The inside story of how an ambitious African cryptocurrency startup failed

In 2018, three intrepid entrepreneurs from Angola, Ghana, and Nigeria undertook an ambitious journey to build a trading platform for digital currencies. One resigned from a high-paying job at Dell in Canada. They emptied their savings, building the firm with limited resources and stores of perseverance.

Money started coming in from angel investors, friends, and relatives. They put together a token generation event, a crowdfunding mechanism for crypto startups, that initially raised $600,000. Altogether, the company, which they called KuBitX, raised over a million dollars.

Over the next three years, they jumped from one ambitious project to another: a crypto exchange, then a blockchain payments system to be used across African countries. Both of them finally failed on May 31, when the CEO pulled the plug by resigning.

Crypto and blockchain startups have exploded in Africa to serve a fast-growing market, although they’re still negligible compared to east Asia, western Europe, and north America. The potential for blockchain in Africa has been much talked about. Beyond being a warehouse for crypto transactions, blockchain has wider applicability. Ethereum blockchain, for example, has brought about smart contracts and opened up a new revenue stream through non-fungible tokens, which can be used to represent physical assets.

The struggle of KuBitX reveals the crippling challenges of African blockchain startups.

The Ethiopian government recently made a deal to create a national database of student and teacher IDs using blockchain, a move that signals that African governments are beginning to deploy the technology to solve problems that are not related to cryptocurrency.

But the struggle of KuBitX reveals the crippling challenges of African blockchain startups, from a lack of technical know-how to the challenge of managing funding while growing. A vast majority of startups fail for reasons that are often only clear in retrospect. KuBitX’s journey is illustrative for African startups that are trying to grab opportunities in the global crypto ecosystem.

Building a tech startup without technical know-how

KuBitX founders had dabbled in cryptocurrency and blockchain, but really didn’t know much about it.

Eric Annan

One of them, Eric Annan, a Ghanaian living in Abuja, Nigeria, had no idea what blockchain was until 2016. Previously an account manager for Chinese tech giant Huawei and a microfinance bank founder, he placed his first crypto bet on OneCoin, a much-hyped cryptocurrency that ultimately turned out to be a Ponzi scheme. Most of his ideas about blockchain then came from reading The 7th Disruption: The Rise of the Digital Currency Billionaire by Thomas McMurrain.

“Blockchain is the future,” Annan said at a conference in Lagos in 2017. “We need to start thinking outside the box. China or America won’t solve our problems. We must solve them ourselves.”

But after launching a crypto trading platform called Digital Kudi in 2017, he realized he could do it better and bigger by partnering with others. He found one partner in a WhatsApp group of students who were taking a free course on blockchain and cryptocurrency at the University of Nicosia in Cyprus: An Angolan named Alex Amadeu, who had a crypto startup called Anglobit. The other was a friend, Victor Akoma-Philips.

“We need to start thinking outside the box. China or America won’t solve our problems. We must solve them ourselves.”

The whole thing came together rather haphazardly. At the beginning, Annan thought he was signing up a developer when he invited Amadeu. But Amadeu turned out to be a planning engineer and account manager at BP in Angola. Akoma-Philips, meanwhile, was a Nigerian program manager at Dell EMC in Canada, also with zero experience in blockchain technology.

They went about it through trial and error. They set out to incorporate in Malta, a crypto-friendly country, but later concluded it was too expensive, not before being exploited. One agent kept the money they provided to register a bank account number. Then they tried Mauritius, but that didn’t work out either. KuBitX was finally incorporated in Seychelles.

Annan became the CEO; Amadeu, CTO, and Akoma-Philips, COO. None of the cofounders had experience in building a fintech product. And none had gone through any startup mentorships.

How not to run a tech startup

Despite their inexperience in coding, KuBitX didn’t employ in-house developers to build their minimum viable product (MVP), the first workable version of their crypto exchange. Instead, they hired an American firm as their technical partner.

They paid the company over $150,000 for the MVP, according to Akoma-Philips. They also hired another US-based firm and some consultants along the way, spending money they could’ve saved by employing in-house developers.

“To be honest, that is one of the early-stage terrible mistakes we committed,” Annan said. “Again, the rationale was to get a global partner who had a track record to validate our platform.”

Many African tech startups also end up using companies outside the continent to handle the technical aspects of their projects. Sometimes that leads to successful products, but it can also result in failure and exploitation because outside firms are often more interested in making money than helping a startup grow.

“Africa does not currently have the technical talent to become competitive within the global Fourth Industrial Revolution,” said Sean Burrowes, co-founder and COO of Ingressive For Good, a non-profit organization that equips Africans with tech skills. He said African startups usually can’t afford highly skilled developers, adding that the education system doesn’t produce high-level technical skills.

Many startup founders also lack the technical knowledge, leaving them to take the foreign companies they hire at their word. “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,” said Burrowes, whose non-profit was launched in 2020 to support talent development on the continent.

While they were waiting for their crypto exchange to become functional, KuBitX’s founders assembled over 50 team members scattered across the continent with roles ranging from marketing to management. Most of these positions were not necessary at the time.

“We built a company before we realized that we’re a startup.”

“We built a company before we realized that we’re a startup,” Annan told Quartz Africa. “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 their crypto exchange was up and running, they had burned through $400,000, almost all the money they raised through friends and relatives as well as the initial coin offering, crypto market’s version of an IPO. They didn’t attract enough market makers to keep the liquidity of their tokens and had no money to advertise their platform. They were also facing a downturn in the crypto market.

