The Africa SMME Tech Report

Issue No. 12. Africa-Middle East small business tech news for 30 July 2021. This edition features Yoco, Pineapple, Sky.Garden, WeThinkCode, and more...

Yoco’s $83M Series C Round Boosts South Africa Fintech’s Global Rep

The fintech startup Yoco has become famous for empowering small and informal South African businesses to move away from cash and start accepting credit cards. This step can be transformational for businesses. It allows SMMEs to attract new customers, expand, and grow in ways that are all but impossible for cash-only traders.

Yoco’s big breakthrough was in offering a very inexpensive card reader that any informal seller can use to accept credit card payments. Yoco’s least expensive product, the Go, retails for ZAR399 (about US$27). Then the seller pays a fee of between 2.6% and 2.95% per transaction. With no contracts.

My first experience with Yoco came in 2019 when I hiked up Table Mountain. I purchased a bottle of water from an informal seller camped out by the trailhead with a cooler of cold drinks. I paid him with a credit card using a Yoco terminal. I recall wondering how much extra money he made per day because of that terminal.

That same year, Yoco CEO and Co-founder Katlego Maphai spoke at the inaugural BigFive Summit in Cape Town.

Fast forward a few years and Yoco’s footprint has grown dramatically, while still only scratching the surface of South Africa’s SMME market. Yoco currently has 150,000 small business customers using its tools. The company has announced that its goal is to grow that number to one million within four years.

Estimates vary on the size of the South African SMME market, given the prevalence of informal businesses. In 2016, The Bureau of Economic Research estimated there were 2.2 million SMMEs in South Africa. Meanwhile, a 2010 estimate from Finscope put the figure at 5.9 million. Another study suggests there are as many as 1.5 million “non-VAT” businesses in South Africa.

By any of these definitions, Yoco is just getting started in penetrating South Africa’s small and micro business market.

Biggest Raise in ZA Payments History

To help achieve its growth ambitions, the company has just raised a US$83 million Series C round. That’s ZAR1.23 billion. This is the largest raise to date for a South African payments company. Yoco plans to use the funds to invest in its products and amp up its customer acquisition.

Yoco also has made it clear that its ambitions extend well beyond South Africa. The company has not specified which markets outside South Africa it is targeting. Most companies seem to pick Nigeria as their next expansion target. Will Yoco follow the crowd?

Or will it choose a different path, for example by expanding contiguously in Southern Africa? In a blog post about the new funding, Katlego refers to million of merchants tied to cash “across Africa and the Middle East.” Italics ours. This may offer a small clue to how Yoco sees its available market. Or maybe not.

In addition to being a boon to Yoco, this investment round also represents a vote of confidence in South Africa’s fintech opportunity. The most prominent investor in this new round is Dragoneer Investment Fund.

This San Francisco-based growth investor has been involved with some of the biggest names in tech, including Alibaba, Appfolio, Atlassian, Datadog, Slack, Spotify, and Uber. Not to mention fintechs like Chime, Nubank, Mercado Libre, Square, and Klarna.

For Dragoneer to hone in on a digital payments player in South Africa is another signal that smart international capital sees Africa as the next frontier in tech investing.

My hunch is that Dragoneer will push Yoco to accelerate its growth trajectory considerably. I also imagine it will be eager for Yoco to make its first foray into a new market.

Other investors joining the round include Breyer Capital, HOF Capital, The Raba Partnership, 4DX Ventures, TO Ventures.

Also participating are unnamed current and former executives from companies like Coinbase, Revolut, Spotify, and Gojek. Existing Yoco investors Partech, Velocity Capital Fintech Ventures, Orange Ventures, Quona Capital, and FMO.

Yoco can be fairly described as an impact-driven business. Much of its brand storytelling centers around empowering SMMEs to transform their businesses through digital payments.

The size of the round and the investors involved are also positive signals that impact-driven businesses can also become unicorns. I don’t know Yoco’s current valuation. But I can’t imagine anyone making a Series C bet on this company without believing it will join the Unicorn Club at some point.

False Alarm in May?

I knew a funding round was coming, sooner or later. After all, word leaked that Yoco was about to raise a significant funding round back in May. The Africa Report published this article saying the fintech company was on the verge of raising US$50 million.

