Lori Systems is the Google-backed Kenyan startup in logistics that raised $2 million in 2024 at a heavily discounted valuation of $5 million. The logistics startup’s valuation, which was once around $120 million, was slashed to just $5 million in the most recent bridge round. Delta40 led this round with Future Africa, FP Capital and other investors participating. The latest round of funding brings the company’s overall funding to Over $46 million
Lori Systems’ valuation decline from $120-million to $5-million reflects a wider trend of decreasing valuations for African startup companies. Lori Systems’ valuation decline from $120 million to $5 million reflects a broader trend of shrinking valuations for African startups.
Lori declined to provide specifics but other logistics startups have struggled to deliver the scale investors expect. Lori’s main market, Kenya, has only seen two other logistics startups, ApexLoad and Afrogility, raise a modest total of $200,000, a sum that is not even close to Lori’s. Only three logistics firms in Nigeria — Renda, Fez Delivery and Cargo Plus — disclosed funding rounds that raised a total of $2.1 million.
Investors in Lori’s latest round remain optimistic. Delta40 stated in a press release that it invested in Lori 2024 due to the huge market opportunity in Africa’s trucking sector, a $180 billion industry growing at 8% per year. “Lori’s business model and technology uniquely position it to create and capture value in a challenging macroeconomic climate.”
Jean-Claude Homawoo is equally optimistic. He believes that the company will be profitable this year. This will allow them to access traditional bank financing.
We have noticed that our lenders give loans to companies with a good track record. Homawoo stated that this was the reason for our drive to profitability. Homawoo says Lori’s EBIT margins have improved over the last three years. He declined to provide exact figures. EBIT, or earnings prior to interest and taxes, is a measure of a company’s profitability.
In addition, the company is re-engineering their financing model to address cash flow issues that have hindered logistics startups on the continent. Lori typically pays transporters upfront for trucks and receives reimbursement from cargo owners 30 to90 days later. The delay strains startups’ working capital, forcing them to rely heavily upon revolving bank credit lines.
An investor, who declined to name himself as he was not a spokesperson for the company, said the startup is confident, because it is currently rejigging the business model to fix working capital issues which have plagued logistics startups across the continental.
Launched by Homawoo & Josh Sandler in 2016, Lori aimed to reduce the costs of moving goods across continents by connecting shippers and transport providers via its aggregator platform.
The typical customers–manufacturers, distributors, and high-volume shippers–are characterised by long payment cycles. Typically, their vendors have to wait between 30 and 90 days before manufacturers and distributors settle invoices. Transporters, on the other hand, must be paid almost instantly, with a portion before the trip, and the remainder upon fulfillment.
According to the investor, “One of biggest problems in the logistics industry is that manufacturers and distributors do not pay their debts on time. This creates cash flow issues for startups.” Take Kobo360 as an example. The startup was unable to provide capital upfront to its drivers when its financial partner stopped funding them due to unpaid debt.
According to the investor, Lori is exploring a model that would allow banks to finance transportation directly and keep it off Lori’s balance sheet. In this setup, the startup logistics company uses a bank invoice facility, charges interest at its rate and uses the funds for the trip to start and to pay the driver. The bank charges 8% for financing.
The investor stated that since a bank’s core competence is to recover loans, it only makes sense for them to handle this.
This model offers lower margins, but reduces the risk of cashflow issues for the logistics startup. The previous model allowed Lori earn interest on the upfront payments. Lori declined comment.
With Delta40’s help, we secured bank partnerships including Ecobank to structure working capital on a sustainable basis. Homawoo said this in an interview with TechCabal.
This tweak could be just what asset-light logistics startups such as Lori need to balance scale and sustainable unit economics. The asset-light model of trucking has left startups struggling with debt and losing investor trust. As more African logistic companies cut back or pivot, there are questions about the sustainability of asset-light models, where startups rely on partnerships rather than owning trucks to transport goods in Africa.
It is very viable and appears fantastic on paper as Lori Systems has the ability to offload risk and fulfill many trips. Steve Okoth is a director of DBO East Africa. A business advisory company. The interest charges will increase the cost of transportation for cargo owners, who are usually operating with thin margins. Okoth acknowledged this financing was becoming more common, but it could be difficult for a logistics start-up with this model to compete in price because manufacturers and distributors may not want to pass on the cost to consumers.
Homawoo is still a believer. He said that it takes financial discipline, the correct financing, and a strong focus on execution. “There are no faults in logistics, just errors in execution.”
he said. He acknowledged that Lori had made its share of mistakes but has learned from them. Homawoo claims that Lori has improved margins, EBIT, and kept receivables at a low level over the past five year.
The work isn’t finished. He said that there is still much to do for us to be successful. Lori, a company that operates in Nigeria, its largest market, Kenya, and Uganda, has found that the path to success involves structuring working capital so that it doesn’t burden the balance sheet.
Looking forward
As startups use technology to tackle inefficiencies across Africa in logistics, Lori Systems is increasing its tech stack to remain competitive. The company claims to use AI to plan routes and match front hauls with rear hauls in order boost operational efficiency.
Lori also explores the use of electric vehicles to reduce delivery costs. Electricity is cheaper than diesel, so EVs could lower the cost per kilometre of moving cargo. Homawoo stated that “those are only two of the many innovations that we can use to continue to lower transportation costs.” “As long we stay focused on our mission, and work to achieve that sustainably, I believe we can successfully exploit the huge market opportunity in Africa that is electric transport.”
The stakes for Homawoo go beyond Lori’s survival. He argues that if the cost of transporting goods across Africa could be reduced, the goods would become more affordable and African businesses would be more competitive in the global market.
