The Africa SMME Tech Report

Issue No. 11. Africa-Middle East small business tech news for 22 July 2021. This edition features Kandua, Akiba Digital, Eversend, SmartWage, and more...

Home Services Marketplace Kandua Raises Undisclosed Pre-Series A Round

Building a two-sided marketplace is a notoriously difficult task. Of course some of the Internet’s greatest success stories are two sided marketplaces. Think Amazon, Uber, Airbnb, among many others. The model has also produced its share of failures.

This model is at least as difficult to execute in the home services space. It requires having enough consumer demand to make leads valuable to tradespeople while simultaneously having enough skilled tradespeople on hand to fulfill all consumer requests. This is a difficult and expensive balance to strike. Achieving marketplace liquidity, where there is enough volume on both sides, is an often elusive goal.

So far at least, investors are betting with their dollars and rand that the South African marketplace Kandua can achieve this difficult balancing act.

Kandua describes itself as an “online marketplace for home services.” And its available market is certainly attractive. Each year South Africans spend an estimated US$4 billion on home services.

This week Kandua announced a pre-Series A funding round. The amount wasn’t disclosed, though it was described as “significant”. The investors include Knife Capital and Allan Gray E-Squared Ventures.

This follows a seed round earlier this year from unnamed angel investors, plus ASISAESD Initiative, IDF Capital, and Catalyst Fund.

In the statement announcing the “significant” investment, Kandua describes a two-track business, one B2C, the other B2B.

The B2C component involves what we’ve described — connecting service pros with consumers in need of home repairs, remodeling, and the like.

We wonder if the B2B piece is ultimately more interesting. Kandua is in a position to offer a growing array of tools to service pros to manage their customer relationships, organize their operations, access credit, insurance, acquire skills, and more. We can imagine a wide array of integrations or even a marketplace of services that service pros can access through Kandua.

One of Kandua’s seed investors, Catalyst Fund, published an article in March explaining its investment. It praised Kandua’s innovation, noting its points system, where service provides purchase points which they can use to bid on available jobs posted by consumers.

Also notable is how investors like Catalyst are positioning Kandua as an impact business. This seems to be table stakes for many firms. For example, pre-Series A investor emphasize Allan Gray E-Squared Ventures says on its website that it seeks companies that “create jobs, attack poverty and contribute to transformation in South Africa.”

The argument for a home services marketplace as an impact business is in how it helps service pros with varying degrees of digital literacy move online to find work.

This is from the Catalyst Fund article, citing Kandua.

“Most South African gig workers are in their early thirties and have a high school degree, along with some vocational training. They run informal businesses independently, and depending on the type of services they provide, earn between R8,000-15,000 (US$ 533-1,000) a month. Unfortunately, many struggle to maintain consistent income and most have no way to grow their businesses.”

By providing a digital marketplace to find more and better jobs, “Kandua allows workers to more easily and more quickly find jobs when they need them. As a result, the average pro on Kandua’s platform earns about one month of additional income through jobs they get directly via the marketplace, and indirectly from referrals and repeat customers from Kandua jobs.”

By providing a more stable source of work as well as digital tools to manage their businesses, Kandua certainly has the potential to improve the lives of home services pros. So the impact case is a fair one.

As we look at all the money flowing into African startups, something has occurred to us. Is there a risk of “definition creep” in what constitutes an impact business in order for investors to make bets consistent with their stated missions?

Kandua was founded in 2014, a date we infer from the timelines on the founders’ LinkedIn profiles. According to its website, Kandua has driven more than R200 million worth of opportunities (the announcement cites R300 million), we assume this means since its founding. It also claims to have 10,000 vetted pros on the platform.

Very crude math (based on the R200 million figure) shows Kandua has produced R20,000 in value per service pro roughly over a seven-year period. Of course, the rewards are not equally distributed, and we imagine most of the value was generated recently. But this offers a rough sense of the impact Kandua has had at an individual level.

There are two ways to view this track record. The glass-half-full view is that the company has clearly only scratched the surface of its opportunity, given the US$4 billion market size (about R58 billion).

The glass-half-empty view is that this relatively low penetration highlights the difficulty of building a two-sided marketplace. And it suggests there will be many more funding rounds required to scale, assuming investors retain their faith in this model’s potential.

Kandua also cites its partnership with French home and hardware retailer Leroy Merlin, a recent entrant into the South African market, as evidence of its progress.

Knife Capital’s involvement hints at another possible future direction for Kandua. Here is how Knife describes its mission on its website.

“Knife Capital is a venture capital investment manager that accelerates the international expansion of African innovation-driven businesses by leveraging knowledge, networks and funding.”

Arjun Khoosal, Kandua’s co-founder and CTO, offered this comment when pinged him on LinkedIn to offer congratulations on the round and ask for more detail.

“Let's keep growing this ecosystem and creating startup success stories!”

Of course, we agree with this sentiment. We also agree that the opportunity Kandua is pursuing is massive. We would only emphasize the also massive challenge of building a successful two-sided marketplace.

