By Kanika Saigal
Posted on Monday, 3 October 2022 11:28
With Russia’s invasion of Ukraine, interest rates have spiked, and international investors, lured by the emerging African fintech scene are slowly changing tack, preferring to invest in less risky, higher-grade investments in more developed markets.
As such, the record amounts of flows we have seen flood into Africa’s tech start-up scene are tapering off. But for Tosin Eniolorunda, founder and CEO of business payment platform TeamApt, this means that the ecosystem is maturing and that companies with strong fundamentals will begin to stand out.
“Gone are the days when funding rounds closed within days when venture capital firms (VCs) and investors did little due diligence and valuations were extreme,” says Eniolorunda.
“Within the current economic and financial climate and valuations are coming down. The market is going through a stage of correction,” he says.
Lofty valuations could mean that investors and start-ups will lose out in the long run. “High valuations mean that start-ups can raise a lot of capital but given the fact that some investors will have preference shares – a fixed dividend, which takes priority over others – when the real, lower value of the company is realised, other investors and even the founders can be left with very little.
“In any case, when you build a business that is based on a valuation, I don’t think that organisation will be very disciplined. It will not stand the test of time, because the fundamentals are lost,” he says.
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It’s the kind of cycle you see every ten years, explains Eniolorunda. “Older, more experienced people kind of grow out of the system, leaving room for younger, new entrepreneurs with fresh ideas – that unfortunately end up making some of the same mistakes we have seen in the past.
“But this is part and parcel of the evolving story,” he says.
TeamApt is just off the back of raising a Series B extension, which closed on 10th August this year. The deal launched a partnership between the business payments platform and QED, an international venture capital firm, which specialises in fintech.
In January, QED hired Gbenga Ajayi, who has previously worked at Wise, Revolut, and Google, to head the VC firm’s investment in Africa. QED’s investment in TeamApt is the company’s first foray into African fintech.
Cash raised from the deal will be used to widen the company’s credit offering, scale in Nigeria, and expand into neighbouring countries. Series C funding is scheduled to take place in the next 12 to 18 months, says Eniolorunda. “Given current volatility in the market, now is not the right time to go back to the market,” he says.
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Details behind the funding round have not been shared by the company or the investors, however – largely in line with Eniolorunda’s belief that focussing on valuations and capital raised can take away from the company’s track record.
“We have tried to set ourselves apart from the typical valuation, capital raising rates race and build a reputation based on the demand of our business,” says Eniolorunda. “What I can say, however, is that our company is close to making $200m in revenue.”
Behind TeamApt’s appeal is the fact that the company is going beyond “Fintech 1.0”, creating a payments solution targeted at Nigeria’s burgeoning businesses. “Basic payment systems – online and offline – have already matured, with some companies already dominating the sector, preventing new entrants from coming in,” says Eniolorunda.
“This isn’t the case with wealth management or credit, for example. The companies making moves in these areas are only just scratching the surface. This is where we are at the beginning of the race, where new players are scrambling to make a name for themselves.”
Amid the melee, is the rise of Buy Now Pay Later (BNPL) services, neo-banks and existing fintech and mobile money operators adding credit facilities to their current portfolio of products.
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But for businesses, hoping to build cross-border trade relationships in the wake of the African Continental Free Trade Agreement (AfCFTA) access to credit and reliable cross-border payment mechanisms will be essential to growth and participation.
“In Africa, especially in Nigeria, regulation around cross-border trade and payments isn’t exactly favourable but given the direction of travel, it is a problem that has to be solved,” says Eniolorunda. “Until we have a lot more clarity on how this will progress, we will take a watch and wait approach to cross-border payments.
“But given that we understand the needs of business and that we work with the regulators, it is something that we will eventually work through soon,” he says.
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By Kanika Saigal