—

Transactions processed vs revenue earned. Monthly uniques vs retention rate. Profile visits vs impressions.

Brands and startups feel the need to share amazing numbers. It signals to the community that they are performing up to or beyond expectation. If the startup has raised venture capital, they aim those numbers at existing and potential investors as a show of strength, of viability and unicorn potential.

But a company’s big numbers often need context in order to make judgments of what they imply. Take a comparison of Jumia’s and Takealot’s performances this year as an example. 

Jumia operates in 12 countries and sold $736 million worth of merchandise between January and September. Takealot, which is in South Africa alone, sold $407 million’s worth between April and September.

But who made more money within each period? Jumia: $119 million. Takealot: $238 million. 

The revenue numbers become more impressive for Takealot when you consider that COVID-19 hit South Africa at a time when the economy was already in a downturn.

Another example: Flutterwave says it has had its Store platform grow from 1,000 users in May to 5,000 in July and 17,000 in November. Those are encouraging numbers, but without knowing the volume of transactions each user has made, we don’t know exactly how Flutterwave Store is performing.

[ Read The Next Wave: Fintechs on Africa’s eCommerce highway ]

These examples show why metrics should be judged relative to others. But even without comparing to others, some numbers are just not useful enough for startups to obsess over.

To excel, startups must distinguish useful metrics from vanity metrics.

Beyond vanity metrics

Vanity metrics are mere tricks; numbers that seem like they entail progress but are without any weight. They include things like registered users, downloads, and raw pageviews. 

These can be “easily manipulated, and do not necessarily correlate to the numbers that really matter: active users, engagement, the cost of getting new customers, and ultimately revenues and profits.”

The description is from an article that is over a decade old, yet startups continue to make the mistakes.

Joseph Benson-Aruna, head of product at DFS Lab, a startup accelerator, says the first rule for startups seeking to measure growth quantitatively is honesty about the challenges in the space they are operating in. 

A logistics or edtech startup should not obsess about or be distracted by the numbers posted by a fintech startup.

The counsel is most important for startups still figuring out product-market fit. 

“For an early stage company, you don’t want to be tracking too many metrics,” Benson-Aruna, who co-founded Wallets Africa and was at Spleet, says.

In his view, startups should narrow their focus down to three metrics that matter to their product and business. These metrics may not apply across board to every other startup. 

For example, Facebook’s early employees found out that users who had more than 7 seven friends in the first 10 days after signing up were most likely to use the product consistently. So they doubled down on that as their retention metric. 

Twitter’s early metric for judging adoption was taking note of users who visited 7 times in a month, according to Josh Elman who worked at the social media company early on.

Useful metrics

Benson-Aruna observes that startups typically have to consider business metrics and product metrics, but they overlap and influence each other. He believes three metrics capture what startups should judge progress by.

Active users: A useful metric tells you something about the actions being taken by the user. Good metrics are actionable and auditable. So it’s not surprising to see startups report active users as a treasured metric. It is a sign of engagement.

Startups find active user values by measuring churn and retention rates. Users are analysed in cohorts (of say months or quarters) to see how they interact in different periods and how they return.

Startups burning money to obtain users would need to evaluate their customer acquisition costs to see if they are getting the value they expect. Benson-Aruna observes that there is often little guarantee that the users obtained this way will stick around long enough for the investment made acquiring them to pay off. 

For that reason, it’s a strategy that has to be carefully thought through. In any case, a question around active users is this: how valuable are their actions to the business?

That brings us to the second useful metric. Benson-Aruna would have startups focus on transaction volume, not value. 

A startup is more likely to learn valuable product and business insight if it reports, say, 3,000 people did 10,000 transactions instead of 3,000 people transacted ₦10 million. One person could have done ₦5 million. 

By focusing on volume, the team can break the numbers down to see the types of people who return to make transactions. This insight could influence the startup’s long-term plan, perhaps to tweak the product to reinforce the return of those who transact the most. 

On the other hand, merely focusing on transaction value could conceal the presence of over-performing outliers. The moment these find a better option and churn, the business takes a hit. 

The performance of outliers is also why average transaction value per user may not be most helpful unless it is broken down into cohorts – months, quarters, Benson-Aruna says. One outlier performance in January can keep painting a fancy average-value-per user picture, whereas business has nosedived in July. 

As such, cohort analysis is crucial to get a clear sense of how users appreciate a product through time. For early startups, “Those metrics will not look exciting but they will be truthful,” Benson-Aruna assures.

Definitely not the least, revenue. A business may have a high transaction value of ₦10 million, but if revenue is ₦100k due to a high burn rate and low revenue per customer, there isn’t much to advertise.

The burn rate gives the startup a sense of how much is spent not just on users but on paying for tools and services as well. The sweet spot that should be aimed for is this; spending minimally acquiring users and those users generate returns that payoff the customer acquisition cost by a significant magnitude.

Good metrics will be the result of usable, desirable products. As such, startups’ main obsession should be on basic things like ease of signups and on-boarding.

“It could be that people are willing to pay a subscription for a product, but it could be that there’s a burn that doesn’t let them complete their sign up,” Benson-Aruna says.

For an eCommerce store, burn could be due to checkout difficulties. For an edtech, it could be that the educational content falls flat, triggering low fidelity and low engagement.

Surveys that help with useful metrics

A bunch of tools exist for checking product performance and limiting factors like attrition, from Google Analytics, and Facebook Analytics, to Mixpanel and others.

Startups can get a clear sense of where their product stands by carrying out some surveys of customers to find three things, according to this resource by the author of a book titled “explosive growth”:

1. Whether a Unique Selling Proposition exists (USP)
2. Net Promoter Score (NPS)
3. High User Retention

A startup has a unique selling proposition when at least 50% of users describe the product’s best quality using the same words in a sentence. For example, when more than 50% of a sizeable sample of users all say by themselves that the product is “delightful”, you may be up to something.

To get the net promoter score, startups ask customers how likely they are to actively recommend the product to friends or colleagues on a scale of zero to ten. Those who rate between 9 and 10 are active promoters. 7 – 8 are passive Below 6 are detractors.

Above all, retention is what counts. Users who come back are those most likely to pay even premium prices. 

Startups should, therefore, optimize to measure retention as accurately as possible and figure out ways to build loyalty with those returning users. Whatever figures are reported from this segment will definitely not be a vanity metric, or mere trick.

—

Entrepreneurs and investors are mostly skeptical about the prospects of business-to-consumer commerce in Africa. The continent has over 1.2 billion people but per capita income hovers around $1,500. How many consumer products or services can you sell 10,000 units of every week in Africa apart from food?

These hard facts cloud how we think about innovation, such that one question for businesses pondering the introduction or expansion of their product in Africa is: to sachet or not to sachet? 

In Nigeria, sachetization – literally the practice of bagging products in disposable 10 to 25 gram bags – abounds in the food, drink and household consumables industry. There’s been a buzz (or revulsion) on social media about the recent availability of sachet packs of Baileys Irish Cream. 

But on a broader note, this model of African market penetration is also found in the non-food sector that overlaps with tech.

TV subscription, internet bundles, and credit and savings products from financial services companies. TSTV, an ambitious pay TV service provider, launched this year with the promise of channels as low as ₦2 per day.

