KuBitX is one of the African crypto startups that has failed in recent months. Its failure reveals the crippling challenges that plague (all startups) but especially African blockchain startups. Back in 2018, three ambitious entrepreneurs from Ghana, Angola, and Nigeria decided to set up a trading platform offering digital currencies services. These entrepreneurs include Eric Annan, Alex Amadeu, and Victor Akoma-Philips.
One of them reportedly resigned from a high-paying job at Dell in Canada. The entrepreneurs used their savings to set up the company. Their resources were initially limited and they had to persevere many challenges.
Nonetheless, money started streaming in from friends, angel investors, and relatives. They created a token generation event, which is a crowdfunding strategy for cryptocurrency startups. Initially, the entrepreneurs raised $600,000 and they named their company KuBitX, and later raised more than one million dollars.
In the next three years after they acquired the funds, the firm hopped from one ambitious project to the next: it started as a crypto exchange and then a blockchain payments network to be used in the whole African continent. Both ventures failed on May 31, when the CEO pulled the plug by resigning.
Blockchain and cryptocurrency startups have reportedly exploded in Africa aiming to serve a quick-growing market. However, they are negligible when compared to those operating in western Europe, Asia, and North America.
Africa provides a massive potential for blockchain development and it has been a topic of discussion in recent years. Beyond powering crypto transactions, blockchain is designed for other applications. For instance, the Ethereum blockchain has introduced smart contracts and unleashed a new revenue stream via non-fungible tokens (NFTs) that are used to represent even physical assets.
The struggle seen in the case of KuBitX shows that the African blockchain startups space is facing lots of challenges. Recently, the Ethiopian government made a lucrative deal to set up a national database of teacher and student Ids using blockchain technology. This move signals that the African governments are starting to deploy budding technology to solve challenges that are not related to cryptocurrencies.
However, KuBitX’s struggle shows that startups on the continent lack technical know-how and they do not have defined ways of managing to fund as they grow. Notably, most of these startups fail due to reasons mainly clear in retrospect. The KuBitX journey is illustrative for the African startups which are trying to grab the available opportunities in the global cryptocurrency ecosystem.
Creating A Tech Startup With Zero Technical Know-How
The KuBitX founders had invested in crypto and blockchain but did not know a lot about these technologies. Eric Annan, the Ghanaian living in Abuja, Nigeria, did not have any idea what blockchain was until around 2016. Previously working as an account manager for Chinese technology behemoth Huawei and a microfinance bank founder, he placed his first cryptocurrency bet on OneCoin.
OneCoin was a much-hyped crypto firm that eventually turned out to be a Ponzi scheme. Many of his ideas about blockchain then came from a careful reading of ‘The 7th Disruption: The Rise of the Digital Currency Billionaire’ by Thomas McMurrain. In 2017, Annan said at a conference:
“Blockchain is the future. We need to start thinking outside the box. China or America won’t solve our problems. We must solve them ourselves.”
However, after he launched the Digital Kudi crypto trading platform in 2017, he believed that he could achieve much more by partnering with others. Annan met one of his partners through a WhatsApp group of students who were taking free courses on cryptocurrency and blockchain at the University of Nicosia in Cyprus.
Initially, Annan believed that he was signing up a developer when Amadeu joined him. That factor made the entire project haphazard since Amadeu was a planning engineer and an account manager at British Petroleum in Angola. On the other hand, Akoma-Philips was a Nigerian program manager working at Dell EMC in Canada. All of them had no experience in blockchain technology.
They invested in the blockchain space using a trial and error method. The entrepreneurs went on to incorporate their business in Malta, a crypto-friendly nation, but they later decided that it was too expensive after being exploited. One of the agents kept the money that the three individuals provided to register a Malta bank account.
They turned to Mauritius but it did not favor them too. KuBitX was eventually incorporated in Seychelles. Annan took up the CEO position, Amadeu became the CTO, while Akoma-Philips became the COO. None of them had any experience in building any type of fintech product. Furthermore, they all had not gone through any startup mentorship.
How They Pushed KuBitX To The Ground
KuBitX failed to employ in-house developers to create their minimum viable product (MVP) despite the co-founders’ inexperience in coding. MVP would be the initial workable version of their cryptocurrency exchange. They opted to partner with an American firm for technical assistance paying them at least $150,000 for the MVP as explained by Akoma-Philips.
Moreover, they hired another US-based company and several consultants which made them spend a lot of money that they could have saved by employing some in-house developers. Annan commented:
“To be honest, that is one of the early-stage terrible mistakes we committed. Again, the rationale was to get a global partner who had a track record to validate our platform.”
Most of the African technology startups also end up using firms from other continents to handle most of their projects’ technical aspects. In some cases, this strategy results in successful products. In other cases, it causes failure and exploitation since the external companies are normally interested in making profits instead of helping the startups thrive.
The co-founder and COO of Ingressive For Good which is a non-profit firm that teaches Africans tech skills, Sean Burrowes, commented:
“Africa does not currently have the technical talent to become competitive within the global Fourth Industrial Revolution.”