Akiba Digital Raises R15M Pre-Seed Round

The SMME lending space is very active in Africa these days. New companies keep entering the field, raising capital and offering new spins on how to solve the challenge of giving very small, often informal, businesses access to much needed capital.

We all know the challenge. Traditional banks shy away from lending to very small and informal businesses because they have no framework for assessing their risk. Plus the loan amounts are often too small to be profitable for banks. It’s a massive market gap that practically begs for the fintech industry to fill.

And no shortage of players have jumped into this void, promising to use modern tools like AI to assess risk and offer microloans with low default rates. Pezesha, OZÉ, PayHippo, Lidya, and countless others are chasing this opportunity across different parts of the continent, each with its own approach to the challenge.

Now a South African company called Akiba Digital has raised R15 million (roughly US$1 million) pe-seed round to pursue this challenge. Investors include the startup accelerator Expert DOJO and venture capital firm Oui Capital. Also joining are the Basecamp Fund and Soma Capital.

So what sets Akiba apart from other SMME lending platforms? First, it isn’t a lender. It’s a solutions provider that helps grease the skids to give more SMMEs to access capital.

The company has a solution for SMMEs that gives them a “financial health tool” called Insyts that helps prepare them to qualify for financing and facilitates the loan application process. Akiba provides a solution for lenders that lets them assess risk via an alternative score and also makes processing SMME loans easier.

The notion of an alternative score isn’t entirely new. Pezesha, which does crowdfunding in East and West Africa, has its own credit scoring model.

What Insyts does is it has the SMME link its payments system, then uses that transaction data to provide insights that will help the SMME improve its creditworthiness. Finally, it allows the SMME to apply once on the platform and then shops around for lenders willing to extend credit.

The company is led by Tebogo Mokwena, who serves as both CEO and CTO of the company. She is a 2015 University of Cape Town graduate who previously worked as a software engineering consultant for McKinsey, where she focused on banking and telecom-related projects. She also worked as a software developer for Allan Gray.

We have an interview scheduled with Mokwena for later this month and will have more to say about Akiba after we chat with her.

Eversend Founder Stone Atwine Sees Big Future in Stablecoins for B2B Payments

A Twitter exchange involving Eversend Founder & CEO Stone Atwine shined a light on the potential for stablecoins as a medium for B2B payments. Here is the Tweet that launched the conversation.

Stablecoins are a form of cryptocurrency that are linked either to a fiat currency like the U.S. dollar or to gold. By linking themselves to stable assets, they avoid the price volatility of other decentralized cryptocurrencies like Bitcoin, Ethereum, and others.

And this lack of volatility is what makes these coins an attractive option for B2B payments, as well as other forms of transaction like cross-border money transfers.

A number of Africa fintech practitioners jumped in to agree with Stone, noting the growing number of countries issuing national digital currencies.

On a recent Big5D Podcast, Tori Samples, CTO of Leaf Global Fintech, a blockchain-based East African financial inclusion startup, noted that her company used stablecoins for cross-border money transfers as a way of managing volatility.

Her Kigali-based company offers a digital wallet that allows refugees, migrant workers, and cross-border traders to safely move money across international boundaries.

“Blockchain, when applied correctly, has significant potential to impact lives all over the continent. But the most important thing is that it be regulatory compliant…and also that it be accessible. So there needs to be on and off ramps in order for this thing to work…We use stablecoins that are fiat pegged and fiat backed, so that we're not introducing volatility into the mix or putting our customers at risk.”

Some reacting to Atwine’s Tweet pushed back, noting the centralized nature of stablecoins, which to some defeats the purpose of cryptocurrency.

Decentralized cryptocurrencies do not place authority in a central location, a bank or a corporation for example, but rather they distribute authority across a network. This removes the need to trust that central authority, making these networks “trustless”.

This is why decentralized finance has so much potential to disrupt traditional banking. And it’s why a growing number of African financial inclusion products are being built using blockchain technology.

Atwine offered up a few examples of decentralized stablecoins, including Dai (DAI), which is built on Ethereum, TerraUSD (UST), and Francs (FRN). You can find more examples here.

Next on the Big5D Podcast: Simon Ellis, CEO, SmartWage

This week Big5D Podcast will feature Simon Ellis, the Co-founder and CEO of SmartWage. We spoke with Simon about his company, which fits broadly into the financial inclusion space that we cover extensively here.

SmartWage, specifically, offers an earned wage access for South African employers and workers. Essentially it allows workers to tap into wages they have already earned for a small fee, which is either paid by them or their employer.

Why is this important? Far too many South African workers run out of money before the end of their 30-day pay cycle.

This sad fact harms employers by contributing to absenteeism. Money for transport is a leading reason workers need early access to wages. And this harms workers for many obvious reasons, not least of which is they are forced to resort to usurious payday lending to get by, absent a more benign alternative like EWA.

“We estimate we're saving employees about 300 Rand per month that they would have alternatively spent on payday lenders,” Simon told us.

We ask Simon to tell us how his business works, and where it can go beyond earned wage access. We also pose the challenging question of whether solutions like his are just papering over deeper societal issues like inequality.

The episode drops on Friday. Watch for it in your inbox.

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