The Africa SMME Tech Report

Issue No. 23. Africa-Middle East local and small business tech news for 17 January 2022. This issue features Lipa Later, Delivery Hero, Talabat, Y Combinator, GoDaddy, Metro African Xpress, & more...

Jan 17

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BNPL Platform Lipa Later Raises $12M

Keywords: Buy now pay later, East Africa, fintech, eCommerce, funding

Buy now, pay later is a global phenomenon. The payment method allows consumers to purchase a product and spread payments over several installments (usually four), often interest free, while the merchant gets all of its money up front, usually in exchange for a fee. The BNPL platforms (of which there are many worldwide) then collect the full payment from the consumer, thus assuming essentially all of the risk.

In the Middle East, a host of companies including Tamara, Tabby, Spotii, and Postpay, are working furiously to achieve scale to avoid becoming also rans in a highly competitive market where consumers are eager for easier ways to buy luxury goods.

BNPL is also gaining competitive steam on the continent. Which is why last week’s $12 million debt and equity raise by Nairobi-based Lipa Later is so interesting.

“We are excited to be working with our investors as we look to grow and expand to more markets in Africa. In the next 12 months, we are looking to grow and double our presence in the existing markets, even as we open in three to five new markets in Africa,” Lipa Later Founder and Group CEO Eric Mulli said in a statement.

Lipa Later currently operates in Kenya, Uganda, Rwanda. And it has plans to launch in Nigeria, Ghana, and Tanzania.

With BNPL growing so rapidly globally, it seens like 2022 will be an important year for platforms on the African continent.

One of its investors is certainly betting on Lipa Later taking on a leadership role in Africa’s still-nascent BNPL industry.

“Over the last few years, we have watched Eric Muli, CEO of Lipa Later and his team put together the building blocks for Pan-African expansion and this round of funding takes Lipa Later one step closer to being the dominant Buy-Now-Pay-Later player on the Continent,” said Samakab Hashi, Partner at Lateral Frontier VC, one of Lipa Later’s original investors.

If Lipa Later is able to execute on its 2022 plans, we could easily see an international BNPL move in and make an acquisition. The most likely international player in our view is Block, formerly Square. Why? The U.S.-based fintech is run by Jack Dorsey, who famously has designs on Africa. And the company has already acquired the global BNPL player Afterpay, for a cool $29 billion. The only question is which African BNPL gets big enough and covers enough ground to make itself a viable acquisition target.

Lipa Later’s raise comes after a pretty busy 2021 in the funding of BNPLs in the Middle East. In August, Tabby announced a US$50 million Series B round with a new valuation of US$300 million.

Tabby’s raise brought its cumulative funding to more than $130 million. That includes a US$50 million debt financing round Tabby raised in June of last year. Tabby was founded in 2019 and claims 40,000 active shoppers and 3,000 daily downloads.

Tabby’s B round answered recent moves by some of its MENA rivals. For example:

Afterpay’s late June $10 million investment in Postpay.
ZipCo.’s acquisition of Spotii in May.
Tamara’s April $110 million Series A round.

If 2021 was the year of MENA BNPL, then perhaps 2022 will be the year for Sub-Saharan Africa? Some other contenders besides Lipa Later include South Africa’s Mobicred, Payflex, and PayJustNow, as well as Nigerian neobank Carbon, which entered the BNPL space via its Carbon Zero product.

Note: BigFive Digital will have panel discussions on Buy Now, Pay Later and its upcoming 2022 in-person events in Dubai and Cape Town.

Delivery Hero Branching into Fintech

Keywords: Food tech, food delivery, fintech, MENA, MSME lending

The global food delivery giant Delivery Hero is getting into lending as a way to boost revenue. The company, which was founded in 2011 in Berlin, has reported it expects to at least break even in the second half of this year.

Delivery Hero a worldwide network of online food ordering sites, operating in 21 countries and with over 73,000 restaurant partners. The company has made multiple meal and grocery delivery acquisitions in the Middle East over the years. The comapny has been gradually consolidating most of its regional operations under the Talabat brand.

According to recent reports, Delivery Hero is also considering a few new ways to make money. One is selling ads. This would be in keeping with what we are seeing elsewhere in the eCommerce world where platforms are building large secondary revenue streams from targeted ads. Amazon has led the way here, creating a $21.5 billion ad businesses on top of its eCommerce operations. Companies like Walmart and Instacart have followed suit and are converting their online store traffic into eyeballs for advertisers.

