Kloud Commerce: A Case Study in a Startup's Fatal Flaws

Kloud Commerce was a direct-to-customer (D2C) e-commerce Nigerian startup co-founded by Olumide Olusanya (CEO), David Umoh (CTO) and Frank Atashili (CPO) in 2021. Also known as PayPecker, they provided cloud infrastructure solutions for retailers, restaurants, their suppliers and customers in Africa.

Kloud Commerce was venture-backed. Their seed round amounted to $100,000 with LoftyInc as the lead investor. They reportedly raised $765,000 in total funding with backing from eighteen investors, including Flying Doctors, Niche Capital, and KO Capital.

The Business of Kloud Commerce

In 2022, Kloud Commerce was poised to become the D2C retail powerhouse in Africa by enabling direct-to-customer retail through its headless commerce platform. This business model allowed global brands to sell directly to African customers by decoupling the front-end (shopping website) from the back-end (payment, logistics, and return management).

The startup also offered additional products, Omni for B2C operations and GoDigital for B2B operations. This way, it was positioned as the all-in-one composable infrastructure that partnered with payment providers and delivery services to streamline digital commerce across several African countries. The business established operations in Nigeria and Ghana, with plans to expand to other African countries.

The Issues with Kloud Commerce

While Kloud Commerce’s business model proved to be an attractive proposition for investors, it started business operations before having an actual product. It set a lot of fast-paced goals, for example, launching in twenty-four African countries and targeting a billion-dollar valuation in two years.

The company’s funding strategy did not directly impact daily operations. However, its unrealistic investor updates and the constant pursuit of additional funding led to poor financial management. Delayed salaries were a clear sign of this.

The company’s expenditure-heavy approach (expensive office spaces, hiring more staff than necessary, and expensive event sponsorships) presented chaotic operational priorities.
According to insider information, Kloud Commerce expanded its operations to Ghana in 2021, when it had not fully set up business in Nigeria. The Ghana team required a total sum of $5,000 in salaries per month. By the end of the year, the company committed a significant sum to participate as a headline sponsor at Accra Fashion Week.

Factors that led to Kloud Commerce's Shutdown

Kloud Commerce’s issues primarily stemmed from internal mismanagement and unrealistic targets, which resulted in operational difficulties. An investigative piece revealed investor uncertainty. Initially, investors’ fears were assuaged by periodic reports of the company’s growth. Over time, they found out the reports were false and intentionally hiked to get more funding from investors.

The investigation also revealed the founder engaged in a series of disputes with the executive team. He allegedly misappropriated company funds by diverting money meant for Kloud Commerce for personal use, putting personal expenses on official accounts, and spending money on expensive hotels and car rentals during trips outside Nigeria.

The staff made several complaints about demands with impossible timelines and continuously altered product development briefs, which deviated from agreed work schedules. These developments were coupled with a blatant enforcement of hierarchy. This considerably thinned down the development team, as staff were clearly overworked, at the expense of their emotional and mental health.

By December 2021, Kloud Commerce’s CEO informed investors via email about the company’s lack of funding, and the need for a $100,000 bridge round. This led to a board meeting in April 2022 and account audits before the end of May. These revealed that the company had more than 100 million naira in liabilities. The CEO had withdrawn significant sums as advance salaries for himself, while staff were being owed for months. He had also taken a total of $9,000 in entertainment allowance and diverted a considerable sum of investor funds given to him personally.

Investors tried to salvage the company from imminent failure by providing more funding. However, the CEO rebuffed their assistance. From May to September 2022, Kloud Commerce ceased daily operations, and by September, the CEO announced that the company would permanently cease operations.

In March 2023, Olumide Olusanya, the CEO, was reportedly taken into custody by the Economic and Financial Crimes Commission (EFCC), due to a petition submitted by the investors. Both parties involved – the founder and investors declined to comment more about the matter. The CEO was released some days later. He also declined to comment on the allegations.

Key Takeaways
Kloud Commerce had a brilliant business strategy, and, ironically, a short business span. Its inflated performance metrics heavily undermined investor confidence and support. The top executive’s choice to prioritise flashy events and optics over building a functional and efficient product destabilized the company. Lack of financial discipline and transparency also eroded trust in internal teams and between investors.

The founder’s unilateral decision-making ultimately led to co-founder conflict. This played a significant role in the startup’s decline, further proving the need to choose the right co-founder.