Kwesé TV, the service launched by Strive Masiyiwa’s Econet, really went all in on the promise of sachetization (or “pelletization” as Ngozi Madueke-Dozie, then general manager for Kwesé Iflix West Africa, described it at Social Media Week 2019). When Kwesé launched in Nigeria in October 2017, they offered at least three subscription plans for its bouquet of 65 channels: 3-day, 7-day and 30-day plans. 

The intention was clearly to catch as many fish in the consumer pond as possible. Elizabeth Amkpa, the general manager for Nigeria at the time, called it a “a revolutionary payment model” that spoke to the company’s innovative approach to offering “compelling alternative pay TV.”

Was this in fact an innovative move by Kwesé? Or was its inevitable failure evidence that it wasn’t innovative (enough)? 

It might be a hazy topic but there are ways to think about innovation in Africa. From the range of theories and leading thoughts on the subject, we have two anchors for the discussion: 

• Innovation is ultimately about bettering the quality of lives of consumers. 

• But the continent’s present challenges with productivity and purchasing power must always be factored into assessments of what counts as innovation.

Of the many theories out there, two are particularly helpful in guiding innovative thinking in Africa.

Jobs to be done

Product designers and business leaders have decided that asking users what they need is bad. Users don’t know what they want, the saying goes.

How then do you introduce an innovation that improves their lives? One answer that has gained attention over the years is something called the “Jobs-to-be-done” theory. 

Essentially, it’s a mindset that requires product people to undertake research on customer behaviour to observe the motivations for the progress customers want to make in their lives. 

Directly observing customers, instead of trying to decipher causation from customer demographic data, shows the buttons that product designers can push to nudge users towards adjusting their behaviours.

Clayton Christensen, the Harvard Business School professor renowned for his ideas about disruptive innovation, popularized JTBD. 

He illustrates the concept in a captivating way with the example of McDonald’s approach to increasing milkshake sales. The light bulb flash was realising consumers buy milkshakes to ease their commute to work, not because they like to take milk every morning or any cultural characteristics their demographic data may suggest.

For innovators in the African market, this would mean there is a need for directly discerning what jobs users want and having the capacity to deliver. 

These “jobs” vary with products. While price may be a serious concern for African consumers of pay TV, it may not in fact be the ultimate decider. DSTv felt significantly threatened by Startimes’ cheap subscription plans to introduce GoTv, but why did Kwesé not make a dent?

Kwesé sought to bring something new to consumers in terms of NBA and NFL channels. But the aspiration fuelling the popular viewership of European football in Africa arguably doesn’t match with those channels. As such, if that was the major selling point, it could not take off as it was not doing the jobs users wanted.

On the other hand, consumer fintech apps that enable microsavings, lending and micro investments (offering low entry points from as little as $10) are exciting because they tap into aspirations that have not been fulfilled in traditional ways. 

Even when these apps cause some inconvenience – like the somewhat controversial money-locking features on Piggyvest and Cowrywise, or high interest rates on quick loans – users are willing to make the tradeoff.

These apps’ innovativeness live or die by being able to match the aspirations consumers have for their individual users’ lives. But another way to assess what innovative products do is to see what new markets they create.

Market-creating innovations

This way of thinking about innovation also comes to us from Christensen. It’s present best known evangelist is Efosa Ojomo, the Nigerian Harvard-trained business thinker and Christensen’s co-author on The Prosperity Paradox.

“Innovators or companies that target nonconsumption have the potential to develop businesses that can create enormous wealth for their shareholders and can also have transformative developmental impacts,” Ojomo writes in one of his more widely-read blogs on the subject from 2016.

In his talks, Ojomo often buttresses this market-creating innovation framework with two African examples; the introduction of Indomie noodles, and the spread of Mo Ibrahim’s Celtel network from the late 1990s.

The keyword in the framework is nonconsumption. To paraphrase Ojomo’s definition, you can think of it as people not being unable to afford or use what they need. 

The interesting reality is that solving nonconsumption can start with sachetization. Exhibit A: the introduction of pay-as-you-go airtime scratch cards as against monthly subscription plans.

Many companies operating in Africa have adopted pay-as-you-go in delivering products and services to consumers that may not otherwise afford consumption. One example is M-Kopa, the asset financing company that offers solar energy products, and smartphones to low-income consumers in East Africa and Nigeria.

This integration of technology with asset financing can also be found in the business-to-business sector with the actions of startups like Sokowatch in Kenya, and TradeDepot in Nigeria. 

South African fintech Yoco is another active example; starting off by introducing card machines for small businesses to enable them tap into cashless customers, they now offer online payment channels for these businesses as a next level to attract even more sales.

What we have from these innovations is not just the unveiling of markets but increasing formalisation of economies. It’s good news for governments who want easier ways to identify taxable income and good news for consumers whose general standard of living tends upwards.

The upshot

There is no running away from the sachet model as far as B2C companies are concerned in Africa. 

Kwesé’s move to pelletize subscriptions were not out of order. But what counts as innovative at the end of the day is a good match between price and user aspirations.

Whether it’s McDonald’s milkshakes in the US or Baileys in Nigeria, the novelty of being a successful business will continue to be about reflecting the reality of your host environment while finding ways to influence that environment to imagine a better future. 

Need another example? See what Multichoice is doing with Showmax.

—

After checking Jumia and Amazon for the price of an iPhone 12, you might decide to get it at a roadside shop instead of from either online store. But what if there is a Nokia phone with same functions as the iphone? How do you justify getting an iPhone despite the significantly higher price?

We are constantly making these kinds of decisions. When we spend time or money on one thing, it is because we expect more satisfaction from it than from an alternative. 

Sometimes our decisions are based on metrics that can be independently verified by other people. At other times, it is our bias, hope or public opinion. Either way, we decide on a purchase by the future value we expect to derive.

In the business world, individuals and venture capital firms choose to invest in startups based on their estimation of the company’s worth. There is no ecommerce store where investors compare prices for various kinds of startups; for one, the African ecosystem is still too young for that to exist anyway. Some sectors only have one or two weighty players.

So how do investors determine valuations during the funding process? We’ll skip the math – it can be complex – but this factsheet explores the fundamentals of startup valuation. 

We’ll cover three things VCs typically do: fixed-stake valuations, the system called the “VC method,” and the comparables method.

A pre-determined, fixed stake

Some investors always invests a range amount for a fixed ownership percentage: 

• Y Combinator invests $125k for a 7% stake
• Ingressive Capital offers $200k to $400k for a 10% stake
• Microtraction invests $25k for a 7% stake

Y Combinator, the US accelerator that has funded over 40 African startups, is noted for taking this approach because of the large cohort of startups it invests in annually thanks to its famed accelerator. Most startups that participate in the programme are at the early stage, often two years or less. 

Avoiding the cumbersome task of negotiating individual terms, YC places a flat rate that applies across the board. So if you are seeking an investment from YC, you expect to be valued at a little close to $2 million.

This gives an idea of the valuations of startups that graduate YC, but it’s not to be interpreted as a hard rule. Depending on how much more startups raise within the programme and on Demo Day (when startups pitch to other investors), the valuation could deviate substantially from that mark.

