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The scandal shaking Africa's tech ecosystem

Midsection Of Businessman Holding Toy Blocks With Coins At Desk — Credit: Nattapong Wongloungud / EyeEm

Two articles have opened a can of worms and shaken Africa’s tech ecosystem to its core in the last two weeks. Both put Flutterwave, the continent’s highest-valued startup, under the spotlight.

The first article, published by Clara Wanjiku Odero, a former Flutterwave employee, on April 4, accused the company’s CEO, Gbenga Agboola, of bullying, intimidation, and coercion while accusing the company itself of negligence leading to endangerment. The second article, published by journalist David Hundeyin on April 12, investigated fraud, perjury, and insider trading allegations.

All of this followed an interview published on the night of April 3, which chronicled Flutterwave’s journey from inception to a $3 billion valuation. In it, Agboola referenced lawsuits from some former employees, including Odero:

“An ex-employee who led one of our country expansions sued us for negligence and emotional trauma for not removing their name as the contact person in the country. So anytime there was a merchant enquiry, they were called. They said this was emotional harassment.
“We tried to resolve this amicably, but it was impossible. They asked for $900,000 to quash the lawsuit. We refused because we didn’t believe $900,000 in damages represented the cost of the alleged negligence. They proceeded with the lawsuit, and the judge awarded them an equivalent of $2,500 for damages. When it was time to cut the check, they declined it and said they’d appeal.”

This statement in the interview supposedly triggered Odero’s article, followed by questions and conversations about Flutterwave’s culture and Agboola’s leadership. The investigative report landed a few days later, and conversations became even more heated.

A lot has been said in the last two weeks, but there are still some angles to explore.

I. How not to respond to serious allegations

Flutterwave’s public statements and crisis communications have been classic examples of how not to respond to serious allegations.

Its statement to TechCrunch regarding Odero’s claims was lukewarm at best. Perhaps because there are still ongoing legal proceedings, and this kind of issue is better handled in court than publicly. Still, when presented with the opportunity to address the matter pointedly, the company chose to say a lot without really saying anything.

Its response to the investigative report was no different, but it should’ve been. Flutterwave said it was “based on recycled and previously addressed claims and several others that are false” while asserting that it takes “all claims of this nature seriously, and [is] conducting a thorough review.” However, in the same article containing Flutterwave’s response, one of the allegations (of impersonation) made in the investigative report was practically corroborated by the company’s former CEO and co-founder, Iyin Aboyeji.

Here’s an excerpt:

“One of the many actions Agboola was accused of was creating a ghost ‘co-founder’ identity, who went by the name Greg, to give himself more shares, in the company’s early days. To this, Aboyeji told TechCabal that the agreement between the co-founders was that Agboola would hold some shares in trust for the fictitious Greg.
“‘When I joined the company, I was told there’s a chief technology officer named Greg, who’s from MIT, whom I’d meet someday. It never happened,” Aboyeji said. “After a while, it became clear what had happened. By that time it didn’t matter. We [Aboyeji and third co-founder Adeleke Adekoya] had already signed agreements, and I decided to just move on.”

None of the statements Flutterwave put out has been satisfactory, especially when the accusations are so grave. Whether deliberate or not, communication has been opaque, and trust has significantly eroded. But in some ways, the company’s decision to be opaque is understandable, particularly if the goal is to say as little as possible and ride this out.

Still, there are significant implications to consider.

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II. The implications

While I don’t think these allegations will sink the company, they’ve done massive damage to its reputation. They will also affect investor confidence in the company while inviting additional regulatory scrutiny and increased legal liabilities.

It’s also difficult to shake off the feeling that this might impact the ecosystem’s relationship with foreign investors, even though it shouldn’t. I don’t believe any investor should look at this situation and draw conclusions based on it. Will it come up in conversations? Yes. I can imagine this case becoming a reference point for investors who aren’t fully embedded into the ecosystem and rely on signals to make decisions.

This episode is reminiscent of Wells Fargo’s account fraud scandal, for which the US government fined it $3 billion in 2020. The bank admitted to pressuring employees between 2002 and 2016 by giving them unrealistic sales targets, which led thousands of them to open millions of accounts for customers without their consent and under false pretences. This incident undoubtedly impacted the company’s reputation, which it had spent more than a century building.

