On February 2, Hytch, a Nigerian logistics startup, announced that it has shut down all its operations.
“It’s been a tough one but we are shutting down operations finally. We would no longer be providing our services to businesses or individuals. We appreciate all our customers and well wishers!” the company said in an announcement it circulated across its social media channels.
Laolu Onifade, the co-founder and CEO of Hytch, during a call with TechCabal, cited harsh macro-economic conditions as the major reason for shutting down the business. “We couldn’t raise and couldn’t sustain the business with just the money we were making,” Onifade told TechCabal.
Hytch was only in the market for a little over nine months, and it has, in that short time, lived two lives—transporting humans and moving goods. Last August, TechCabal exclusively reported that the company had abandoned its original carpooling mission to take on helping businesses fulfill orders locally and internationally. Onifade declined to speak to why the business pivoted last year, but there was an assumption that it was due to lack of funding, an assumption he has confirmed now that the company has shut down.
Onidafe had a lofty dream for Hytch, and didn’t miss any opportunity to mention it. His unceasing obsession over the ride-hailing product on social media before it was launched—which is not uncommon among founders—built up so much anticipation that the business quickly acquired 600 users in its launch week. Hytch was a typical example of a startup built in public. Onifade once tweeted that Hytch would take out danfo buses in Lagos, stating, “y’all would literally thank us for building this very soon.” Instead, the reality was that within three months of operations, growth went flat and the business began to gasp for air as the founders learnt the biggest lesson of their careers: ride-hailing is built with deep pockets.
A business folding up isn’t a pleasant thing to watch, but it is not entirely surprising that Hytch is shutting down. All the odds were somewhat against them. The company played in two verticals of logistics, goods and people, in a sector that is one of the most capital-intensive and tech-enabled, in a saturated, chaotic city like Lagos. Hytch’s predecessors, GoMyWay, one of the pioneering indigenous ride-hailing/car-pooling apps, learnt the hard side of ride-hailing the hard way and had to close shop.
GoMyWay shut down operations for the same reason Hytch just has: lack of funding. Despite its heavy backers, GoMyWay couldn’t raise a follow-on investment. Its backers, ex-Konga CEO, Sim Shagaya, and Co-Creation Hub (CcHub) and former Amazon and Naspers executive, Bill Paladino, just couldn’t see how the business could move forward. And it seems, despite the promise of a good business model that was already making money, Hytch had the same problem. “Investors couldn’t see how it would work,” someone with the knowledge of Hytch’s fundraising struggles told me.
Ride-hailing companies that are still in the business have raised tons of money to float them. For instance, industry leader Uber raised a total of $25.2 billion over 33 rounds before IPOing in 2019; Bolt has raised a total of $972.1 million over 11 rounds—its latest funding of $607 million Series F came in January last year; and Yassir, an Algerian logistics company, which has now bundled fintech into its product, raised $150 million last November. The most interesting thing about all these businesses, especially Uber’s, is that they haven’t broken even; they keep burning money without being profitable. But how many African investors can continue to float a business with almost zero chance of breaking even?
It’s also not surprising that Hytch couldn’t succeed even after it pivoted to moving goods. Both verticals have the same fundamental problem: they involve movement. And movement involves money.
Hytch leveraged Onifade’s industry network and was able to onboard startups and small businesses like Famasi, Wicreate, and Smileys, to mention a few. “Our services are cheaper and faster, that’s why they choose to work with us,” Onifade told TechCabal while talking about how businesses were quick to start using its solution to fulfill their orders.
The truth is, providing cheaper services, for a business running out of the family-and-friends funds it raised, with no hope of a further raise in sight, is a dicey one. You are new in the market and you need to play nice with pricing to win customers over, otherwise there won’t be any incentive for them to switch providers. But if you run too many cheap services, you will have a lean, or sometimes, negative margin. Either way, you are in trouble—and that was Hytch’s reality.
While the delivery space in Nigeria has shown promising precedents with startups in the sector having raised a good amount of money, these startups are not out of the trenches yet. Safeboda, a leading bike-hailing and delivery startup ended its operation in Nigeria last year. Gokada, the biggest delivery startup in Nigeria, is struggling to raise a $100,000 fund and has laid off more than half of its employees. .
Onifade during the call with TechCabal didn’t seem defeated. It was as though he had been aware for some time that his first startup would die and had mourned that fact; now he could talk about it with a clear head. Onifade and his co-founder, Femi Omoniyi (who worked on the product pertime) are young—in his mid twenties—and so is their team. He has taken this beating as a lesson for his next venture—whatever that will be.
“It’s never going to be ride-hailing!” he promised.