African outsourcing startup Andela recently raised $100 million, and is now ending its developer training programs in Nigeria, Kenya and Uganda, letting go of up to 400 people. Some trained Andela developers have not been placed at all for the past year in its primary U.S. market. This could be just a change in the company’s business model, or a deeper sign of the trouble awaiting Africa’s tech ecosystem given the saturation of talent in other regions.
The Breakdown You Need to Know: If you’re wondering, what exactly does Andela do? They train developers across Africa for contract work with U.S. employers. Currently, they operate in Kenya, Uganda, Nigeria and Rwanda with about 1,100 developers on staff working for more than 200 companies, nearly 90% of which are located in the U.S. CultureBanx reported that in February of this year Andela received a major injection of capital for its quest to continue connecting developers on the continent with tech companies around the world. The company raised $100 million in its Series D funding round, putting Andela’s valuation at somewhere between $600 million and $700 million.
Initially the outsourcing startup planned to double in size thanks to its new cash infusion, hiring another thousand developers. They were also going to invest in new product development and create internal engineering and data resources. Executives at Andela claim these layoffs are largely thanks to an upswell of training programs on the continent since it first launched in 2014, and that the changes are not about cost cutting.Today In: Money
Andela receives anywhere from $50,000 to $120,000 per developer from a company and passes one-third of that directly to the person doing the work. The other two-thirds is used to support the company’s operations, cover the cost of training and maintain its facilities in Africa. Now that they’ve unloaded hundreds of skilled developers in some of Africa’s largest tech ecosystems, it’s uncertain if the region can absorb these displaced workers.
Africa’s Troubled Tech Pipeline: We also have to look at whether or not this business model is sustainable for Andela, it seems like it may not be. There are loads of startups on the continent which workers perhaps could’ve been placed at, albeit at much lower price points. It’s easy to see that a pricing strategy set for servicing U.S. and European clients is not economically viable to just start placing talent locally across Africa.
Industry insiders say Nigerian developers in Europe and North America can earn up to ten times more than at home, according to Quartz. Andela will still train around 100 junior developers annually in Rwanda in a program subsidized by the government.
Andela is moving into a more classic business outsourcing model, not heavily focused on its youthful tech “startup” appeal, which it has long used to differentiate itself from the field. Businesses giants like Infosys, Wipro and Tata Consultancy Services have a reputation for handling mostly lower-skill projects and are controversial in the U.S., because critics accuse them of abusing the H-1B visa program to undercut local wages.
Developing Africa: Facebook founder Mark Zuckerberg and his wife’s Chan Zuckerberg Initiative made Andela its first investment. They’ve continued to seed capital into the company with its series D raise along with Al Gore’s Generation Investment Management, GV, Spark Capital and CRE Venture Capital. Andela has grown rapidly with venture capital funding in the last five years, but has yet to attain profitability.