For early-stage startups, dealing with investors that invest fixed amounts at a fixed rate can shorten the negotiation. Founders focus their useful time on building and taking their product to the market. It’s also convenient because at the early stage, the startup is probably lacking the robust business metrics – revenue and profits – that are used for more complex valuations.

But what about a promising venture that doesn’t participate in YC’s programme? How do investors without fixed valuation caps price such businesses? There are usually two ways to go. First, a method eponymously named for venture capitalists.

The Venture Capital method 

The VC method is a way to determine a company’s present value by applying a multiple to the company’s expected revenue over a number of years in the future.

VCs apply this where a post-launch company is neither necessarily making money nor has positive EBITDA –  earnings before interest, tax, depreciation and amortisation.

Here’s a basic sketch of how a VC determines a startup’s net present value, as described by an investment associate (she requested anonymity to speak freely for educational purposes): 

• As part of due diligence, the startup will present their five-year income statement projections to the firm.  
• The firm also comes up with their projections because management projections tend to be high and optimistic. 
• Using the EBITDA of the last year (say 2024) of those projections, the firm applies a multiple (say 10) to derive the company’s value at the time (enterprise value, in investment lingo) and then the future value of the investment to the firm (equity value).
• If the firm is comfortable with that expected equity value, they then discount that value to the present day and make the investment.

The crucial fixed aspect of this calculation is that investors have expectations of what their money should yield at the point of exit. This expectation is governed by their internal rate of return (IRR) which is the metric used to convert the value of their future equity to the present day. Some firms fix their IRR to be 40%, but it could be higher for others.

This metric is out of a startup’s hands. It’s one of the dogmatic factors a founder decides to accept as part of the investment.

But the revenue projections are somewhat dependent on the startup’s present performance and the argument that makes for future growth, other factors (like political crisis, economic depression or a pandemic) being constant. 

VC firms base their revenue projections for a startup on the product metrics related to the business. For an ecommerce startup, this would be the gross merchandise value (goods sold). For a social media platform, monthly active users would be one of the core metrics.

In addition to these quantifiable metrics, investor confidence in the management team to achieve the stated projections also influences the valuation. Their track record matters.

A factor that may be considered when evaluating the team is the Keyman risk. This asks the questions: 

• How will this startup respond to the exit of an individual critical to achieving their vision?
• How likely is this person to leave before we exit the business? 
• Can the company find a worthy replacement in the event of an unexpected issue with irreconcilable differences, either due to this person’s fault or otherwise?

When investors and startups are aligned on these perspectives of the team, the growth metrics and the IRR, the VC method produces a reasonably objective valuation of a company. This process is more rigorous and inclusive of the startup’s views than the fixed cap valuation, but it can drag on from months to more than a year.

So is there a metrics-based alternative to the VC method? Yes, and it takes us back to the introduction to this article. 

Comparables

If only someone could create a mobile app aggregating the valuations of startups at certain stages, VC firms will probably be one-man businesses. 

To be sure, that online store will fall short. No two startups can be priced exactly the same, as though they were two tins of milk. But comparing startups before investment is something VCs do.

You could say that is the basis for why the likes of Y Combinator and Microtraction take the fixed rate approach. But firms also use comparables as a benchmark to not start valuation from scratch, using it as a basis for determining the ticket size to invest. 

It’s not the most scientific system but firms assume that the startup they are about to invest in has the potential to achieve similar metrics to another startup that has presumably lived up to its pricing.

A note on comparables: The different economic climates of when the two startups received their investments should be discounted during the valuation. 

Adverse conditions can cause a valuation to be changed if the conditions make the projections unrealisable. Such conditions could, for example, make a startup raise money at a lower valuation than it did in a previous round. The new fundraising round is known as a down round.

Beyond the funding buzz 

This has been a basic overview of the hard and soft facts of valuation. Because the African scene is nascent, there isn’t a lot of public data on what startups are worth. Case in point: details of Platform Capital’s investment in Big Cabal Media, TechCabal’s parent company, are undisclosed.

Last year, Y Combinator published its list of most valuable startups which is how we know Flutterwave was worth $150million at this time in 2019.

But every funding announcement should raise curiosity on what a startup’s value is. Consequently, that should stir other questions, like the startup’s growth numbers and the stability of the team.

—

Bitcoin is money, a legitimate currency for transactions. 

There, I said it. And by the end of this piece, you won’t fret much about discussing this idea with friends and family.

This is not a campaign; it’s a recognition of reality. Money is whatever medium people agree to use to exchange value. As long as this medium can be used by both parties to account fairly for their exchange – if nobody is playing a fast one on the other – it’s legit.

Bitcoin is part of a family of thousands of cryptocurrencies including Bitcoin Cash, Ether and Litecoin. The “crypto” in the term gives off cyberhacking vibes, of some dark-web nefariousness. But the word’s Greek ancestor “kruptos” simply means “hidden.”

Cryptocurrencies are created with computer code, and as such are called digital or virtual currencies. The code is encrypted to prevent counterfeiting and make it transferable across geographies.

How does this work? 

Blockchain technology is the subject of a separate piece, but what a user needs to know is that no central authority controls its flow. Every cryptocurrency has a decentralised ledger that records each transaction.

Before setting up your Bitcoin wallet, a caveat. Bitcoin has two problems that make it somewhat less desirable than regular money. 

One, it has a finite supply because the currency’s source code imposes a limit on how much Bitcoin can be mined. Secondly, the decentralised nature means it is not under government control, making it a favour currency for malicious actors.

Also, it’s digital only. You can’t squeeze it into an offering box. That’s not a problem, is it?

Crash course over. Now, let’s set up an account and start transacting.

Select a wallet

You know how a wallet is needed for cash? Same applies to cryptocurrencies. So the first thing to do – after understanding how Bitcoin works – is to decide on which wallet to use.

There are a number of options for Africans: BuyCoins, Bitsika, Quidax, Luno, Bundle, YellowCard, LocalBitcoin. And more.

We’ve written a bit about BuyCoins before but the focus was on Sendcash, a product that facilitates Bitcoin-to-naira transfers across borders. BuyCoins has unveiled the feature in Ghana this week as more Africans latch on to the digital currency ride.

There’s no art to selecting any of these apps, so you should go with whichever feels familiar to your senses. 

Download and sign up

After downloading Bitsika, you can “Continue with Google” to sign up using your Gmail address. A username is required and four-digit PIN is all it takes to create a wallet. You can do this in two minutes, but additional details are required to verify your identity.

Luno’s first page after downloading the app displays the current Bitcoin price in your local currency, with tabs for other currencies. You get the option of exploring the app before deciding whether or not to sign up for a wallet, which is cool. A Gmail or Facebook account can be used to set up an account.

Quidax says it’s “Beginner friendly” with round-the-clock support available, then requests your phone number. Bundle asks for your phone number on its first page but setup is pretty seamless.

BTC Pay. It’s got some press this week after the Feminist Coalition, a women’s group in Nigeria at the forefront of the #EndSARS movement started using it to receive donations.

Generally, signing up for a basic wallet Bitcoin requires a mix of these: a username, phone number and email address. 

Fund wallet

Depending on the app, you can fund a Bitcoin wallet through bank transfer, credit/debit card, or mobile money. 