Burrowes launched his non-profit organization in 2020. He said that African startups mostly do not have enough resources to hire highly skilled developers. He added that the education system does not deliver high-level technical skills.
Most of the startup founders also do not have the necessary technical knowledge, which compels them to hire foreign firms and take their word on project development matters. Burrowes said:
“African startups hiring talent have a hard time assessing skill sets; and the African tech ecosystem screams for affordable competent talent, but doesn’t invest into the creation of said talent.”
As they were waiting for their crypto exchange to go live, the KuBitX founders accumulated more than 50 members from across the continent. They assigned every member a different role ranging from marketing to management. Most of the positions were not needed at the time. Annan told Quartz Africa:
“We built a company before we realized that we’re a startup. If I was doing it today, I would go on the lean startups’ methodology. Do customer surveys, interviews, and bring in team members who are problem solvers, aligned to the ‘why,’ and able to deliver the ‘what.’”
By the time the exchange went live, they had lost over $400,000, which was nearly all the money they had acquired from relatives, friends, and the initial coin offering (ICO). The exchange failed to attract a lot of market makers to maintain the healthy liquidity of their tokens. They also did not have money to advertise the crypto exchange and they faced a downturn in the cryptocurrency market.
Managing A Startup With No Mentorship Or Template
After losing their investment, Annan decided to learn something about blockchain and crypto technology. Jack Dorsey’s visit to Nigeria inspired Annan to enroll in a 5-day intensive program for business owners, Techpoint Startup School. He remembers messaging his KuBitX partners after the program:
“Everything we were doing was wrong. We didn’t do any research. We didn’t do any customer surveys. We weren’t lean-minded. We just wanted an exchange and we built it. For us to succeed, we need to redo everything.”
The leaders did their analysis and discovered that they could not compete with names like Binance which were already popular among the African investors. They decided to build a blockchain-enabled fintech that will support quick payments with minimal service fees throughout the continent.
They referred to the fintech as “money on steroids.” The app users would send and receive money in form of tokens. That way, Africans could execute transactions across the entire continent without changing tokens into fiat currencies like dollars.
After pivoting, they got 250,000 Canadian dollars from a Canadian angel investor and an additional $100,000 from another Canadian investor. They used the funds to kickstart their new venture and signed a partnership with Interswitch aiming to achieve different goals. They joined hands with Interswitch to enable users to fund their wallets and spend from the platform while traveling around the continent.
In July last year, Amadeu moved from Angola to Brazil and left the startup. He told reporters that KuBitX was one of the major challenges he had encountered in his life. He said:
“We had always planned to take the company to a certain stage and then step down and bring in people with more market expertise. It was the main reason I left my day-to-day operations on the project.”
Learning From Mistakes
After Amadeu’s departure, Akoma-Philips brought his experienced developer friend to be the CTO. The CTO reorganized this startup and employed reorganized the company and employed in-house developers.
KuBitX managed to create a wallet to transact between Nigerian naira and Ghanaian cedi. Annan said that the company made at least one million dollars in transactions through the app. They wanted to eventually tokenize up to 16 other currencies in Africa. Their funds got depleted and they struggled to pay developers. Eventually, the new CTO left due to management and operational disagreements.
“If you find a really good mentor, it will save you a lot of headaches, whether around policies, funding, hiring, or even equity dilution.”
The regional director for Africa at the Founder Institute, Chukwuemeka Fred Agbata, learned about KuBitX when Annan enrolled in accelerator programs for the startup founders in 2020. Lack of external mentorship was a challenge for the firm. The successful fintech startups in Africa including Flutterwave and Paystack have founders who took the initiative to go through institutional mentorships that offered templates and linked them with viable investors. Agbata added:
“If you find a really good mentor, it will save you a lot of headaches, whether around policies, funding, hiring, or even equity dilution.”
What Broke The Startup?
Annan started to explore ways to raise funds as KuBitX accounts ran dry. He joined the Founder Institute but his ideas clashed with those of other team members. They did not want to go that way since they thought they were not ready for venture capital.
Annan wanted the company to move from Seychelles to Delaware, to enable it to raise more money in the United States. Most startups in developing countries looking for funding are forced to incorporate in Delaware. Potential investors questioned why Annan’s company was registered in Seychelles.
Akoma-Philips felt that KuBitX needed more time to organize themselves and prepare for funding. Communication also became rare and he never even exchange a single message with Annan for more than three months. Annan stayed away from the firm for over a month last April since he was sick and he resigned after recovery and relinquished his equity. Annan said later:
“The single most difficult thing is alignment. We had an experienced team, but alignment killed us. If you don’t have alignment, you can have 1 billion dollars and still fail.”
The other team members decided to shut down KuBitX after the ‘captain’ relinquished his equity. Some went on different paths while others joined hands to help develop an Africa-centric blockchain. The platform is known as Bantu Blockchain Foundation and it is believed to resolve some of the issues affecting African startups, enabling them to thrive.
