Touted the largest ever startup fund in Africa, Timbuktoo Africa Innovation Fund will commit $350 million of risk-tolerant capital to help attract an additional $650 million from private investors, Eleni Gabre-Madhin, Chief Innovation Officer at UNDP Africa told TechCabal via email. “What we’re trying to do is make it more attractive for domestic capital to come in at earlier stages… venture capital in Africa needs to be riskier,” Gabre-Madhin said at the launch event in Davos.

Timbuktoo will provide financing for accelerators and venture builders from the $350 million, including investments of up to $800 million in venture firms in 8 African countries alongside private partners. These details have not been previously reported.

The funds will “make pre-seed, seed, and pre-Series A investments on an equity basis to startups,” Gabre-Madhin said. In Casablanca, Morocco, funds from Timbuktoo will target tourism and hospitality startups, in Dakar, Senegal it will target edtech. In Lagos, Nigeria, Timbuktoo and its commercial fund partners will focus on fintech startups, while in Accra, Ghana it will focus on agritech. In South Africa, Capetown’s hub will target creatives, with Greentech being the focus in Nairobi, Kenya. The Rwandan hub in Kigali will focus on health tech. Trade, logistics and e-commerce will be the fund’s focus in Cairo, Egypt. The fund will work with local universities to support tech ventures.

Foreign development banks are major contributors to the venture capital African startups have received. Institutions from the International Finance Corporation and the European Investment Bank have backed first-time fund managers in Africa like Ventures Platforms, and Atlantica Ventures. Managers of Boost Africa, a venture capital facility run by the European Investment Bank are currently in the final stages of talks with the European Union over a new €159 million facility, Déborah Vouche, a private equity investment officer at the bank told TechCabal.

Kigali’s rising fortunes as a financial centre

The fund will be managed from Rwanda, a boon to Kigali’s financial centre Ambitions. Established in 2020, Kigali International Financial Centre is the #3 financial centre in Africa, only behind Casablanca in Morocco and Mauritius according to the latest ranking from the Global Financial Centres Index. At the launch event on Tuesday in Davos, Rwanda’s president, Paul Kagame made the first public commitment of $3 million to the fund. 

“The decision to domicile the Timbuktoo Africa Innovation Fund within KIFC reaffirms our attractiveness as an international financial services hub,” Jean Marie Kananura, Chief Investment Officer, Rwanda Finance Limited, the parent company of the Kigali International Centre told TechCabal.

Leading fintech firms like Flutterwave, Chippercash and Onafriq have opened offices in the country and say they plan to make Kigali their payments hub for East Africa.

“Recent developments in the payment services landscape have raised concerns regarding the use of technology and the existing licensing and regulatory framework,” Cardoso warned at the bankers’ dinner. “Any intentional or unintended non-compliance will be subject to sanctions, as operators have the responsibility to ensure that they are licensed for the activities they undertake.”

Cardoso added that the apex bank planned to review Nigeria’s existing licensing framework for payment services. 

Days after that warning, the central bank mandated all financial institutions to collect ID cards before creating financial accounts. Under a 2013 central bank rule designed to support financial inclusion, Nigerians without identity cards could open lite-versions of bank accounts or digital wallets, which could only receive N50,000 ($63) at once and have a maximum balance of N300,000 ($380). The second salvo was the Nigerian Inter-Bank Settlement System (NIBSS) taking a shot at fintechs that were not licenced to collect deposits but were nevertheless listed as deposit institutions on mobile money transfer apps. Central banks and commercial banks in Nigeria jointly own NIBSS.

The results of the two announcements have been mixed. The CBN’s announcement that it will mandate all account holders to submit identification was widely supported by financial institutions. The move is expected to help stem rising fraud in the sector. But even that is doubtful as a significant proportion of cyber fraud cases involve users who had identity cards that passed the smell test. 

“Most of the fraud that we see is the virtual account space, which is more difficult to tackle,” Esigie Aguele, co-founder and CEO of VerifyMe Nigeria, told TechCabal. “The government could be doing more to institutionalise fraud reporting instead of leaving it to just one agency,” he added.

The second regulatory action from NIBBS had mixed reactions. For one, the memo fell short of specifying what companies had broken the rules and were collecting deposits when they shouldn’t have. This left ample room for misinformation to spread on social media. It forced leading fintechs to reassure their customers via email and social media.

“It’s been a chaotic day with customers panicking,” a communications director at a leading fintech told TechCabal. “I wish regulators understand that these things affect human lives.” 

The announcement was well-received by financial sector professionals who feel an overhaul of the fintech space is overdue. “Read the 4th paragraph in Governor speech at CIBN conference… fintech doing more than what they are licensed to do,” one bank executive who leads the digital solutions unit of his bank told TechCabal. Nigerian banks both offer services that fintechs depend on, as well as operate directly competing digital products. NIBSS is also co-owned by Nigerian banks and the central bank. 

Then, two days before Christmas, the central bank announced that it was removing a two-year restriction that blocked banks from processing crypto-related transactions. The announcement seemed to open the door for a regulated crypto industry in Nigeria, and startups like Yellowcard, a pan-African crypto exchange, promised to “immediately” apply to be licenced under the new regulatory regime.

However, hopes for looser crypto policies were moderated early in the new year as the central bank clarified that it was not yet comfortable with the crypto industry. On January 2, 2024, the bank released guidelines that retained a ban on banks holding or trading in virtual assets and limited cryptocurrency accounts to only deposits made in local currency, with withdrawals limited to two every quarter.

