THUR 10 MARCH, 2022-theGBJournal- Just when you thought tech nerds has outdone themselves, they come up fresh surprises – just as RenCap team at Africa Tech Summit in Nairobi recently found out.
Last week they were in Nairobi for the Africa Tech Summit (ATS) which typically occurs twice a year.
During the summit, the Russia/Ukraine crisis broke out, but it barely featured in any of their conversations, as they observed, but instead met many founders and investors, with most of the founders either actively fundraising or about to start raising.
With the investors, some were actively raising new funds and others that had recently raised were actively seeking potential new opportunities.
As with these conferences, they learnt in two ways – by sitting in the conference rooms listening to panel discussions and diligently taking notes, or by spending time on the side lines of the conference meeting people. As noted, they find both valuable (bias for the latter) and summarised some of their key take-aways from both.
Here is what the team, in their own words, learnt on the sidelines;
We couldn’t help but notice how often we were presented with a QR code instead of a business card when trying to exchange contact details. This was often either a LinkedIn or WhatsApp QR code. In one instance, someone presented his QR code via versecards.co – you scan, contact card shows up in your browser and you just click add to contacts – really cool!
We gathered that to hasten its penetration of the highly competitive agency banking space, even as it awaits its final PSB licence, MTN has been giving free POS machines to agents in Nigeria. This corroborates feedback we garnered during our Nigeria trip in July 2021 – see SSA fintech vol. 74.
In line with global trends where online acquirers are expanding into the offline-acquiring space post COVID as customers return to their pre-COVID behaviours (NB: Stripe acquired BBPOS, a POS manufacturer, in January 2022 to deepen its offline strategy), Nigerian online acquirers such as Paystack are also expanding into the offline acquiring space. For example, we found a Paystack POS at Burger King’s new Victoria Island location – likely a pilot/test device, as it awaits a switching and processing licence from the CBN, which would also allow it to operate as a Payment Terminal Service Provider (PTSP). OPay also continues to deploy its POS machines to merchants for offline payments acceptance.
We spent five minutes speaking with the CEO of OnePipe and learnt about three models of open banking: 1) markets where regulations exist e.g. TrueLayer in Europe; 2) making fintechs or tech companies more efficient by providing access to customer bank data e.g. Mono, Okra and Stitch; and 3) enabling non-fintech companies to offer fintech services e.g. OnePipe, which services Omnibiz for example. Regulations are coming in Nigeria and players would likely need to get licensed – some have already applied for PSSP licences, even as they continue raising capital (Stitch and Mono recently, and we expect Okra to follow in due course). Watch or read our conversation with Adedeji Olowe on open banking in Africa.
For inventory replenishment, one of the fastest growing tech segments in Africa, we gauged two business models – one which replaces the intermediaries in the supply chain (Trade Depot), and the other which works with the existing players by digitising their operations (Omnibiz). What we wondered was which model presented higher margins given their inherently different approaches to solving the problem. Omnibiz CEO’s view was that the latter model (his model) may present thinner margins in the early years but is more sustainable over time.
In Kenya, we met several companies building solutions to solve problems within the Savings and Credit Co-operative (SACCO) space. Many were enterprise solutions that solve granular problems for these entities, which then add a front-end app or USSD solution to help the SACCO members manage their savings or access other financial services. Then with all that data, the fintech can cross sell other financial solutions into the SACCO or member base.
Private debt to finance a wide range of things, remains a growing need in the Africa tech ecosystem. What we’re finding increasingly is that many tech companies are quickly adding lending to their product stack to further help unlock the opportunity that they’re solving for, or to help improve unit economics. We believe the rush to lending in the fintech product stack is likely to be quickest in Nigeria where the economics for offline payments is least attractive, largely due to regulation and competition. There are a number of dollar-based financiers in the space, but the related FX risks are concerning, implying the critical need for more local currency denominated funds/financiers. Better said, it suggests the need for African banks to get even more active at this stage of the market, leveraging the insights that tech companies provide into the cash flows of consumers and businesses at the last mile.
Companies need to grow into their valuation and survive beyond that. We will see many corrections because many companies were raising at valuations of the next round. Public market valuation compression is starting to feed into Series D+ stages. Depressed insurance valuations in public markets are already feeding into seed-stage conversations and we’re seeing investors get more cautious at that level. 2021 was incredibly frothy but there’s also incredible capital out there which needs to settle somewhere.
Founders backing foundersis an interesting trend on the continent, helped by more exits and larger fund raises. Some VCs are bringing these founders together into syndicates to invest alongside them. For Flutterwave, investing early is part of its expansion strategy.
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