Another new Delivery Hero revenue stream is likely to come from lending. The company is reportedly looking at allowing consumers to delay payments on purchases. For example, it’s testing an eat-now-pay-later service for food ordered in the MENA region. And it may also create a revenue stream from providing financing to its vendors.

Y Combinator Sweetens Its Standard Deal Terms

Keywords: Funding, accelerators, startups

Legendary U.S. accelerator Y Combinator has recently sweetened the terms of the standard deal it offers to all of its startup investments. YC will continue to offer US$125,000 for a 7% equity stake, but it has added $375,000 for an uncapped SAFE (simple agreement for future equity) bringing the total amount granted to $500,000.

The SAFE components allow YC to invest more without requiring a valuation, though the lack of a cap means there is no maximum valuation at which they can convert the equity, which typically happens at the next investment round. But the equity will be converted on most favored nation terms, which means Y Combinator will automatically adopt the most favorable terms issued by another investor the next time the startup raises money.

This new approach may benefit African startups in particular since it provides a lot more cash with no immediate pressure to set a valuation that could heavily dilute a startup right out of the gate. However, the SAFE funding also pressures startups to get the highest possible valuation on their next round to avoid dilution. For example, $375,000 get YC 37.5% of a $1 million valuation, but only 3.75% of a $10 million valuation.

“It’s so straightforward, YC is saying that whenever you raise your next round, whatever best terms you get, they’ll match that as the terms for giving you the $375,000,” Zacharias George, Managing Partner at Launch Africa Ventures told TechCabal.

Y Combinator has invested in 68 African startups, including unicorns Flutterwave and Wave Mobile Money, and Paystack, which was sold to Stripe last year for $200 million.

Quick Takes…

Checkout.com Raises $1Billion. Checkout.com is a UK-based company that processes international eCommerce transactions for top brands in eCommerce, fintech, and cryptocurrency. These include Netflix, Farfetch, Grab, NetEase, Pizza Hut, Klarna, Qonto, Revolut, WorldRemit, Coinbase, Crypto.com, FTX, and MoonPay. Last year the company invested $110 million in the Saudi-based buy now, pay later platform Tamara. The latest massive funding round brings Checkout.com’s valuation to $40 billion. The company says it plans to use the funds to support its U.S. expansion, launch a marketplace and “strengthen leadership in Web3.” Read further…

GoDaddy Adds eComm Payments in the Middle East. The global domains and hosting platform GoDaddy has partnered with Kuwaiti fintech MyFatoorah to add payments to GoDaddy’s eCommerce solution. “We are excited to partner with MyFatoorah and integrate GoDaddy’s E-store, to offer entrepreneurs and small businesses, smart, smooth and seamless payment options and tools. GoDaddy hopes this partnership will help simplify business transactions and help small business owners with e-commerce payment solutions,” said GoDaddy’s MEA leader Selina Bieber. Read further…

Note: Selina Bieber will be speaking at BigFive Digital’s upcoming MENA Summit.

Nigeria MAX Raises $31M to Expand Mobility Solution. Nigerian mobility tech startups Metro African Xpress (MAX) has raised $31 million to expand its ride-hailing solution to Egypt and Ghana in Q1, 2022, and elsewhere in the continent (including Francophone Africa) later in the year. The company was founded in 2015 as a motorcycle delivery solution and later pivoted to ride-hailing. The company will use the funds to extend vehicle financing credit to more than 100,000 drivers. The company credits vehicle financing with reducing its driver churn to “near-zero” according to TechCrunch. Investors in the Series B round include PE-firm Lightrock and Dubai-based Global Ventures. MAX also has a sustainability angle to its business. The company recently partnered with global mobility tech company Bolt in a lease-to-own deal that will enable 10,000 MAX drivers in Nigeria to acquire energy-efficient vehicles. Read further…

Amazon Adding 200 Cape Town Jobs. Amazon is reportedly running adds for more than 200 new psosutions in Cape Town, randing from engineering to business development roles. Amazon has a ling-established presence in Cape Town, and it has been growing that presence substabtially. The massive eCommerce company has announced plans to open a large new office in River Club, Cape Town. And hte company is also said to be shopping for warehouse space. In 2020, the company ammounced plans to hire 3,000 customer service reps in Cape Town. Read further…

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