Bitsika offers all three, Bundle has just card and bank transfer (perhaps because it is still new and based in Nigeria where mobile money isn’t such a big deal).

I don’t know if this applies across the board but funding a Bitcoin wallet takes more time than usual bank transfers or wallet funding activities on, say, Piggyvest. 

For example, it takes up to 15 minutes for a card transfer on Bundle and up to an hour for a bank transfer. Both transfer modes incur transaction fees: 1.5% and NGN 150 respectively.

On BuyCoins, deposit is by bank transfer and it’s free.

Follow the app’s instruction to add a bank account, and select an amount to transfer to the wallet. The transfer is stored as a local currency or US dollar (if the wallet accepts dollars) token on the wallet.

Buying and selling 

With the token in your wallet, you can buy Bitcoin. At the time of writing, the exchange rate stands at 1 BTC for ₦5.3million ( ~ $13,970 at the Central bank of Nigeria rate).

When you’ve got to this point, selling and sending Bitcoin to other people becomes rather straightforward. You’ll be sending the BTC to a wallet address, the equivalent of an account number.

But depending on the app, there may be an extra level of verification required to send cryptocurrency. 

BuyCoins requires identity verification and has a guide for sending cryptocurrency on their app.

Bitcoin transactions are facilitated by processors like BTC Pay. It’s got some press this week after the Feminist Coalition, a women’s group in Nigeria at the forefront of the #EndSARS movement started using it to receive donations.

As with any digital product, it’d be wise to familiarize yourself with whichever app you opt for before undertaking transactions. 

Thanks to Maywa Tudonu, a Nigeria-based blockchain engineer, for clarifying some aspects of Bitcoin operations for this Factsheet.

—

Between February and August 2020, Lateral Capital made a mix of repeat and first-time investments in 9 African startups. 

The Africa-focused firm was the lead investor in seven of those deals. Some of the deals they participated include a $1m round by LipaLater, a $500,000 round by AppZone Group and an undisclosed round by Seamless HR.

In August, they became the first institutional investor in Mono, a Nigerian fintech startup that announced the close of a $500,000 seed round this week.

Lateral Capital is one of over 250 organisations with active investments in Africa’s startup ecosystem, according to an ecosystem analysis by Briter Bridges. These investors range from venture capital firms and private equity firms, to government-backed development institutions and foundations established by corporations.

When talking about equity financing in firms, funding sources can broadly be classified under venture capital or private equity. It is common to misconceive both terms as being interchangeable; venture capital is a form of private equity investment, i.e an investment into a company that is not publicly listed.

But VC and PE funds invest with distinct lenses based on two different strategic and financial ambitions. 

Using the examples of Africa-focused VCs and PEs we highlight three basic differences in the approach taken by both categories of firms when investing in tech companies.

Company type and stage

TLcom Capital invests between $500,000 and $10m in a company. Founded in 1999, the firm is focused on funding technology companies and currently boasts a portfolio that includes Andela, Twiga Foods, uLesson and Okra. 

While TLcom invested in Andela at the 2019 Series D stage and in Twiga four years after it was founded, they invested in uLesson and Okra at seed and pre-seed stages respectively. In any case, all four are classified as startups at different stages of growth. 

TLcom and other venture capital firms tend to invest in Saas (software-as-a-service) startups to help catalyze their growth from before the Serie A stage. The investment in Okra is from TLcom’s $71m TIDE Africa fund for infrastructure tech startups.

On the other hand, PE firms typically invest in companies that have large physical asset bases and are aiming to transition into advanced stages of growth. This calculus does not always factor in the age of the company. 

For example, African Capital Alliance (ACA) invested in FilmHouse, a Nigerian cinema chain in 2014 barely two years after the company was founded. That investment was made out of ACA’s CAPE III, a $400 million private equity fund. 

Today, FilmHouse is the market leader in the film exhibition industry in Africa. Its sister company, FilmOne entertainment, became the exclusive distributor of Disney movies in Anglophone West Africa this month.

South Suez Capital, a South Africa-based PE firm, is another example that highlights the size-asset consideration. It has 12 investments in Nigeria featuring Oando (energy), Vlisco (fashion) and Beloxxi (FMCG). It’s major tech investment is in IHS Towers which operates over 24,000 telecoms towers in five African countries.

In June 2016, IHS acquired Helios Towers Nigeria from Helios Investment Partners, a notable PE firm in Africa. Like South Suez, Helios Investment’s portfolio includes companies in various sectors from energy (OVH Energy) to FMCG (GB Foods). 

But it also includes Mall4Africa, an ecommerce platform, and Interswitch, perhaps Africa’s most recognised payments processing company. That brings us to another distinction between PEs and VCs. 

Ownership stake

In the late 2000s, Interswitch was in its tenth year of operations. It was growing beyond being just a software company that created payments applications to become a dependable infrastructure partner for virtually all banks in Nigeria. 

Interswitch was integral to the functioning of 10,000 ATMs and 11,000 POS terminals at the time, and had started administering the Verve cards issued by two-thirds of Nigeria’s 24 commercial banks.

Despite not being heavily a physical-asset business, Interswitch clearly had the size that appeals to the PE investment ethos. By the end of 2010, Helios Investment Partners led a consortium of investors including Adlevo Capital (one of Paga’s early investors) that acquired two-thirds stake in Interswitch. 

VCs search for startups with potential for high-growth and invest in them by taking a minority stake (under 50%). Y Combinator, an accelerator that invests like a VC, takes a 7% stake.

On other hand, PEs seek already growing companies where they can take a majority stake. They see their mandate as taking charge of driving a company’s future destiny and to do that, having the lead voice on the board is required. 

PEs are looking to turn firms around, injecting needed cash to trigger rapid changes in a company’s fortunes. In some cases, they come in and change a company’s leadership. 

VCs typically do not have such ambitions to take over leadership or force a CEOs hand. Indeed, an over-ambitious VC firm that wants to get a CEO to run their startup as the firm sees fit is a red flag. But that is entirely par for the course when dealing with PE firms.

Debt, equity, and exits 

We have previously highlighted the different ways a startup gives out ownership to investors. Startups take money from VCs as loans (debt to be repaid with interest) or equity (an investment expected to yield returns). 

PEs also use loans or equity for their investment. Where a PE wants to acquire a majority stake in a company, they do what finance people call a leveraged buyout. Simply put, a leveraged buyout involves a PE firm combining its funds with borrowed money from banks or other lenders to create a large enough fund for its acquisition. 

There are not many of these types of buyout deals in African tech at the moment due to the nascent status of the tech ecosystem. Most PE firms still focus largely on the energy, real estate and manufacturing sectors.

But like TechCabal reported last year, PE firms are increasingly interested in the startup space, reducing their check sizes to get in on the action. In that case, startups should know what to expect when dealing with either a VC firm or PE, based on each one’s expectations and strategic advantages.

—

It’s not easy raising funding as an early-stage African startup. Institutional investors that write the biggest checks are reluctant to have that due diligence chat with you because to them, you’re still rather raw and too high-risk.

For lots of startups, accelerator programmes become the springboard for raising necessary early capital. But there’s more to joining an accelerator than just money.

Accelerators have played an important role in bringing African startups to limelight. They have different modes of operation but in general, the value proposition is to serve as a nursery where startups fine-tune their purpose and speed up towards product-market fit.