When members of their oversized team began to exit, the cofounders found themselves at a crossroads.

Running a startup without a template or mentorship

 It wasn’t until they had already lost a lot of money that Annan decided to get clued up in late 2019. Inspired by Twitter founder Jack Dorsey’s visit to Nigeria, Annan enrolled in Techpoint Startup School, a five-day intensive program for business owners.

“Everything we were doing was wrong,” Annan recalled messaging his co-founders after the program.“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 held a retreat and agreed to pivot their startup. They figured out they couldn’t compete in the crypto exchange space, because competitors like Binance were already popular with African crypto investors. Instead, they decided to build a blockchain-enabled fintech that would facilitate faster payments with little service fees across Africa. They called it “money on steroids.” Their app users would be able to send money or receive money in the form of a token. This way, Africans could make payments across the continent without converting to outside currencies like the US dollar.

When they pivoted, they attracted 250,000 Canadian dollars from a Canadian angel investor and $100,000 from another investor, also Canadian, to pursue their new venture. They signed a partnership with Interswitch, an African payments giant, to achieve their goals of having their app users fund their wallets and spend from it whenever they travel around the continent.

In July 2020, Amadeu relocated to Brazil from Angola and left the startup. He told Quartz Africa that KuBitX was one of the biggest challenges he had ever faced. “We had always planned to take the company to a certain stage and then step down and bring in people with more market expertise,” he said.  “It was the main reason I left my day-to-day operations on the project.”

Picking up from their mistakes 

They learned from their mistakes despite the stumbles. After Amadeu exited, Akoma-Philips brought in a friend who was an experienced developer to be the CTO. The new CTO reorganized the startup and employed in-house developers.

KuBitX successfully built a wallet to transact between Ghanaian cedi and Nigerian naira, making over a million dollars in transactions through their app, according to Annan. They were planning to tokenize 16 other currencies in Africa.

But they ran out of cash and struggled to pay their developers. The new CTO left over operational and management 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.”

Chukwuemeka Fred Agbata, the regional director for Africa at the Founder Institute, learned about KuBitX when Annan enrolled in the accelerator program for startup founders last year. He said a lack of external mentorship was a challenge for the company. Successful African fintech startups like Paystack and Flutterwave have founders who went through institutional mentorships that provided business templates and connected them with investors.

“If you find a really good mentor, it will save you a lot of headaches, whether around policies, funding, hiring, or even equity dilution,” Agbata said.

The final hurdle that broke the startup 

As KuBitX became cash-strapped, Annan started exploring ways to raise funds. That was when he joined the Founder Institute. But his ideas began to clash with other members of the team. They were not enthusiastic about taking their startup through the Founder Institute at the time because they believed they were not yet mature enough for venture capital.

Annan wanted the leadership team to move the company from Seychelles to Delaware, in order to raise money in the US. (Most startups in Africa and other developing countries looking to do that are compelled to incorporate in Delaware.) The investors that Annan had pitched to questioned why their company was registered in Seychelles.

Akoma-Philips told Quartz Africa that he wasn’t against raising venture capital, but they needed more time to organize their startup to prepare for any funding. Then communication between him and Annan became rare, stretching over three months without a single exchange of messages.

Annan fell sick last April and stayed away from the company for about a month. He decided to resign after he recovered, relinquishing his equity.

“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 single most difficult thing is alignment,” Annan told Quartz Africa. “We had an experienced team, but alignment killed us. If you don’t have alignment, you can have 1 billion dollars and still fail.”

Moving on without KuBitX

Akoma-Philips believed they were on the path to recovery after their initial mistakes. They had begun an ambitious initiative with other Africans to build a pan-African infrastructure to facilitate blockchain-based solutions in the continent.

KuBitX’s wallet is built on the Stellar blockchain network and incurred costs every time users on their app signed up or made transactions, according to Akoma-Philips. At the first Stellar Conference in Mexico City, they sought ways to bring those costs down.

That quest ushered in a new initiative. They met other Africans at the conference, and decided to team up to launch a blockchain network. That would minimize their cost and also help other African developers come up with their solutions on this blockchain, according to Akoma-Philips.

An African-centric blockchain would have been very helpful for reducing their operational cost, but even if it existed, it wouldn’t have prevented the downfall of KuBitX. Akoma-Philips told Quartz Africa that they were already making progress with building a blockchain with some other African developers, but Annan’s resignation was shocking. “The captain left the ship,” he said. “Who is now going to run it?”

The rest of the team decided to wind up the startup. While KuBitX is definitely gone, the new blockchain did come to be. It’s called the Bantu Blockchain Foundation; some KuBitX staff are team members.

As Annan points out, failure isn’t fatal for an entrepreneur, and success isn’t final. It’s easy to see why KuBitX failed in retrospect, by not having mentorship and running out of cash, as well as not possessing the right technical skills in blockchain technology. But startups that check all the boxes still fail in record numbers.

Annan has moved on by founding Pan-African Builders, a safe space for entrepreneurs to connect and learn from each other. Akoma-Philips and others from KuBitX are building a foundation for other crypto startups at Bantu Blockchain. Despite the setback, they’re all fired up to continue pushing towards great enterprises, this time with experience at their back.

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