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Lessons from M-Pesa for Africas new VC-rich fintech startups

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In African fintech, the fourth quarter of 2019 brought big money to new entrants.

Chinese investors put $220 million into OPay and PalmPay — two fledgling startups with plans to scale in Nigeria and the broader continent. Several sources told me the big bucks had created anxiety for more than few payments ventures in Nigeria with similar strategies and smaller coffers. They may not need to fret just yet, however: lessons from Africa’s most successful mobile-money case study, M-Pesa, suggest that VC alone won’t buy scale in digital finance.

Startups and fintech in Africa

Over the last decade, Africa has been in the midst of a startup boom accompanied by big growth in VC and improvements in internet and mobile penetration.

Some definitive country centers for company formation, tech hubs and investment have emerged; Nigeria, South Africa and Kenya lead the continent in numbers for all those categories. Additional strong and emerging points for innovation and startups across Africa’s 54 countries and 1.2 billion people include Ghana, Tanzania, Ethiopia, and Senegal.

The continent surpassed $1 billion in VC to startups in 2018 and per research done by Partech and WeeTracker, fintech is the focus of the bulk of capital and deal-flow.

By several estimates,  Africa is home to the largest share of the world’s unbanked and underbanked population.

This runs parallel to the region’s off-the-grid SME’s and economic activity — on display and in commercial motion through the street traders, roadside kiosks and open-air markets common from Nairobi to Lagos.

IMF estimates have pegged Africa’s informal economy as one of the largest in the world. Thousands of fintech startups have descended onto this large pool of unbanked and underbranked citizens and SMEs looking to grow digital finance products and market share.

In this race, the West African nation of Nigeria — home to Africa’s largest economy and population — is becoming an epicenter for VC. Many fintech-related companies are adopting a strategy of scaling there first before expanding outward.

Enter PalmPay and OPay

That includes new entrants OPay and PalmPay, which raised so much capital in fourth quarter 2019. It’s notable that both were founded in 2019 and largely incubated by Chinese actors.

PalmPay, a consumer-oriented payments product, went live in November with a $40 million seed-round (one of the largest in Africa in 2019) led by Africa’s biggest mobile-phones seller — China’s Transsion. The startup was upfront about its ambitions, stating its goals to become “Africa’s largest financial services platform,” in a company statement.

To that end, PalmPay conveniently entered a strategic partnership with its lead investor. The startup’s payment app will come pre-installed on Transsion’s mobile device brands, such as Tecno, in Africa — for an estimated reach of 20 million phones in 2020.

PalmPay also launched in Ghana in November and its U.K. and Africa-based CEO, Greg Reeve, confirmed plans to expand to additional African countries in 2020.

If PalmPay’s $40 million seed round got founders’ attention, OPay’s $120 million Series B created shock-waves, coming just months after the mobile-based fintech venture raised $50 million — making OPay’s $170 million capital haul equivalent to roughly a fifth of all VC raised in Africa in 2018.

Opera’s Africa fintech startup OPay gains $120M from Chinese investors

Founded by Chinese owned consumer internet company Opera — and backed by 9 Chinese investors — OPay is the payment utility for a suite of Opera -developed internet based commercial products in Nigeria that include ride-hail apps ORide and OCar and food delivery service OFood.

With its latest Series A, OPay announced it would expand in Kenya, South Africa, and Ghana.

In Nigeria, OPay’s $170 million Series A and B announced in the span of months dwarfs just about anything raised by new and existing fintech players, with the exception of Interswitch.

The homegrown payments processing company — which pioneered much of Nigeria’s digital finance infrastructure — reached unicorn status in November when Visa took a reported $200 million minority stake in the venture.

A sampling of more common funding amounts for payments ventures in Nigeria includes established fintech company Paga’s $10 million Series B. Recent market entrant Chipper Cash’s May 2019 seed-round was $2.4 million.

There is a large disparity between fintech startups in Nigeria with capital raises in ones and tens of millions vs. OPay and PalmPay’s $40 and $120 million rounds. Conventional wisdom could be that the big-capital, big spending firms have an unmistakable advantage in scaling digital payments in Nigeria and other markets.