In 2017, it began an apology campaign to rebuild its image and win back its customers’ trust. However, the campaign was built on the bank’s admittance of wrongdoing and a visible commitment to changing things internally and externally. In this case, silence and opaqueness weren’t options. The situation was too grave for that.

For Flutterwave to repair the damage this has caused, there has to be a similar level of incision and openness. Silence, in this situation, is not golden.

III. Flutterwave’s communications debt

Startups optimise for different things at various stages of existence. They pursue a set of ideas and outcomes at the expense of others—a classic case of opportunity cost. However, in some instances, the opportunity cost is higher than they imagined.

For example, startups sometimes incur technical debt when the team focuses on functionality and speed of delivery over perfection. Their product will function (to a large extent) and move them from zero to one, but not without underlying issues that will still need fixing in the future. Sometimes, fixing those issues comes at an additional cost.

There’s also culture debt, where a startup hires too many people too quickly at the expense of building a sustainable positive culture. Because it’s grown so fast, it becomes more challenging to align employees with the company’s vision and direction. It also becomes nearly impossible to give everyone clarity on what they’re doing and how it fits into the bigger picture. In the end, the startup will grow but at the expense of employee satisfaction. You can expect a high churn rate to follow.

Similarly, we can say that Flutterwave has accrued a communications debt. Like many startups, it has prioritised growth and marketing at the expense of core communications. For a company this large and consequential, not having a communications engine that goes beyond publicising its fundraising and expansion plans is risky. This series of events shows precisely why.

First, a proactive and robust in-house communications engine would have caught this story early (which Flutterwave did) and prepared a multi-step plan for resolution (which Flutterwave didn’t). The company’s handling of this crisis indicates that it wasn’t ready for this kind of outcome, and it didn’t think too far ahead with its resolution plan. The timing of the interview suggests that it was an attempt to get in front of the story, but the responses that followed pale in comparison with the gravity of the situation.

Proactivity is always the best course of action. Preparation is the next best option. To understand better, let’s look at Monzo, a European fintech startup similar to Flutterwave and with roughly the same valuation range. Both are building for a global market and operate in tight regulatory environments.

Monzo was founded a year before Flutterwave, but it runs a significantly more robust communications team. This includes a communications director who’s a former journalist, a PR and communications manager, an internal communications lead, product and marketing communications personnel, etc. It also employs agency services to amplify its in-house efforts.

Monzo has had its scandals in the past. In 2019, a BBC Watchdog investigation revealed that the company had been freezing and closing down some of its users’ bank accounts, causing them financial difficulties. Monzo CEO Tom Blomfield released a statement to set the record straight, explaining that the company blocked the accounts for suspicious activities. He also explained the regulatory framework behind the decision.

In 2021, it got involved with the UK’s Financial Control Authority. The FCA sent letters to a few retail banks, including Monzo, informing them that it was investigating their anti-money laundering controls. As it did in the previous instance, the startup chose the path of transparency by acknowledging the investigation and explaining in clear terms to its customers what the implications were.

That’s how to get in front of a crisis.

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IV. Conclusion: What’s there to learn?

We’ve published three essays in this newsletter (here, here, and here) about why the startup ecosystem needs to move beyond fundraising PR and why the ecosystem has to realise communications is much deeper and more integral to operations than getting a few press releases published.

One of the core functions of communications is threat and weakness detection. Sometimes, businesses miss things because they’re not incentivised to notice them and because there’s no one within the company whose sole responsibility is to pay attention to things others don’t. An efficient communications engine solves that. It picks up signals that could potentially damage an organisation’s reputation and lays out plans for resolution, including making hard and uncomfortable decisions involving personnel.

As tech ecosystems across the continent continue to develop, as more investment dollars come in and startups grow, more scrutiny and more stories like these will follow. There’s far more attention today than there was three years ago, and far more at stake.

Still, founders don’t need scandals and crises to realise the importance of setting up solid communications engines. Internal communications, corporate social responsibility, good customer service, conflict resolution, and threat and weakness assessments are as crucial as media relations and brand storytelling.

As the ecosystem grows and attracts more attention, all the engines within it also have to grow. This includes investing in communications efforts to match.

We’re hosting our first event this Friday!

If you’re in Lagos, join us on Friday, April 22, as we host our first edition of Creators’ Circle in partnership with the Creative Economy Practice at CcHub. For more details and registration, click here.

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Communiqué

Communiqué 26: The scandal shaking Africa's…