Y Combinator is probably the biggest startup accelerator in the world. As detailed in this Factsheet, the Silicon Valley institution has helped fund at least 40 African startups. The bar is quite high for participating in the twice-a-year batches of YC’s programmes, creating a need for similar programmes to cater to the hundreds of startups popping up yearly across the continent. 

Unsurprisingly, a number of organisations have taken up the challenge.

Some follow YC’s model of holding boot camp-like events for a specified period and investing a fixed amount afterwards. Others are more like entrepreneurship training programmes or competitions that also provide financing. 

With the exclusion of YC, here’s a sample of active players in the startup accelerator space in Africa and what to expect from each.

MEST

Founded in 2008, MEST is an entrepreneurship training programme for current and aspiring African entrepreneurs. It differs from most accelerators in the sense that those who enroll do not have to come as founders or CEOs of already existing companies. 

Rather, they come as students and become entrepreneurs-in-training. After a full-year of training, the EITs form startup teams (or develop existing ideas) and pitch to the MEST team for a chance to get seed funding. Ticket sizes range between $50k and $250k.

In the 12 years of the programme, MEST has helped launch or invested in up to 60 startups around the continent. As of this writing, they have exited about 5 of those investments including from Amplify, a startup that was acquired by Nigerian fintech Carbon last year.

If you are excited about spending a whole year learning about entrepreneurship and experimenting with a new venture idea, MEST could be the programme for you.

Seedstars

11 African startups participated in the 2020 Seedstars World competition for a $500,000 prize. The annual event has become an early-stage startup competition to look forward to and African startups have taken the chance to participate for the exposure and funding opportunity it provides. 

In 2018, AgroCenta won the global prize. The Ghanaian online food distribution platform was one of five African startups in the finals that year. It edged out the likes of Nigeria-based Medsaf and Cameroon-based Healthlane – which recently raised $2.4 million in seed funding – to clinch the top prize.

Seedstars holds national, regional and its global competitions once a year. The multi-stage qualification format for the grand prize can be a distraction for startups who need to spend quality time building their product.

Otherwise, it is a great opportunity to test your startup’s thesis and establish broad networks with founders and experts across geographies.

Techstars/Western Union

Founders from Egypt, Gambia, South Africa and Nigeria were accepted into Techstars and Western Union’s accelerator programme in 2020.

The accelerator is managed by Techstars on Western Union’s behalf. It is not surprise then that the focus is on accelerating startups creating innovations around the flow of or management of money through machine learning, artificial intelligence or blockchain technology.

Like YC, it is a three-month programme of founder-facilitator interactions to help startups polish their products and market strategy, ending with a demo day. This year’s cohort includes Nigeria’s Rise Capital and started on July 13th and the demo day will be on October 8th.

African startups have also participated in Techstars accelerator programs located in different American cities. For example in 2017, crowdfunding platform Farmcrowdy was accepted into Techstars Atlanta, ecommerce platform Oja Express got into Techstars Kansas City, while fintech OnePipe joined Techstars NYC. 

Compared to Seedstars, MEST or YC, the Techstars accelerators have so far featured limited participation by African startups. But the US organisation has shown a keen interest in Africa over the past five years and could become an active alternative for startups seeking accelerators with significant connection to Silicon Valley.

Startupbootcamp Afritech

This 3-month bootcamp accelerator programme is based in South Africa and is anchored by corporate organisations like Nedbank, pwC, Old Mutual and BNP Paribas.

The ‘Afritech’ focuses Startupbootcamp – which was founded in 2010 – on Africa startups. So far, the accelerator has funded startups like Kudimoney at the early stage in 2018. 

Each startup that participates in the programme gets 15,000 euros in funding for 8% equity (no board seats, no preference shares) as well as access to discounts on technology subscriptions for Saas applications from Amazon, Hubspot and a few others.

DFS Lab

With a focus on startups building the future of digital commerce, DFS Lab is designed to be an accelerator and venture building programme for pre-seed startups. 

Until the pandemic caused it to take up a virtual programme, it hosted a bootcamp for its cohort of founders featuring in-person classes and strategy sessions on product and growth.

DFS has invested in startups in Kenya, Tanzania and South Africa, and by recently adding two new members based in Lagos, signals its intent to identify more startups in Africa’s biggest market. DFS invests $25k in each team and helps the startup close a pre-seed round from other investors, in addition to the mentorship package.

They continue working with the startup for four-to-six months afterwards on a growth plan that should culminate in another financing round.

These five are a sample of the growing ecosystem of accelerator, venture builders and incubators interested in African startups.

They are useful for the funding and entrepreneurship support they provide to young entrepreneurs. It’s up to founders to choose carefully which suits their goals best based on the terms offered and the value of the accelerator’s network to the startup’s strategic goals.

In the end, only a fraction of startups can get accepted into accelerators. An investment from YC or Seedstars can be a signal to other investors of a startup’s potential but it is by no means a guarantee of success. But for convinced founders who will build their products anyway with or without accelerators, it just might be an extra boost.  

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Are you a 29-year-old founder making something people want? 

The first batch of Y Combinator’s accelerator programme was held in the summer (June to August) of 2005. Back then, Demo Day had only 15 people in the audience. 

8 companies received a combined $160,000 investment. You’ll probably only recognise Reddit from that class. Of course, no African company was in the cohort; we’re talking two years before MPesa and barely three years after GSM licenses reached Lagos.

Fast forward to 2020. 

The Silicon Valley-based institution known for boosting early-stage startups has now funded 2,412 startups from its twice-yearly programmes. At least forty African startups have gone to YC. As of the summer 2020 batch, each receives $125,000 in investment for a 7% stake.

Peta Sales is supposedly the first Africa-based startup to be funded by YC. But you would struggle to find anything about it online.

It’s identified on the list of African startups YC has funded, with the ‘W09’ tag indicating it participated in the winter (January to March) 2009 batch. But the company isn’t on the website for that class – which included Airbnb. What did they do with their $20,000?

Peta is one of three currently inactive YC-funded African startups. The others are Passerine Aircraft (South Africa) and Tress (Ghana). These two are from the summer and winter classes in 2017.

Three out of forty is no disaster, but there’s a cautionary tale for the YC bug and buzz that tends to overshadow the unglamorous aspects of building an African company. Of the 37 currently active YC African startups, 14 are from the two batches in 2020. They are all less than two years old.

A startup’s good prospects are not determined by the accelerator programmes or investors they have connections with. 18.5% of YC startups worldwide are inactive; that’s nearly one in five. 

Atrium, a $75m legal-tech startup founded in 2017 and part of YC’s winter 2018 batch, shut down completely in March. Ironically, it was founded by Justin Kan, a former YC partner who co-founded two successful video-streaming platforms with Michael Seibel, the current CEO of YC.

The grandest early stage

That said, startups can unlock great value by being selected for a YC batch. 

It is by far the biggest stage for early-stage ventures to get global attention, high-level strategic advice and a lifetime of high-networth connections.  

At least 100 YC-backed companies are valued at $150 million or more, as of October 2019. We’ll have to adjust for COVID-19 to see how this has changed for better or worse (Atrium is surely off the list now), but twenty-six of these are billion-dollar companies. The list includes Stripe, Dropbox, and Airbnb. 