A look at Kenya’s M-Pesa may prove otherwise.

Read more: https://techcrunch.com/2019/12/04/lessons-from-m-pesa-for-africas-new-vc-rich-fintech-startups/

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Startups Weekly: U.S. VCs eye European startups

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Hello and welcome back to Startups Weekly, a weekend newsletter that dives into the week’s noteworthy startups and venture capital news. Before I jump into today’s topic, let’s catch up a bit. Last week, I wrote about Chinese investor activity in Africa. Before that, I noted Airbnb’s issues.

Remember, you can send me tips, suggestions and feedback to kate.clark@techcrunch.com or on Twitter @KateClarkTweets. If you’re new, you can subscribe to Startups Weekly here.


Europe’s appeal

This week I want to talk about Europe and not just because I’m in Europe prepping for TechCrunch’s annual conference, TechCrunch Disrupt Berlin. But because of a new trend we’re seeing in which U.S. venture capital funds strike deals overseasmore than ever.

Forbes wrote a piece on this trend this week alongside the release of their annual European Midas List, which ranks the top VCs on the continent. More and more, top funds, including the likes of Sequoia and Benchmark, are writing checks to companies in London, Dublin, Amsterdam, Stockholm and more. 

Sequoia, for example, funded a teenager in Dublin, Ireland this year. Evervault is building a data protection solution aimed at developers, by way of an API, which aims to bake data protection into the app from the start. We hear a number of other top firms are sending partners over seas, too, or considering making such moves. Why? To search for companies to add to their global portfolios (in a region where they may also see a nice discount). As we prep for a new year, this is one of several trends in VC I’ll be keeping an eye on.


Workplace toxicity

If you didn’t log on to Twitter this week, you may have missed The Verge’s investigation into workplace toxicity at Away, a ‘unicorn’ travel company known for its lightweight, compact suitcases (full disclosure: I have an Away bag). Read that story first, then check out Winnie co-founder and chief executive officer Sara Mauskopf’s piece from this week, “The inevitable takedown of the female CEO,” in which she questions why we celebrate female-founded companies, until they rise too far. Here’s a passage:

AggressiveBlunt. Furious. These are words that have been used to criticize the behavior of female CEOs of prominent companies like Thinx, Cleo, Rent the Runway and ThirdLove, to name a few. Away is the latest female-led company to come under fire, in an article in The Verge on Thursday.

First, let me be clear: A toxic work culture is never acceptable. Regardless of who started a company or what kind of stress the company is under, it’s never okay to mistreat employees. Some of the things that came to light in these pieces are particularly abhorrent: sexual harassment, lying about one’s credentials, creating an unsafe space for underrepresented groups, overworking employees. These are dynamics that need to be called out and eliminated at all companies, whether female or male-led. The Away example is no exception.


The top VC deals of the week:

Plus, read my profile of VSCO, the photo-sharing and editing app you may have never heard of. That is, until the “VSCO girl” meme craze of 2019.


Disrupt Berlin

It’s hard to believe it’s already that time of the year again, but Disrupt Berlin is this week! I’m in Berlin this week to meet with Europe’s top VCs and some of the most promising founders in the region. If you’re here too, make sure to say hi. Here are a few things you can expect to hear about at the event:


#Equity

If you like this newsletter, you will definitely enjoy Equity, which brings the content of this newsletter to life — in podcast form! Join myself and Equity co-host Alex Wilhelm every Friday for a quick breakdown of the week’s biggest news in venture capital and startups.

This week, we discussed Harlem Capital’s debut fund, a $40 million effort that will back minority entrepreneurs. On top of that, we shared thoughts on Figure’s latest funding, European venture capital activity and more.

Equity drops every Friday at 6:00 am PT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

Read more: https://techcrunch.com/2019/12/07/startups-weekly-u-s-vcs-eye-european-startups/

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To measure sales efficiency, SaaS startups should use the 42

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Once you’ve found product/market fit, scaling a SaaS business is all about honing go-to-market efficiency.

