BD Insider 203: How startups can stay on the better side of currency devaluations

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In this brief, we highlight strategies startups can use to manage currency devaluation. We also share other important stories that broke during the week.

📰 The Weekend Brief

Strategies in managing currency devaluation

On Thursday, the naira started trading at ₦999 to one dollar on official markets, a new low in a consistent slide in the value of the currency that started in June. In a challenging economic landscape marked by the naira hitting record lows against the dollar, startups face a daunting task of navigating through currency devaluations. The naira's recent plunge, driven by dollar shortages and policy changes, underscores the urgency for startups to adopt robust strategies for managing their operations in the face of ongoing depreciation.

a. Diversifying income streams:  Startups should look for revenue opportunities outside the country, by offering products and services to international markets, where they can earn foreign currency. This is the strategy Future Africa is employing with its portfolio companies, according to Iyin Aboyeji general partner at the early stage VC firm "we want to move as many of our companies as possible to start to export software and labour because we think that’s the only way to stay on the better side of this crisis — when revenues are in U.S. dollars,” he said. 

b. Hedging: Hedging is a risk management strategy employed by startups to protect against adverse financial fluctuations. It involves using various financial instruments, such as forward contracts, options, futures, currency swaps, and more, to offset potential losses caused by changes in currency exchange rates, commodity prices, interest rates, or other factors. For example, forward contracts lock in future exchange rates, providing protection against currency devaluation. Startups should carefully assess their risk exposure and consider seeking expert advice before implementing hedging strategies, as they entail costs and complexities while providing valuable risk mitigation.

c. Adjusting business models: In difficult times like this adapting business models is a strategic imperative for startups. This could involve modifying core elements of value creation, delivery, and capture to align with shifting market conditions, customer preferences, and competition. Startups must stay responsive to market dynamics, potentially pivoting their target market, product offerings, or revenue streams. For example Big Cabal Media scaled down its politics and governance vertical, to weather the challenges posed by currency devaluations. And Kippa is shutting down its payment's product for similar reasons.

d. Cost control: For startups operating in economies with consistent currency devaluation, cost control takes on added significance. It's a strategic lifeline. Startups must meticulously monitor expenses, maintain budget discipline in local currency, and optimise operations. For instance startups might want to switch from using the premium versions of software's like Airtable or Slack to the free versions. Unfortunately, layoffs could be part of these cost cutting measures.

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👀 What else happened?

• Safaricom fully acquired MPESA: Safaricom PLC has officially completed its acquisition of M-PESA Holdings Co. Limited from Vodafone, securing full control over the mobile money platforms. 
• Patricia clarified the status of its physical operations in Nigeria: After customers went to its Lagos based innovation hub, Patricia has clarified that it started full remote operations in 2020, contrary to allegations that it has absconded its Lagos office.
• Pade is helping employees get paid before payday: Pade's EWA provides employees with access to their earned wages when needed, instead of the typical month end remuneration, helping to reduce financial stress and enhance retention.

💼 Opportunities

• For cleantech startups: NITDA, in partnership with ONDI and with the support of JICA, is facilitating a one-week networking trip to Japan for chosen Nigerian CleanTech startups, apply here.
• Interested in becoming a technical talent? The Nigerian Federal Ministry of Communications, Innovation & Digital Economy is accepting applications for its 3 Million Technical Talent Program. Learn more about the program

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