Flutterwave is the only African startup on YC’s top 101 most valued companies. 

What Y Combinator wants from an African startup

Divided into winter and summer batches, YC’s programme is a three-month bootcamp of sorts.

Three key activities are at its core: 

• Dinners: weekly off-the-record sessions between startups and a notable global entrepreneur, say a Jeff Bezos.

• Office hours: regular meetings between startups and YC partners, to guide startups with strategy and the journey towards product-market fit.

• Demo Day: three-day pitch event where startups try to get other investors to add to the $125k from YC.

Normally, the entire period is spent in San Francisco. But the winter batch this year was partially remote while the summer batch which ended last month was fully remote. W21 will also be remote. 

Y Combinator’s thesis for identifying startups is captured in their motto: make something people want.

According to Seibel, the description is agnostic on many factors and applies equally to founders from diverse countries in diverse sectors. 

Having a patent is not important, neither is the reputation of one’s alma mater. No introduction from a notable venture capital firm or angel investor is needed. They don’t read business plans.

If there is an understated secret to getting selected, it would be the startup team’s capacity to execute on a project based on a well-rounded appreciation of the potency of software.

“With good software development, you can execute even if you pivot and change your idea,” Seibel said this week in a conversation with Shola Akinlade, the Paystack CEO.

Perhaps YC has had some bias towards fintech; at least 14 out of the 40 African startups on its list have a leading financial component. More than half of these 40 are Nigerian startups. The average age of the founder of a global YC-backed startup is 29. In Africa, that typical founder is a man.

Yet none of these should dissuade any startup from applying, Seibel says. In the chat with Akinlade, he suggested three preliminary questions that could help startups evaluate their readiness for a YC batch:

• Does the founding team have the technical ability to build and execute the product?

• What’s the nature of the relationship between the co-founders; have they known each other beyond a few weeks/months before deciding to apply?

• What has the startup done in the time they have had to work on the product?

There’s also something to be said about founding a startup before having the operational experience to run it. To borrow Seibel’s metaphor, even tall and talented basketball players billed for NBA superstardom must have spent some formation time at the gym.

Apply anyway

Either way, Akinlade’s advice is to apply. 

Before founding Paystack in September 2015, he had applied to YC in 2008 with a startup he describes as “an open source version of Dropbox” but didn’t get in.

Paystack’s first application was not successful either. The YC partners who screened it thought the founder was capable but didn’t see enough traction.

But they’d get two “Yeses” out of three to qualify for the winter 2016 batch, becoming only the third African startup, the first African fintech and the first Nigerian startup (if we discount Peta Sales) to participate in the famed accelerator programme.

“We were very nervous about our accent, that it might have been difficult to pass the message across. I don’t think that was a problem,” Akinlade recalls, upon arriving San Francisco in January 2016 with his co-founder and CTO Ezra Olubi.

Four years down the road, Paystack is easily one of the continent’s most exciting, often coming up in conversations about a potential acquisition by the likes of Visa and Mastercard. 

At the time they applied to YC in late 2015, Paystack’s life-time revenue was $1,300. In August 2020 alone, they processed $150 million, according to Akinlade. 1% + a 50 cent flat rate per transaction on that is…?  

YC doesn’t own the credit for Paystack’s – or any of its portfolio company’s – success or failure. But the access to the YC community doesn’t end after the 3 months of each batch. 

Being an alumnus is an opportunity to literally have some of the world’s most exciting startups on speed dial for business relationships or advice. 

Big African visions

As long as a startup is comfortable giving away 7% equity early on, taking a chance at YC is basically a no-brainer. 

Don’t be surprised to see pre-seed venture firms include an ability to prepare startups for YC as part of their value proposition. Microtraction is one example.

In addition to software thinking and technical capacity to execute, YC’s other secret screening tool is the size of the startup’s vision.

“We want to hear courageous goals. We want to hear people who want to do outsized things,” Seibel said. 

The initial minimum viable product can be small (and it may even change within the three-month period of being at YC) but investors want to be inspired by the grand vision. 

Preferably, this vision should seek to cover Africa instead of countries or regions, Seibel says. To give the application reviewers context – YC has no African partners – it is not uncommon for African startups to pitch as some notable Silicon valley startup for Africa. 

Ultimately, a startup’s YC application lives or dies on clear communication (avoid puffy language like “disrupt X industry” and vanity metrics, alumni say), and the conviction of the founding team. 

“We fund founders who are going to do this company no matter what,” Seibel said.

“When you work with extraordinary people, your number one goal is to not get in their way.”

How to apply

This factsheet condenses the why and how of YC participation with context for African founders. But YC’s FAQs is the best guide on the specifics of what to expect from the three-month period. 

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Iroko evokes a certain immensity. Slap that name on a new venture and it will naturally become huge in no time. 

Yea, if wishes were horses. In reality, the startup building process especially in Africa is 100% blood, sweat, tears. And money.

It has been a long grind for Iroko, the video content company. Jason Njoku’s comments last week about reducing staff size and shifting focus away from the African market testify to the incredible difficulty of building in and for Africa. 

This difficulty exists despite the fact that Iroko has raised about $40 million in venture capital since it was founded in 2011. The last major raise was from a $19 million Series E round in 2016. Before that, it raised $8 million in a Series D in 2013.

“Series E, Series D”?

In the world of startup financing, the letter of the alphabet attached to a funding round is a signpost of sorts. It expresses the number of times a startup has sought out external funding. The number of rounds also suggests the startup’s philosophy on growth.

As the Series E announcement said back in 2016, Iroko raised the money to “expand aggressively across the continent.”

Only a few African startups have closed five funding rounds as Iroko did. How do ticket sizes today compare to rounds over the past decade? 

Pre-seed and Seed rounds: Cowrywise to Palmpay

Founders typically float a startup with personal funds, before seeking out investments from family, friends or external well-to-do individuals known as angel investors. 

All of this broadly falls under the pre-seed funding stage. An angel round can vary from Cowrywise’s $50,000 in 2018 to Paga’s $700,000 in 2010. The size of the round is a function of first and second order connections who are available to take a gamble on a founding team’s idea.

Things get a bit more serious at the seed stage with institutional investors getting involved. A startup may take seed money at different dates from multiple sources, or hold one round. The amount can vary from $125,000 (as YCombinator gives) to millions as was the case with uLesson’s $3.1 million seed round last year in which TLcom Capital participated. 

uLesson’s seed round was large in the African context but Palmpay’s $40 million is so far the largest seed-stage raise for any Africa-focused company. It spoke to the “aggressive growth” ambitions of the Chinese-backed company

Series A: Paystack to Lori Systems

Pre-seed and seed funding are about giving a startup impetus to enter a market and prove itself worthy of customer attention. Series A happens when the startup needs more financing to firmly establish affinity with those customers.

‘A’ rounds are almost always in the millions, from $6.6 million raised by mPharma in 2017 to Lori Systems’ raise reported to be up to $38.7 million. 

Investors who enter a business before the Series A stage may be looking to exit the startup before an acquisition or IPO. Angel investors may just have convertible notes that are debt instruments to be redeemed in a startup’s future equity rounds.