Many extremely helpful metrics and analytics have been developed to provide instrumentation for this journey: LTV (lifetime value of a customer), CAC (customer acquisition cost), Magic Number and SaaS Quick Ratio are all very valuable tools. But the challenge in using derived metrics such as these is that there are often many assumptions, simplifications and sampling choices that need to go into these calculations, thus leaving the door open to skewed results.

For example, when your company has only been selling for a year or two, it is extremely hard to know your true lifetime customer value. For starters, how do you know the right length of a “lifetime?”

Taking one divided by your annual dollar churn rate is quite imperfect, especially if all or most of your customers have not yet reached their first renewal decision. How much account expansion is reasonable to assume if you only have limited evidence?

LTV is most helpful if based on gross margin, not revenue, but gross margins are often skewed initially. When there are only a few customers to service, cost of goods sold (COGS) can appear artificially low because the true costs to serve have not yet been tracked as distinct cost centers as most of your team members wear multiple hats and pitch in ad hoc.

Likewise, metrics derived from sales and marketing costs, such as CAC and Magic Number, can also require many subjective assumptions. When it’s just founders selling, how much of their time and overhead do you put into sales costs? Did you include all sales-related travel, event marketing and PR costs? I can’t tell you the number of times entrepreneurs have touted having a near-zero CAC when they are just starting out and have only handfuls of customers — which were mostly sold by the founder or are “friendly” relationships.

Even if you think you have nearly zero CAC today, you should expect dramatically rising sales costs once professional sellers, marketers, managers, and programs are put in place as you scale.

One alternative to using derived metrics is to examine raw data, which is less prone to assumptions and subjectivity. The problem is how to do this efficiently and without losing the forest for the trees. The best tool I have encountered for measuring sales efficiency is called the 4×2 (that’s “four by two”) which I credit to Steve Walske, one of the master strategists of software sales, and the former CEO of PTC, a company renowned for its sales effectiveness and sales culture. [Here’s a podcast I did with Steve on How to Build a Sales Team.]

The 4×2 is a color-coded chart where each row is an individual seller on your team and the columns are their quarterly performance shown as dollars sold. [See a 4×2 chart example below].

Sales are usually measured as net new ARR, which includes new accounts and existing account expansions net of contraction, but you can also use new TCV (total contract value), depending on which number your team most focuses. In addition to sales dollars, the percentage of quarterly quota attainment is shown. The name 4×2 comes from the time frame shown: trailing four quarters, the current quarter, and the next quarter.

Color-coding the cells turns this tool from a dense table of numbers into a powerful data visualization. Thresholds for the heatmap can be determined according to your own needs and culture. For example, green can be 80% of quota attainment or above, yellow can be 60% to 79% of quota, and red can be anything below 60%.

Examining individual seller performance in every board meeting or deck is a terrific way to quickly answer many important questions, especially early on as you try to figure out your true position on the Sales Learning Curve. Publishing such leaderboards for your Board to see also tends to motivate your sales people, who are usually highly competitive and appreciate public recognition for a job well done, and likewise loathe to fall short of their targets in a public setting.

4x2

A sample 4×2 chart.

Some questions the 4×2 can answer:

Overall performance and quota targets

How are you doing against your sales plan? Lots of red is obviously bad, while lots of green is good. But all green may mean that quotas are being set too low. Raising quotas even by a small increment for each seller quickly compounds to yield big difference as you scale, so having evidence to help you adjust your targets can be powerful. A reasonable assumption would be annual quota for a given rep set at 4 to 5 times their on-target earnings potential.

Read more: https://techcrunch.com/2019/12/06/to-measure-sales-efficiency-saas-startups-should-use-the-4×2/

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Used-car marketplace Vroom nabs $254M to take its growth up a gear

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There have been a lot of bumps in the road for startups building used-car marketplaces, but now one of the longer-standing of them has closed a major round of funding — a clear sign of the mileage left in this category. Vroom has raised $254 million, a Series H that it plans to use to keep scaling the business, and specifically also to expand a product and engineering hub based out of Detroit.

Vroom is based out of New York but operates across the U.S., and its platform has to date been used by more than 250,000 buyers and sellers, according to the company. It has some 3,000 vehicles listed at any time, covering some 400 makes and models, and the company tells me that it has seen “triple-digit growth in shipped unit sales” since last year.