The case of the commercial banks whose boards and management got the axe has been brewing since December after a report by a special investigator claimed the banks were fraudulently acquired. The central bank said Keystone Bank, Polaris Bank, and Union Bank committed infractions ranging from “regulatory non-compliance to corporate governance failure.” 

“CBN [is] signalling that compliance is going to be a big deal going forward,” Tola Onayemi, CEO of Norebase, a compliance-tech startup, said on X, formerly Twitter.

Regulation across board

Financial regulators are not the only ones asserting themselves. Nigeria’s Corporate Affairs Commission (CAC), responsible for registering businesses, planned to enforce a rule forcing private companies with foreign shareholders to have a minimum of N100 million (roughly $126,600) as paid-up capital. Paid-in capital is the amount the owners of a company have paid in exchange for shares in the company 

Before now, Nigerian companies with foreign shareholding only needed to put up N10 million (about $12,660) as paid-up capital. Part of the fees the CAC charges for company registration depends on the amount of paid-in-capital the company has received, a private wealth management lawyer told TechCabal. By increasing the minimum 10-fold, the CAC will increase its revenue from registering new companies. 

The CAC notice refers to a 2022 rule, the Revised Handbook on Expatriate Quota, which was issued by Nigeria’s Interior Ministry. At face value, the rule only applies to companies that need a business permit and a Combined Expatriate Residence Permit and Aliens Card (CERPAC) to operate in Nigeria. But this broader application of the rule by the CAC means that even Nigerian founders who do not need a business permit or a residence permit (because they are Nigerian) will be forced to increase the paid-up capital to regain compliance. 

In a private group chat for tech founders and investors, seen by TechCabal, one entrepreneur wondered why the CAC appealed to a rule from another agency instead of the Company and Allied Matters Act (CAMA), a revised version of which was passed in 2022 to regulate corporate registrations in Nigeria. The CAMA is the same law that establishes the Corporate Affairs Commission. 

The commission reversed course less than 48 hours later. In a statement published on December 22, 2023, it asked the public to disregard the notice given two days prior. “Our initial notice was based on the Federal Ministry of Interior Handbook on Expatriate Quota Administration 2022 Revised Edition. We shall issue an amended notice with regards to the above in due course,” the later statement said. The reaction on social media was furious. 

“There are things that make business so inhospitable in Nigeria, yet we just find a way to move on.  The fact that CAC could issue two conflicting statements within 48 hours, with no advance warning was triggering,” Subomi Plumptre, an executive at Volition Cap, a Lagos-based asset management firm, wrote on X, formerly Twitter.

At any rate, the message of the last 30 days is clear. Africa’s biggest recipient of venture capital funding has entered regulatory waters.

The merger is already being touted as the largest private tech deal in Africa. Wasoko was last valued at $625 million after it raised $125 million last year. The firm says it has received $113 million out of that investment. El-Megharbel of MaxAB declined to disclose the valuation at which his firm raised $40 million in October 2022. Both executives declined to comment on their valuation expectations for the new company.

“This is not a new discussion; this is really about a friendship and partnership that has been ongoing for years, and for us, it’s about taking things to the next level,” Yu said, adding that the combined company will have more “runway with tens of millions of dollars on the balance sheet.”

The deal will be structured as an equity consideration, which means that existing shareholders simply get a share of the new company upon completion of the merger. It gives wiggle room for investors who backed both companies and potentially allows VC firms to preserve most of the valuation at which they purchased their stake in either of the firms. According to Daniel Yu of Wasoko, independent investors and board members on both sides are part of the talks. Wasoko and MaxAB have raised almost $245 million from venture capital investors.

“This is a super tough business to crack. It requires a specific type of talent and well-capitalised companies to be able to crack it,” MaxAB’s El-Megharbel told TechCabal. “Before 2001, over 10 companies were trying to do what Amazon was doing. After a crisis hits there usually emerges a clear winner,” he added. Bringing both firms together would help them maximise their chances to come out tops.

Between 2019 and 2022, venture capital investors poured money into entrepreneurs building tech companies that focused on bringing Africa’s informal wholesale market for consumer goods online. Dubbed ‘B2B e-commerce’ as opposed to the direct-to-consumer e-commerce model of Jumia and Souq.com (acquired by Amazon), B2B e-commerce was described as more suited for the African experience because its primary customers were street shops and small retailers in African cities and towns.
More recently, B2B e-commerce has struggled, and to startups in the space, including Wasoko have laid off hundreds of staff and paused expansion plans.

In social media chatter on X (formerly Twitter) and private conversations on WhatsApp and Telegram seen by TechCabal, investors and founders speculated that one or both firms were struggling, hence the merger.

El-Megharbel and Yu dismissed those concerns. “The market is used to these deals happening in these specific incidences, so this is they just haven’t seen another way of doing this,” El-Megharbel said, “We and Wasoko have approached this at a point when we did not have to do it because once you have to do it, the companies are struggling at that time. Daniel and I are mature and humble enough to figure out that if we wait longer than this, it would probably be uglier for both companies or at least for one of them. The sooner, the merrier for this deal to happen.”

“Shareholders on all sides are extremely excited about what is happening,” Wasoko’s Yu said. “This is a 1 plus 1 equals 3. This transaction will establish us as the clear B2B e-commerce leader in Africa.”