Vendease Restructures Salaries: YC-Backed Food Supply Startup Update

Vendease Restructures Pay and Seeks New Funding

Nigerian food procurement startup Vendease, which has backing from Y Combinator, has implemented changes to its employee compensation structure and is currently pursuing additional capital investment, as reported by TechCrunch.

Workforce Reduction and Compensation Shift

This follows a recent workforce reduction impacting 44% of its employees – approximately 120 individuals – representing the second round of layoffs within the past five months. The startup has transitioned from traditional salaries to a performance-based pay system, complemented by an Equity Share Option Plan (ESOP).

Navigating Towards Profitability

Vendease, established five years ago and having secured $30 million in Series A funding led by Partech Africa and TLcom Capital, states that this restructuring is essential for achieving profitability.

Five-Phase Salary Recovery Plan

Internal documentation reveals a five-phase plan for salary recovery. In February, all employees received a standardized payment of ₦140,000 (~$90), irrespective of their prior compensation levels.

From March through May, wages will be adjusted to 30% of previous amounts, contingent upon the attainment of specific performance targets, which remain undefined in the available documentation.

Progressive Salary Restoration

Further increases are planned: compensation will reach 60% of former salaries between June and August, and 90% from September to November. Full salary restoration is anticipated by December, dependent on both company and individual performance metrics.

ESOP and Share Options

The deferred portions of salaries will be converted into share options under the ESOP. Vesting will occur with 50% over a 10-month period and the remaining 50% over three years. However, employees can only exercise these options at a fair market value approved by the board.

Break-Even Point and Operational Focus

The company has confirmed these changes to employee pay, asserting that it has reached a break-even point and is nearing profitability.

A company spokesperson explained, “Vendease has restructured both its business and operations. We’re a software company, and we want to focus on facilitating OPEX-heavy operations with technology rather than handling them ourselves.”

Encouraging Productivity and Sustainability

These changes are designed to incentivize employee productivity while bolstering the company’s financial stability. The spokesperson added, “We only spend what we earn, which keeps us consistently at break-even and focused on profitability.”

Future Strategy: Restructuring, Capital, and AI

With a remaining workforce of just over 150 employees, Vendease is relying on internal restructuring, new capital, and the implementation of AI-driven efficiencies to reduce costs and maintain operations.

The company is prioritizing software-driven growth, concentrating on its sales and payment solutions, and credit marketplace. Simultaneously, it is phasing out warehousing and logistics operations.

Vendease's Reliance on BNPL for Financial Stability

Established in 2019 by Tunde Kara, Olumide Fayankin, Gatumi Aliyu, and Wale Oyepeju, Vendease initially focused on optimizing food procurement processes for restaurants and food-related enterprises across Africa.

The company asserted its ability to resolve inefficiencies within the food supply chain, which reportedly resulted in substantial financial losses for businesses annually. By 2022, Vendease reported facilitating the movement of 400,000 metric tons of food for over 2,000 clients.

This activity, they claimed, generated $2 million in procurement savings and reduced wastage-related losses by approximately $500,000, primarily within its key market of Nigeria.

However, the past two years have presented significant challenges for Vendease, mirroring the difficulties faced by numerous Nigerian startups lacking revenue denominated in foreign exchange. Despite a tripling of revenue in Nigerian naira since its Series A funding round in September 2022, the currency’s substantial devaluation has negated these gains when converted to US dollars.

Furthermore, rising inflation has increased operational expenditures, impacting the profitability of this labor- and capital-intensive venture.

The Rise of Buy Now, Pay Later

Vendease’s buy now, pay later (BNPL) product has emerged as a crucial revenue stream over the last year. Traditional lending institutions often hesitate to provide financing to food businesses due to their inherent volatility and fragmented nature.

Vendease capitalizes on its in-depth understanding of the supply chain to assess loan eligibility through its marketplace, effectively connecting financial institutions with food businesses.

The company reports a default rate of less than 1% over the preceding two years and has disbursed over $70 million in credit as of September 2024.

Mohamed Chaudry, upon joining as CFO in January 2024, identified BNPL as a potential pathway to profitability. Nevertheless, despite recent adjustments, the credit product alone appears insufficient to achieve this goal.

His arrival also initiated an ongoing restructuring process aimed at strengthening financial controls and extending the company’s cash reserves, which sources indicate may only cover a few more months.

Seeking Further Investment and Exploring Options

Consequently, Vendease is currently engaged in discussions with both existing and prospective investors to secure a bridge round of funding.

These funds will be allocated to technology development and expansion initiatives, rather than covering day-to-day operational costs.

Sources suggest that Vendease has also considered a potential sale to other companies operating within the HORECA (hotels, restaurants, and catering) and FMCG (fast-moving consumer goods) sectors.

However, the company refutes these claims, stating that it is the recipient of acquisition inquiries, not the initiator. A spokesperson clarified, “It is common to receive M&A approaches, particularly for rapidly growing businesses in a specialized field like food.

Vendease has indeed been contacted, but the founders remain focused on scaling the business and have no immediate plans to sell.”