What are the repercussions of the fall of Kapiter?

There has been a surge in startup activity during the pandemic that has seen record-breaking investments directed to some of the region’s most promising startups. Valuations rose, startups hired and expanded rapidly, and investors continued to invest money in what the founders promised would be the new century. This rapid growth, while it may sound great on the surface, is not sustainable in today’s economic climate. The current uncertainty in global markets makes it difficult for the most qualified founders to make ends meet, but some companies have been found to lack a solid enough foundation to withstand the damage.

For Capiter, an Egypt-based business-to-business e-commerce platform, adopting a “grow at any cost” strategy was nothing short of disastrous. Since 2020, the company has raised $66 million according to Crunchbase from a group of regional and global investors including Foundation Ventures, Shorooq Partners and MSA Capital. But the startup has now collapsed, less than two years after its launch.

Rumors surfaced on social media last week, accusing the founders, brothers Mahmoud and Ahmed Noah, of transferring company funds to their own accounts and fleeing the country.

On Friday, the company’s board of directors issued a statement revealing that the founders of Capiters were forced to leave their positions as CEO and COO by its board of directors, adding that the current chief financial officer, Majed Al-Jazouli, will act as interim CEO. .

“This action follows the founders’ inability to meet their fiduciary duties over the past week and the failure to report to board and shareholder representatives during on-site personal due diligence meetings for a potential merger,” the statement read.

In a phone conversation with the local TV program “The Tale,” Mahmoud Noah, also one of the founders of SWVL, denied the news saying that neither he nor his brother had been notified of their removal from the company, adding that they had to leave the country to “deal with investors” abroad and that they regularly attend Board meetings approx from their current location in the UAE.

But two investors in the startup have denied Noah’s allegations. One early investor has already written off the company, and another described the current situation as “complicated” and a “horror story.”

According to Walid Rashad, the founder of VOO, a marketplace for delivery services, said in a now-deleted Facebook post that the company is saddled with debt. He allegedly spoke to the two brothers who supposedly told him they had to leave the country after they were repeatedly harassed by debt collectors including the retailers they work with. Rashad added that he offered the founders an opportunity to retreat from new investors, but they refused.

A Capiter employee told Wamda about the ongoing uncertainty. While the company’s website has been removed, some sections are still functional. The source requested anonymity.

They said it was still not clear who would be at the helm. “We have no idea who is running the company at the moment,” they said. “There are still some operations going on and each department is operating independently without anyone being informed. The founders have just disappeared.” “We didn’t expect any of that. Expansion plans were underway.”

When I closed the startup file $33 million from the first round In September 2021, she claimed to have 50,000 merchants and 1,000 sellers with more than 6,000 storage units on its platform.

internal structural issues

This murky situation and conflicting reports speak of many deep-rooted structural diseases in the company.

Over the past few months, Kapiter has resorted to multiple rounds of layoffs and salary freezes, due to cash flow challenges. In fact, the company has been struggling since the beginning of the year, and reports of mismanagement, undue spending and corporate culture issues began to surface even before the financial and economic crisis gripping Egypt.

As soon as news spread of the founders’ sudden absence, a large number of former Capiter employees took to social media to reflect on their experience working for the company, and many of the testimonials were not inherently positive.

In a post on FacebookMohamad Abu Rayh, facilities manager at Capiter, said poor business planning was a major reason behind the company’s low productivity, adding that it had focused heavily on partnering with less well-known brands with low sales volume.

Citing the glaring flaws in the overall internal culture, he added that senior officers unfairly preferred hiring global talent over local talent, adding that they were overconfident to the point of undermining the opinions of subordinates.

“As companies grow, the importance of enabling a strong organizational structure, culture and behavior, which can help companies stay afloat during challenging times, often overlooks the importance of enabling a strong organizational structure, culture and behavior,” says Karim Hamdan, founder of local firm Denare. “More and more founders are becoming aware of the importance of working with experts from different regions rather than managing the supply on their own or relying on less experienced individuals. Most importantly, the role of the board of directors will be amplified in terms of overall business performance and will not be limited to just managing finances.”

repercussions

Kapiter is not only a high value The Egyptian startup has had a hard time lately, many other startups have faced similar challenges, especially those in the middle to late funding stages.. Hamdan attributes this to the fact that the local market is going through a major stage of development.

“The bar should not be too high because the market is going through a correction phase. If you have to look at the startup portfolio ratio for any fund, it is usually very low but expected to be higher in the coming period after this correction in general, companies that stick to achieving Profitability, sustainability and growth formula is what will last,” says Hamdan.

He expects the impact of the crisis to reach all stakeholders across the entire ecosystem, adding that there are likely to be more financial control practices, which means that “the injection of funding may be conditioned on companies achieving measurable stages, especially at the earliest possible development stages. Business “.

Funding for Egyptian startups touched $317 million during the first half of 2022, an increase of 135 percent compared to the first half of 2021, but recent economic problems have slowed investor interest and this latest episode is likely to lead to criticism of investors, especially investors. globals.

Kapiter’s story highlights the need for greater accountability and governance. He points out that Egypt, despite being one of the largest startup ecosystems in the region, is still young and not mature enough to instill the right checks and balances. The majority of startups fail, and we expect more after the demise of Capiter, but there is a right and a wrong way to fail. Being honest with employees, the board of directors, and investors about difficulties and honoring their time and commitment can help ease the pain of failure.

While the story reflects poorly on the region’s startup ecosystem, it will not challenge Egypt’s standing as one of the region’s most active and largest startup hubs. However, it puts more of a burden on it Investors need to do more comprehensive due diligence, not only regarding the financial affairs of the startup, but also the personality of the founders. Company boards will need to maintain the right governance structures and take action more quickly when needed. The regional ecosystem will have to wonder what it desires most – high valuations, growth at any cost or a sustainable path to profitability.

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