Vroom declined to comment on its specific valuation, but a source close to the startup confirmed it is an up round. For some context, Vroom last raised money almost exactly one year ago, $146 million, which came in at a post-money valuation of $796 million, according to PitchBook. Putting that together with this being an up round, that would, on a basic level, now put Vroom’s valuation at more than $1 billion.

This latest round of funding is being led by Durable Capital Partners LP, with participation also from funds advised by T. Rowe Price Associates, L Catterton and others that are not being named.

Vroom has now raised a total of $721 million since it launched in 2013. Previous investors have included General Catalyst, Altimeter Capital and Allen & Co.

Vroom is led by former Priceline.com CEO Paul Hennessy, and the plan is to use the injection of capital to hire more employees, particularly for product and engineering jobs. Vroom said it expects in 2020 to “significantly increase” staff at its Detroit office.

The Detroit hub opened in August 2019 and is a symbolic as well as practical location: it’s the center of the U.S. automotive industry, making it a prime place for Vroom to recruit talent and build inroads in with carmakers and others.

“This new round of funding provides the necessary resources to further grow and scale our business,”  Hennessy said in a statement. “We are thrilled to receive continued support from investors and partners, reinforcing the Vroom model as a tremendous opportunity to bring about a fundamental and enduring change in the used vehicle industry.”

More funding, indeed, is critical in what is a capitally intensive business, and for Vroom itself, it’s a sign of how its restructuring appears to be paying off. Back in 2018, Vroom laid off about 30% of its staff after a failed attempt at building brick-and-mortar car dealerships, amid a time when we were seeing several other problems hit its competitors.

Hennessy noted that using a try-anything and staying flexible approach has been a critical part of why it has managed to keep its engines running when so many others have stalled.

“We’ve taken a disciplined, asset-light approach to scaling our business. Where it makes sense for us to fully own part of our operation, like the development of our e-commerce platform, we do that. If it makes sense for us to work with others to scale our operations efficiently, like through partnerships for third-party reconditioning, we do that,” he told TechCrunch via email. “This approach gives us the flexibility to quickly adapt to market changes and consumer demand and has been instrumental in our growth.”

Vroom has focused its efforts since the layoffs on building out its leadership team. Vroom has added several executives in recent months, including Dave Jones, who spent more than a decade at Penske Automotive Group and recently joined as its chief financial officer.

The lead investor in this Series H is notable. Durable Capital Partners is the new fund led by former star T. Rowe Price portfolio manager Henry Ellenbogen, and the firm has now started investing in earnest.

This is the second investment it has made in the wider transportation category, after taking part in a $400 million round for Convoy. It also invested in a fintech startup Rapyd, which is moving into logistics now. All three of these investments have been announced in the space of a month.

Ellenbogen first became familiar with the company because T. Rowe Price made an investment in 2015.

“I’ve worked with the Vroom team for years and I’m pleased to announce that it is one of the first companies that my new firm is investing in,” he said in a statement. “We’re very excited to be a part of the future of automotive retail and support Vroom in its efforts to move the car buying and selling process online for consumers across the country.”

Vroom was part of a wave of online used marketplace startups that launched about seven years ago. Several of these companies have shuttered, while others such as Shift and Carvana have survived and even scaled.

Carvana became a public company in 2017 and its market cap is currently around $13 billion. In the meantime, others have waded into the field with alternative business models, such as Fair.com and its approach of “flexible” car ownership that looks similar to leasing (and these new players have faced their own challenges).

The center of Vroom’s business is an e-commerce platform that handles the entire transaction for buyers and sellers of used vehicles.

Vroom’s platform gives customers who want to sell or trade in their vehicles real-time appraisals, loan payoffs and at-home vehicle pickup. The company reconditions the vehicles it takes possession of and then includes them on its online catalog.

Buyers can get financing through a number of lending partners that Vroom has partnered with, including Capital One, Ally and, more recently, Chase. Once the sale is complete, Vroom delivers the vehicle directly to customers’ doorsteps in the U.S.

Read more: https://techcrunch.com/2019/12/06/online-used-car-startup-vroom-raises-254m-to-scale-product-and-engineering-hub/

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