But Series A investors are typically in it for a long run and are happy to provide strategic advice and support to help the startup scale. 

Because they have a stake in actualizing the startup’s growth potential, they go beyond providing money to introducing them to networks of customers or suppliers to widen the product’s reach.

Some startups close a Series A and take a while before venturing into another round if they are comfortable with their pace of growth and in no hurry. Paystack’s last raise was an $8 million Series A in 2018 and CEO Shola Akinlade said recently they are at a happy place financially.

Others dial up the machine by pouring in more capital from investors, ostensibly to quickly take advantage of what they see as a post-Series A boom in adoption.

Series B: Andela to OPay

Most people outside Africa started paying attention to Andela in June 2016 after Mark Zuckerberg invested in the company’s $24 million Series B round through the Chan Zuckerberg Initiative. Omidyar Network also participated in that round.

It was a big deal, a massive coup by an Africa-focused startup birthed on the streets of Yaba, Lagos. Some startups had closed notable ‘B’ rounds before Andela – Paga’s $13 million in 2015 also featured Omidyar as an investor – but Andela immediately became the poster child of Africa Rising 2.0, tech version, after pulling in the billionaire Facebook founder.

Indeed, a successfully closed B round means investors approve of a startup’s need to attain a distinct level of growth. It might involve expanding operations beyond one geography or rolling out a new line of products. 

In a word, Series B is the time to double down on nailing down business development.

More money is raised than in previous rounds, so due diligence is tougher as the startup’s growth assumptions will be interrogated especially by new investors into the company. 

The aggression of the startup’s growth ambition can be perceived in the difference between the A and B rounds. Flutterwave moved from a $10 million Series A (and some follow-on financing) to $35 million in its Series B in 2019. Opay stunned everyone last year with its sensational $120 million Series B mere months after announcing its presence with a $50 million Series A.

Series C, D, E, etc: Cellulant, Konga, M-Kopa, Iroko

Every formal round after a Series A is not terribly different in terms of deal structure. The letter alphabet goes up with which one, and there might be one or two new investors coming in per round.

‘C’ stage companies know what they are about, having devoted the ‘B’ stage to defining their business development thesis. 

Sometimes that defined philosophy and the goals following from it might hit a brick wall, as in Opay’s case with the ban on motorcycle taxis in Lagos this year. The company might choose to approach further fundraising with more caution, taking a step to reevaluate plans.

Those who have no such qualms might look to consolidate their gains with more funding.

Series C and D deals may not necessarily be big money deals (like Cellulant’s $47.5 million ‘C’ round in 2018, or Andela’s $100 million ‘D’ round in January 2019), provided it is a formal follow-up round with more institutional investors participating in it. 

Pushing on from C and D with more funding is supposed to bring a startup closer to profitability (if it hasn’t attained it in previous rounds), or a form of exit through an acquisition or an IPO.

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Non-profit organisations, social enterprises, and for-profit businesses.

Organisations in each category require capital to fulfill their obligations. The founding team in each case would usually launch the project with personal funds. Where family and friends are financially capable and available, they could be early sources of funding too.

But be careful, because an organisation may not be the same again when it starts taking money from anyone outside the founding team.

In the case of non-profits, they typically receive grants for their work. These are interest-free gifts without obligations on repayment. The funder gives the organization the money for the gratification that will come from one social good or another being accomplished.

Grants come from wealthy individuals and organizations who do not necessarily have anything to lose but would love to create impact. 

In that sense, putting money into organisations where there is no expectation for financial return is more an act of cash injection than an investment. Merriam-Webster says the use of the word “invest” in finance originated from an idea that money was being “clothed” into a new form. The word then evolved to imply expectations of returns.

So when family and friends give you money as an investment, they expect it positively transformed and returned. It’s business!

By agreeing to this understanding of the money being offered, you could either be taking debt or sharing equity.

Both mediums of investment are the chief instruments of fundraising in the startup world today. Startups from pre-seed to later stages that seek external financing are either borrowing money to repay with interest, or giving away partial ownership of their company. 

In this edition of Factsheet, we’ll explore four categories of instruments which startups offer in exchange for money from investors. We examine them from the lens of a startup between the pre-seed and Series A stages. 

What we learn from how each is structured can be useful when planning to speak to investors. 

Loans: Debt to be repaid with interest

A startup could get a start by getting loans either from angel investors or institutional investors. But we should say right out the gate that this is a road less travelled by companies that are just taking off.

Banks are very risk averse and considering the overwhelming proportion of startups anywhere in the world fail, banks don’t have much scope for imagination when it comes to funding startups. The conversation is a non-starter in Africa where poor addressing and identity systems increase credit risk.

That being said, a startup team could manage to convince an angel investor on a short-term lending agreement that will accrue a sizable return. The investor takes precisely the sum of the capital and interest as at when due whether the company is failing or overflowing with success.

But should the investor feel like standing a chance of having that loan evolve to become equity, then both parties will have to exchange a more sophisticated investment instrument.

Convertible notes: Debt that converts

A convertible note is essentially a debt instrument that can become equity, usually at some point of maturity in the startup’s life like a subsequent fund raise.

Startups use convertible notes when there is no set valuation for the company. Instead of haggling with the investor, the team agrees to take the investor’s money guaranteeing it will be paid back with interest – unlike in a full valuation-based equity investment. The difference here is the potential to in fact retain the funds and convert them to an equity share.

Startups that issue convertible notes are usually confident of their growth trajectory. As a company matures into a Series A, there will be no need for convertible notes any more as there is a strong sense of what the value of the company is. 

SAFE: Conversion without maturity dates

The main difference between a convertible note and a SAFE is that the latter has no maturity dates or interest rates attached.

Introduced by Y Combinator, the Silicon Valley accelerator and investor in 2013, SAFE stands for Simple Agreement for Future Equity. As the name implies, it is an agreement that anticipates a future opportunity for investment.

Basically, if a startup gives an investor a SAFE, they are telling the investor that they will be able to purchase shares in the company in a future funding round.

This simple agreement removes the burden of having to think of the investor’s money as time-bound debt that has to be repaid at a given date at specified interest rates. 

A number of clarifications are layered on this simple agreement to ensure the founder knows how much of his or her company could be potentially given away in those future rounds.

SAFEs can literally be held for long periods of time by investors without converting. That may not be ideal for an investor who would want to get their money to become equity shares as soon as possible. 

However, a SAFE gives founders some safe space within which to grow and achieve scale without the pressure of an unpaid debt.

Common and Preferred shares: Owners and shakers

When a startup grows and raises a seed round after issuing SAFEs, it is able to now offer common shares to its investors, solidifying their relationships as full equity holders in the firm.

Commons shares are based on a calculation of the company’s valuation which can be determined in a number of ways from assessing comparables to modeling around sales to date.

The convention is to issue common shares to investors who can vote on the company’s board of directors and approve consequential business decisions like mergers and acquisitions. 

Holders of preferred shares don’t have these privileges but their stock is “preferred” because they get first dibs on dividends, payouts in cases of potential bankruptcy or liquidation of assets. 

Common shares – because they cannot be cashed on as quickly as the preferred – are more high risk but also have high reward.

