The future of Kenya-based Sky.Garden — an Amazon-style marketplace where third-party merchants sell electronics, home goods and more — hangs in the balance after the startup failed to close a financing round, according to a memo from the startup. Sent to the staff.
An insider told TechCrunch that the startup’s founder and CEO, Martin Majlund, sent termination notices to employees after a town hall meeting earlier this month, saying the company was running out of money and would close on October 16.
However, Majlund, contacted by TechCrunch, said that while the startup was struggling financially, Sky.Garden was still talking to investors and buyers in hopes of saving it from bankruptcy.
“Sky.Garden Limited is still in liquidation and operations are still ongoing. We are talking to potential investors and investors, but as we have to work hard to do things the right way, we have chosen on September 16 to give our employees a 30-day notice while we work on our opportunities,” said Maljund, adding that 2022 has been a tough year for startups/scaleups in general.
VCs in developed markets have been warning of a funding winter — the pace and volume of investments in startups has slowed sharply following downturns in other markets — and this is playing out even more in emerging markets like Kenya.
Majlund noted that the overall market was struggling in 2022. Some of it may have been overshadowed by the few mega rounds that topped the African continent for startup funding earlier this year in Kenya. But in general, VCs have pulled out of new investments, and those that are doing so are doing so slowly.
“Rising prices, inflation, the war in Ukraine and rising interest rates have made the venture capital space very challenging, especially in the B2C e-commerce business,” Majlund said. “So we’ve been in deep M&A talks for a while now. But we’re not the only ones affected by macroeconomic contracts that have negatively impacted the timeline of these talks.”
Sky.Garden raised $4 million in a Series A round of funding last year, bringing its total funding from VCs to $5.2 million. It was launched in 2017 and has thousands of small and medium-sized businesses selling on the online marketplace. The startup ensures “end-to-end” fulfillment of orders, and earns an 8% commission for every sale made through the platform.
It’s a model favored by Amazon, although the e-commerce behemoth’s success on the back of huge economies has given it more diversification and helped balance a slowdown in some areas with expansion in others.
But despite Sky.Garden’s reach with merchants and buyers in Kenya, the company itself is a relatively small affair, with just 46 employees, according to LinkedIn records.
Sky.Garden is a popular brand that promises to deliver items purchased on the platform within 24 hours in cities like Nairobi. But it’s unclear how much revenue the company earns, or how that figure has grown or fallen over time.
“Sky.Garden has had a positive impact on thousands of small businesses, hundreds of thousands of consumers, and hundreds of boda boda riders over the past six years. With the right partner, we strongly believe we can continue this impact,” added Majlund.
Even scale can be elusive and profitable when it comes to e-commerce. Kenya’s Sky.Garden offers direct competition to Africa’s largest e-commerce marketplace, NYSE-listed Jumia, which is unprofitable a decade after its launch, despite reporting a growing e-commerce offering in Africa.
And while companies like Jumia are experiencing growth in revenue, customer base and basket value, the reality is that cash-driven e-commerce markets in Africa face many obstacles, including the reluctance of consumers and merchants to pay early. Receives an item, and to do this to use payment cards. Most players have had to build in cash flow options, which are inefficient and come with their own set of problems.
The lack of a reliable national courier service meant that most e-commerce companies had to set up in-house courier teams, which was an expensive undertaking.
All of these have played into Sky.Garden’s own story and begs the question of how other small startups in the same category will fare in the coming months.
