Bank, in Kenya, “Inflation has recently moved higher to 7.1 percent year-on-year in May 2022 as domestic food prices, and fuel prices in March, April, and May, increased following the surge in global commodity prices due to the war in Ukraine.”
A pitch deck Kune was circulating before its demise put its gross margins at 48%. George said recent spikes in food and other costs were squeezing those margins down toward 5%. This meant Kune either had to jack up its prices, cut costs, or raise money fast.
George also had some choice words for those in the #KOT (Kenyans on Twitter) community who had it out for Kune, ignited by comments he made about the state of Kenya’s food culture shortly after launching the business.
The following comments, published last June in TechCrunch, ignited the social media storm.
“After three days of coming into Kenya, I asked where I can get great food at a cheap price, and everybody tell me (sic) it’s impossible,” Reecht, who is French, told Techcrunch in a June 17 interview. “It’s impossible because either you go to the street and you eat street food, which is really cheap but with not-so-good quality, or you order on Uber Eats, Glovo or Jumia, where you get quality but you have to pay at least $10.”
Some Kenyans (again, mostly on Kenya Twitter) took offense. The objections centered around a few key points. One was the implication (or inference) that Kenya lacked a developed food culture. Another was the fact that an expat would make such comments after spending relatively little time in Kenya. And finally, there was palpable resentment over the $1 million pre-seed round going to an expat while so many Kenyan founders struggle to raise capital.
Here is one example of the backlash on Twitter.
George was having none of this in our discussion yesterday.
“Empty vessels make the most noise,” he said.
He said the controversy, while noisy, was not a factor in Kune’s demise.
“If the controversy were a factor, then we would have seen customer numbers go down.”
According to the pitch deck, Kune was growing revenues 30% week-on-week and was preparing 600 meals a day. And with overwhelmingly positive reviews, George said.
George acknowledged the ongoing controversy over expat founders raising capital more easily than locals. But he believes Reecht was unfairly singled out.
“He made Kenya his home. He was committed,” George said.
He also noted that Kune created good jobs for Kenyans that will now be lost. He estimates that Kune has about 90 employees at its peak, the vast majority of which were Kenyans.
To many critics, the $1 million pre-seed raise seemed like a lot of money, which it is for a pre-seed round generally. However, George points out that this is actually a modest sum for a company with Kune’s ambitions, which included building its own food production facility and distribution channel.
It was clear from the beginning that if the pre-seed wasn’t soon followed by a larger seed round, Kune would struggle to survive, let alone expand beyond Nairobi.
That is largely what came to pass, accelerated by the changing economic environment.
George said Launch Africa did contribute about $50,000 on top of its initial investment toward the round in March. George also convinced some of Launch Africa’s limited partners to participate. He said at that point, Launch Africa was maxed out what it could invest in Kune. This effort fell well short of what Kune needed.
It was widely reported that Kune was trying to raise $3.5 million. However, the pitch deck we reviewed cited the figure of $1.5 million to $2 million. Either way, the company fell well short of its goal.
According to the pitch deck, the company’s annual run rate as of 30th March was $650,000.
In his LinkedIn post, Reecht said Kune’s IP was for sale. We asked George if the IP was worth anything. He said Kune’s internally built on-demand ordering platform and optimization tool (which helped them manage food production efficiently) were very sophisticated.
He added that two regional coffee chains expressed interest in the IP. But they offered Reecht essentially a barter, where he joins the company as an employee with equity in exchange for the IP. George said Reecht turned these offers down, citing fairness to his investors.
“I respect that,” George told us.
What felled Kune, ultimately, we believe, was an overly ambitious business model that needed much more capital than Kune could raise. And the model was too fragile perhaps to withstand rapidly changing economic conditions. Perhaps delivering high-quality ~$3 meals was never a realistic plan.
George, by defending Reecht so vigorously, implicitly vouched for his integrity. Perhaps we will hear from Reecht again down the line.
Found on LinkedIn: North African Startup Funding
Courtesy of the folks at Africa: The Big Deal, this chart shows how North African startups have fared since 2019.
Egypt absolutely dominates the region in terms of startup funding. Given the size of the gap between Egypt and its nearest regional rival Tunisia, the gap doesn’t seem likely to close any time soon.
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Quick Takes — The Week in SMME Tech
Xero South Africa’s country manager Colin Timmis (a speaker at our recent BigFive Summit in Cape Town) offers “5 strategies that can help SMEs shift their mindset towards tech adoption” in a recent BizCommunity article. Timmis writes, “while businesses are eager to adopt technology and explore new ways of working, many still find themselves struggling to get to grips with digital tools.” Read more
There is consolidation afoot in the UAE food delivery ecosystem. Ride-hailing platform Careem (owned by Uber) has acquired UAE food delivery platform Munch:On. Adding a food delivery component will strengthen Careem’s hand in the region. Read more
While we’re discussing expanding service offerings, UAE ghost kitchen platform Sweetheart Kitchen has entered the online grocery space with the launch of Sweetheart Mart in the UAE and Kuwait. Read more
Kuunda is a fintech startup that tackles liquidity challenges faced by mobile money agents, microbusinesses, and individuals in underserved communities worldwide. The company has raised a $2.25 million seed round from investors including GreenHouse Capital Africa, Kepple Africa Ventures, Future Africa, and others. Read more