In summary, the instrument a startup issues to an investor would depend on the stage of the company’s operations and the strategic needs at the point of fundraising. Startups founding teams should definitely be educated on the mechanics of each instrument and talk over the implications with investors in each case.

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OPay’s payments product is supposedly growing. It has been responsible for more than 60% of mobile money transactions in Nigeria, according to the company. 

But OPay the super app is in hibernation, if not completely shut down. As of this publication, the app only supports savings, bill payments, loans and betting functionalities. OMall, the online shopping vertical, is active with some “50% off” deals.

Meanwhile in South Africa, Moya Messenger appears to be picking up steam.

Launched in 2018, the app does not cost users mobile data or airtime.

Moya’s foundational feature is instant messaging, with an interface similar to WhatsApp and Telegram. A ‘Discover’ button launches the user into a bunch of local and international news, health and educational features depending on your geographical location. 

A user’s mobile data must be switched on to use these services for free. The app’s model relies on advertisers paying for users’ data.

The app has gone from about 200,000 monthly active users in March 2019 to more than 2 million this August, according to data shared by Gour Lentell, co-founder and CEO of biNu, the company behind the app.

Lentell says 24,000 users on average are signing up daily on Moya.

To be sure, the app is at a very rudimentary stage of super-app-ness compared to OPay’s ambitions. The latter had and still has services users would pay money for, making it a platform for enterprise not just for OPay but for a variety of third-party merchants – which is kind of the exciting point about super apps.

On the other hand, Moya’s present iteration seems to be part of a company’s broader campaign to provide data-free internet services for emerging market consumers.

There are other Africa-focused companies at different stages of the super app business, with varying potentials for success. We take a glance of the landscape to see what five of them have been up to in recent months.

MTN’s Ayoba

Susan Kayemba, senior manager for digital and online services at MTN Uganda, was excited to introduce Ayoba in the East African country in July.

“It has many features which are not available on other instant messaging apps,” Kayemba says.

Launched in March 2019 and currently available to only Android users, Ayoba is primarily an instant messaging app plus news readers and games. It works on multiple mobile networks but MTN users have free data every month (ranging from 1GB in Uganda to 600MB in Nigeria) to use the multimedia features – voice notes, video chats, etc.

MTN is promoting the app as a pan-African platform created by and for Africans. Djibril Ouattara, CEO of MTN Cote D’Ivoire, describes it as “a bit like the African WhatsApp adapted to local needs.” 

Ugandans can use it in Swahili, Rwandans in Kinyarwanda and Ghanaians in Twi. 16 other languages are supported in addition to English, French and Portuguese.

MTN says there are half a million Nigerians on the app, but it is unclear how active these users are if the app’s main function – chat and news – are easily accessible and arguably more interactive on other platforms. 

Also, half a million users represent 0.006% of its subscriber base in the country.

A puzzle about Ayoba is why it is a separate app from MTN’s other value adding products like Music+ and why there seems to be no integration for its 36 million mobile money users.

It appears bundling these is the eventual goal. Yolanda Cuba, MTN Group’s chief digital and fintech officer, says mobile commerce and interactive entertainment are in the pipeline.  

Palmpay

They have stayed under the radar since we heard of their $40 million seed funding and a VISA partnership in November 2019. One promotional discount has followed another in the period since but the expected OPay-like push to rollout verticals has yet to materialise.  

On the Palmpay app, banners commemorating their one-year anniversary are front and centre. But the features are mostly unchanged from November: send and request money, buy airtime, place bets. 

They continue to emphasize “Palmpay points” but that hasn’t seemed to take off with users. 1 point = ₦1 which is no big deal.

However, they are not doing nothing. As TechCabal has reported, Palmpay has been pitching its app to merchants and businesses as a payments platform of choice. 

The plan is to have the app pre-installed on 20 million units of Tecno, Infinix and itel phones – the most popular phone brands in Nigeria used by the SME segment being targeted with the app.

These low-cost phones are manufactured by Transsion Holdings, the Chinese company. (Palmpay is developed by Transsnet Financial, a joint-venture company of Transsion and NetEase Group, another Chinese internet tech company).

As of February, the app had 100,000 active users, according to the company. 

Considering the integration with phones was a pre-COVID plan that has suffered setbacks due to production shortages in China in the first quarter of the year, it may be too soon to expect Palmpay to append any new features on its app, or announce something crazy exciting.

For the rest of the year, the company could lean into broadening appeal with consumers using commemorative giveaways on social media, with all of that splashy purpleness.

Safeboda

Safeboda went against the grain in Nigeria by launching its motorcycle-taxi outside of Lagos and it’s proved an inspired choice so far. They have completed 250,000 rides in five months since March. They are leading the bike-hailing wars.

Ibadan, where it launched in Nigeria, is Nigeria’s largest city and is underserved technology-wise relative to Lagos. They are relying on loyalty programs and creative personalised messaging to attract and retain customers, hoping they create a base to discourage any new entrants. 

Founded in Uganda and also present in Kenya, Safeboda is on a visible path to being a super app, permeating its target markets one product at a time. 

Food, shopping and package delivery are available on the app in both countries, in addition to the original digitized boda boda idea that lifted the company into the top bracket of Uganda’s startup ecosystem. 

Safeboda has more than 1 million users across its three markets. We don’t know how many are active and they have to find solutions to check fraudulent schemes – like drivers registering with multiple accounts to ride themselves and get paid. But the company appears to have a steady stream of business and could become a contender in Africa’s super app race.

Gozem

The best known majority-francophone ride-hailing brand in Africa, Gozem has taken a few interesting steps to register its continental and inter-sectoral ambitions.

In May, it enabled a mobile money facility on the app in partnership with Etisalat Bénin (Moov). The mobile money is used in a digital wallet launched this year, adding another in-app payments feature that could be an easy port for other services.

On the strength of its ride-hailing drivers, Gozem began offering e-commerce delivery in Togo and Bénin in July. It may or may not have been a rollout induced by the urgency of COVID-19 but that’s one more product to enable CEO Emeka Ajene’s big plans.

He and co-founder Raphael Dana set out to build an Africa-focused super app from the company’s inception in 2018. With Ajene’s lessons from stints at Konga and Uber Nigeria, and Dana’s Singaporean upbringing, they hope to replicate the models operated by Grab and Indonesia-based Gojek.

It remains to be seen whether the francophone region can be a better take-off environment than West and East Africa.

JumiaPay

Has a change of brand name started reaping benefits?

JumiaOne was launched in 2018 as a lifestyle app for payments and shopping. It was to be the one-stop shop to “bring every online service in one place and make them easier.”

This shop now combines the features of Jumia Pay, created in 2016 and modeled after Alipay, with gaming, loans, insurance and investment to become an early-stage super app.

It has been one of the fastest-growing components in the Jumia portfolio over the past year. 

2.3 million transactions worth $39 million were processed on JumiaPay in the first quarter of this year. Payment volumes rose 106% on the back of 2.4 million transactions in the second quarter.

With progressively better metrics, Jumia could become the continent’s breakout super app possibly buoyed by Jumia prime, its loyalty program. 

But like other players on this list, Jumia will be looking over their shoulders for the approach of ambitious fintech companies like Paystack and Flutterwave, whose entry into e-commerce infrastructure space could accelerate and differentiate the super app race in Africa.