Sky.Garden, Kenya’s Amazon-style marketplace, faces closure after funding fell through • TechCrunch

The future of Kenya-based Sky.Garden — an Amazon-style marketplace for third-party merchants to sell electronics, home goods and more — is in the balance after the startup failed to close a round of financing, according to a memo the startup sent out to employees.

An insider told TechCrunch that the startup’s co-founder and CEO, Martin Majlund, sent termination notices to employees earlier this month after a town hall meeting, during which he revealed that the company was running out money and will close on October 16.

However, contacted by TechCrunch, Majlund said that while the startup is facing a cash crunch, Sky.Garden was still in talks with investors and potential buyers in the hope of saving it from collapse.

“Sky.Garden Limited is still solvent and operations are still ongoing. We are in dialogue with potential investors and acquirers but as we have to be diligent about doing things the right way, we chose on September 16th to give our staff 30 days’ notice while working on our opportunities,” said Maljund, adding that 2022 has been a very tough year for startups/scaleups in general.

VCs in developed markets have been warning of a funding winter — with the pace and size of investments in startups slowing down considerably in the wake of other declines in the market — and that has been playing out even more in emerging markets like Kenya, too.

Majlund noted that the overall market in 2022 has been a struggle. Some of that may have been masked by a handful of mega rounds that catapulted Kenya to the top of the ranks for startup funding on the African continent earlier this year. But by and large, VCs have pulled away from new investments, and those who are making them are doing so at a slower pace.

“Rising prices, inflation, war in Ukraine and increased interest rates has made the venture capital space very challenging, especially being a B2C e-commerce business,” Majlund noted. “We have therefore for a while been in deep M&A conversations. But we are not the only ones being hurt by the macroeconomic contractions which have had a negative implication on the timeline of these conversations leaving us in the above-mentioned situation.”

Sky.Garden raised $4 million in a Series A round of funding last year, bringing the total amount it had raised from VCs to $5.2 million. The startup has been around since 2017 and has thousands of small and medium-sized businesses selling through its online marketplace. The startup ensures “end-to-end” fulfillment of orders, and earns an 8% commission for every sale made through its platform.

It’s a model perhaps made most popular by Amazon, although the e-commerce behemoth’s success in executing that has been largely on the back of huge economies of scale that has given it more diversification and helped it balance declines in some areas against expansions in others.

But despite Sky.Garden’s reach in Kenya with merchants and buyers, the company itself is a much smaller affair, with just 46 employees, according to LinkedIn records.

Sky.Garden is a well-known brand in cities like Nairobi, where it promised deliveries of goods purchased on the platform within 24 hours. But it’s not clear how much the company was making in revenues, or how that figure has grown or declined over time.

“Sky.Garden has had a positive impact on thousands of small businesses, hundreds of thousands of consumers and hundreds of boda boda drivers for the past six years. We strongly believe we can continue this impact with the right partner going forward,” Majlund added.

Even scale can be elusive and profitability long in coming when it comes to e-commerce. In Kenya, Sky.Garden offered direct competition to NYSE-listed Jumia, Africa’s biggest e-commerce marketplace, which is still not profitable over a decade after launch, despite reports of growing e-commerce uptake in Africa.

And as companies like Jumia continue to record growth in revenues, customers and basket value, the reality is that e-commerce marketplaces in Africa are cash-intensive ventures that suffer numerous hurdles, not least those associated with hesitancy among consumers and merchants to pay before a good is received, and to use payment cards to do so. Most players have had to build in cash-on-delivery options, which in themselves are less efficient and come with their own challenges.

The absence of a reliable national courier service also means that most e-commerce companies have had to set up in-house dispatch teams, an expensive undertaking.

All of these have played into Sky.Garden’s own story, and raises the question of how other smaller startups in the same category will fare in the coming months.