When I reached out to Maphai at the time to confirm the news, he tamped it down, saying, “We don't have anything meaningful to share at the moment.” It was a pretty classic non-denial denial. Of course, the story had the timing and dollar amount wrong. But clearly, something was brewing.

It seemed to be about time for Yoco to raise some fresh capital. This is the company’s first funding round since a US$16 million Series B round in 2018. The company was founded in 2013 by Maphai, Bradley Wattrus, Carl Wazen, and Lungisa Matshoba. Yoco took its first product to market in 2015. The company has raised US$106 million since its founding, according to Crunchbase.

Much has changed in Africa fintech since Yoco’s last round. Not the least of which was Covid. While covid was a massive headwind for SMME-focused fintechs like Yoco, with their customer base massively impacted, it was also an unprecedented opportunity to innovate and solidify the loyalty of their SMMEs customers.

Maphai summed it up in his blog post.

“Working so closely with small businesses during a global pandemic, and in particular through a challenging socio-economic environment in South Africa, we have a firsthand account of how agile these small businesses need to be in a rapidly changing world. Removing barriers and levelling the playing field by creating access to financial tools is a big part of answering these challenges. Yoco is at the forefront of solving what is critical for small businesses and enabling them to thrive.”

Pressure on Competitors?

Yoco’s most direct competitor in South Africa is Ikhokha, a Durban-based company that launched in 2012. Yoco and Ikhokha have a similar core product — mobile card terminals. And both have extended into adjacent services like small business loans.

As far as I can determine, Ikhokha hasn’t announced any outside funding. I imagine Yoco’s raise will put pressure on Ikhokha to accelerate its efforts to scale and possibly turn to outside investors for capital.

It appears thus far at least that Yoco has earned widespread praise from its customers and employees. I spent some time this week scanning review sites and Glassdoor for any consistent complaints about Yoco. I found very few.

Of course, maintaining such a devoted following (internally and externally) will become more difficult with growth and international expansion.

I reached out to Yoco for an interview, but they failed to deliver responses to our questions in time. If I get more information and insight, I’ll publish a follow-up piece.

Is This the End of the ‘Geographic Lottery’ for Tech Talent?

When I talk to startup founders in Africa, one of the top challenges I hear them articulate is that remote work has led to international companies picking off the best African talent at salaries that local startups can't compete with.

In our most recent podcast, Simon Ellis from SmartWage raised this issue. Here is what he said.

“With the advent of with COVID, a lot of talent are now being poached by international companies, especially in the development teams. They can pay double what we can. We don't really have an option, so we lose out on a lot of significant talent.

“Amazon opening up in Cape Town is a fantastic thing for the ecosystem. But they're literally paying double what we can afford. And so access to talent is is tough. And then retaining that talent is even tougher.”

Simon isn’t alone. We’ve heard variations on this refrain from almost every African startup founder we’ve interviewed over the past year.

Andreessen and the Shattered Geographic Lottery

Internet legend Marc Andreessen wrote about this more broadly recently, saying the pandemic has shattered the "geographic lottery" that has made it so much easier to succeed in tech if you are located in key tech employment hubs around the world. Think Silicon Valley, New York, London, Berlin, and so on.

This is what Andreessen wrote in June.

“We may, at long last, shatter the geographic lottery, opening up opportunity to countless people who weren’t lucky enough to be born in the right place. And people are leaping at the opportunities this shift is already creating, moving both homes and jobs at furious rates. It will take years to understand where this leads, but I am extremely optimistic.”

Here are some questions this development raises. Will this shift outlast the pandemic? And if it does, is this trend a net positive or negative for the African tech ecosystem?

Regarding the first question, it’s hard to judge to what degree things will revert to the pre-pandemic normal. But it’s a fair bet that nothing will return to exactly how it was pre-pandemic.

Many of the transformations predicted in the thick of lockdown may not prove to be as dramatic over the long term. The commercial office, for example, may not die. But nor is it likely to return to pre-pandemic normal. A reduced office footprint and flexible work from home policies are likely to represent the new normal.

