Behind Swvl - analysis of the biggest startup fall in the Middle East
From a billion dollar Middle East unicorn to a company trading at less than $1. This is my personal analysis of what happened to Swvl and how can we, as startup founders, learn from it.
Hello to the 23 new subscribers who joined in the last 2 weeks, welcome to this community!
I wanted to bring some big oops story, a local start up fail. But obviously it’s quite hard to get an interview. So, till I manage to get one (and I won’t give up that easily), I’ll choose a couple of well know companies and do my own analysis based on public materials. Trying to understand what happened, why the startup didn’t succeed and how can we learn from it.
And as WeWork is all over the news again, it kind of reminded me the story of Swvl, a local unicorn with a very similar startup journey.
Hope you’ll enjoy this format! Let me know.
And a reminder to all starting UAE founder, multiple local incubators opened their applications after months of inactivity, maybe this is your chance to get some support (all with deadline this month - Antler MENA, 500 Global, Intelak)
Now, let’s jump into my analysis behind the fall of the MENA unicorn - Swvl.
For those who are not familiar with Swvl, it’s a company founded in 2017 in Egypt, as a pioneering mobility startup that aimed to transform urban commuting. By deploying buses on specific routes, users could book rides through a smartphone app, offering a convenient alternative to traditional public transport.
This may not sound very interesting for readers from the EU, where public transport is run by cities and usually very efficient. In Asia and emerging markets, the situation is different and public transport is insufficient or non existent. Like in Dubai. The Dubai Metro can’t keep up with the demand and there are local players, operating small buses to take people around the city for a low price. Swvl wanted to tap into this market.
From startup to unicorn: Swvl's meteoric rise
The company's vision quickly gained traction, attracting the total of 24 investors (such as Careem, BECO Capital, Endeavor Catalyst, VNV Global) and raised $264 million.
Swvl's rapid ascent to unicorn status was fueled by a series of successful funding rounds, culminating in its listing on the NASDAQ stock exchange in July 2021. The company's value soared to $1.5 billion, and it was celebrated as the first Middle Eastern unicorn to be listed on the NASDAQ. Swvl's model appeared promising, offering a blend of cost-effectiveness and convenience. They seemed to solve a really painful problem for many cities.
If you’re interested, here’s a super detailed investor presentation.
A Downward Spiral: The Unraveling of Swvl's Success
However, Swvl's story took a sharp turn as the company faced a series of challenges that led to its current precarious situation. Despite its initial success, several factors contributed to its downfall:
Pandemic impact: This truly was a bad timing. The COVID-19 pandemic hit the transportation industry hard, leading to a decline in demand for public transportation services. Lockdowns and social distancing measures disrupted Swvl's operations and affected its revenue streams.
Growth at all cost: Swvl's rapid expansion into new markets strained its operational capabilities and resources. 115 cities across 18 countries on 4 continents really is a rapid expansion. High operational costs, coupled with limited revenue streams, contributed to the company's financial difficulties.
Global factors: The Russian-Ukrainian war and subsequent energy price increases affected Swvl's operating costs. The global economy's uncertainty, coupled with inflation and currency fluctuations, impacted the company's financial stability.
Stock Market Turbulence: Swvl's shares, initially valued at $10 per share, experienced a significant decline shortly after its listing on the NASDAQ. The company's stock price plummeted by nearly 95%, leading to compliance issues with the NASDAQ's minimum share price requirements. Swvl is not trading at $0.78.
Now, what can we, as startup founders, learn from this?
Adapt: The ability to pivot and adapt to unforeseen challenges is crucial for a startup's survival. Swvl actually transitioned from bus rides to logistics and delivery services which helped them to stay relevant in the markets.
Diversify: Relying on a single revenue stream can leave a company vulnerable. Swvl's diversification strategy, branching into delivery services and e-commerce logistics, shows us the importance of having multiple income sources.
Balance growth: Rapid expansion should be balanced with financial prudence. Swvl's overexpansion led to operational strain and financial stress. Startups should grow sustainably, not getting blinded by hype and over-valuation.
Build financial resilience: As a growing startup, it’s difficult to get prepared for a pandemic, followed by a global economic crisis. However as founders we should keep in mind anything can happen on the market and we should have enough cash to survive inevitable bear markets.
I personally knew many people woking at Swvl, getting laid off, in search for a job in difficult market conditions, while taking care of their families.
And this brings me to my personal conclusion - as founders, we have enormous responsibility not only in front of our shareholders, but also our employees. Let’s not forget the human side of the business and the risk we put our employees into if growing at all cost. Someone has to pay for it eventually, and it often isn’t the founders.
Thanks for reading till the end, hope you found this article insightful! Let me know.
If you want to share your founder story in one of the next newsletters or know about someone you’d like to recommend, just reply to this email and let’s talk.
See you next week!
Kristina