Companies discovering they can get great talent for less money by hiring freelancers (or even direct hires) in developing markets is not new. But as Covid emptied out offices around the world, many more companies discovered that they aren’t limited by workers’ proximity to their headquarters.

If you are going to have a remote workforce, why not widen your lens and search for talent worldwide? And in the process save the salary premium that comes with hiring talent in high cost of living markets like London or San Francisco.

Another signal that this “geographic lottery” is losing its grip came last year when Stripe offered bonuses to employees in exchange for their leaving San Francisco and presumably relocating to a lower cost of living market. In exchange, the employees accepted a reduced salary.

As for the second question, Is this good for Africa? It depends on your vantage point. For Africa’s most skilled engineers and developers, this immediately increases their earning potential.

This may also be a net plus for young Africans with aptitude but little or no access to formal training. Startups hungry for talent and outgunned by internationals may be forced to look deeper into the talent pool and consider alternative forms of certification.

Google has given this idea credibility with its career certificates initiative. Of course, an early-stage startup in Africa likely lacks the resources to create its own certification scheme. But perhaps it could partner with organizations like WeThinkCode and others that are tapping into the massive talent hidden in less privileged communities.

There are no easy answers of course. But until regional startups can compete with Facebook and Amazon on salary, they will need to widen their lens and get creative in their search for tech talent.

Pineapple Raises R80 Million to Scale Insuretech

The South African insurtech Pineapple raised a ZAR80 million A-round this week, which works out to about US$5.4 million.

It’s a healthy raise that might have gotten more attention had Yoco not stolen the limelight (see above) this week with its gaudy $ZAR1.23 billion C-round. This tweet pretty much nails it.

So what is Pineapple? The company offers to insure your car and your belongings in 90 seconds for those who apply through its app or website.

The company rolled out in 2018 and promptly won the MTN Consumer App of the Year and the Stanford Startup Award. The company was also the first insurtech accepted into Google’s Launchpad Accelerator Programme.

Old Mutual Insure underwrites Pineapple’s insurance policies. Hannover-Re is Pineapple’s reinsurer and strategic partner.

Pineapple says it plans to use the funds to grown its South African business and its overseas partnerships. One example is its partnership with Travelers Insurance in the United States.

Pineapple’s new investors include Lireas Holdings, the ASISA ESD Fund, E4E, Vunani Capital, and the Old Mutual Enterprise & Supplier Development Fund.

The BIG5D Podcast

Coming Soon: Martin Majlund, CEO & Co-founder, Sky.Garden

This week I am interviewing Sky.Garden CEO Martin Majlund for Episode 20 of the BIG5D Podcast.

Martin is also a co-founder of Sky.Garden, which is a Kenyan mobile-first SaaS company that provides an eCommerce platform for small merchants. In June the company raised a US$4 million Series A round designed to fuel the company’s growth, with international expansion, focusing first on East Africa, on the longer-term horizon.

Our conversation with Martin will focus on the opportunities and challenges associated with eCommerce for Africa’s small merchants. The episode will drop on Monday.

Recent BIG5D Podcast Episodes

Ep. 19: Simon Ellis, Co-founder & CEO, SmartWage

SmartWage was founded in 2019 as an earned wage access platform 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.

Far too many South African workers run out of money before their next payday. This is most acute for those on a 30-day pay cycle. This harms workers for many obvious reasons, not least of which is they are often forced to resort to usurious payday lending to get by, absent a better alternative like earned wage access.

Play Now

Ep. 18: Mohamed al Fayed, Co-founder & CEO, Grubtech

Grubtech is emerging as a key infrastructure player in the UAE’s exploding ghost kitchen scene. Dubai-based grubtech (founded in 2019) doesn’t operate virtual restaurants. The company has built an operating system to address the friction points arising from running a high-volume food delivery business.

Our conversation with Moe goes pretty deep into the mechanics of ghost kitchens. And I learned about some interesting new trends along the way. One is micro-cloud kitchens. That’s when a local restaurant uses its excess capacity to fulfill delivery orders for another dining brand.

Play Now

Upcoming Events

The BigFive Summit

16-18 May 2022
Workshop 17
Cape Town, South Africa

Stay tuned for more information. Questions? Write to us at