Why African Fintech Startups Outlast Western Ones

Plus: Sustainability in Fintech and Raising Funds During a Downturn

Hello Rain Makers,

This week, Plastiq, a San Francisco-based lending and payments startup, filed for bankruptcy as fintech struggles continue. In this newsletter, I will focus on sharing some tips and resources that can help your company avoid a similar fate.

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🍿 Quick Snack

  • 🌍 African fintech startups have better longevity than Western ones as they prioritize customer validation, community, and concrete business milestones over fundraising.

  • ♻️ Fintech firms are promoting sustainability by integrating eco-friendly practices into their product offerings and operations, aligning financial decisions with environmental values to drive positive change.

  • πŸ“ˆ Tim Chong, the CEO of Yonder, shared some tips for fintech startups to raise funds during a downturn. These include turning investors into customers and understanding the quality of revenue streams.

  • πŸ’ΈΒ +4 Funding RoundsΒ 

πŸ” The Full Meal

How African Fintech Companies Have Beaten the Odds

  • Here’s something you might not be aware of: African fintech companies have a higher longevity rate than their Western counterparts, despite raising less capital.

  • A study conducted from 2022 to 2023 across 200 African fintech executives found that the secret to business longevity lay in their ability to continuously initiate and respond to change in ways that create advantage, minimize risk, and sustain performance.

  • The study found that Western entrepreneurs tend to prioritize three things that negatively affect the longevity of their businesses compared to their African counterparts:

  1. Prioritizing fundraising over customer validation: African entrepreneurs prioritize marketing materials, such as proposals, sales letters, and websites, over refining their pitch deck and elevator pitch. This can help startups run primarily on customer revenue and organic cash flow for most of their first year of operation, rather than relying solely on equity funding.

  2. Prioritizing individuality over community: Western culture is often characterized as individualistic, which can be detrimental to a company's growth. According to the Journal of Business Venturing, entrepreneurs in communal societies, such as Africa, have an advantage when acquiring resources because they can rely on affiliations and relationships built with other firms.

  3. Celebrating fundraising over concrete business milestones: Western startups often focus on capitalization as a major indicator of progress, which often leads to overvaluation and eventual crashes. In contrast, African startups celebrate milestones such as certifications, government approval, and acquisition of operating licenses to validate their impact.

⚑️ In summary: Adopting a shift in mindset can help many entrepreneurs overcome the infamous Valley of Death. To ensure longevity, entrepreneurs can benefit from tailoring their storytelling to customers instead of investors, engaging stakeholder communities instead of individuals, and focusing on achieving concrete milestones instead of solely prioritizing capital raising.

Exploring the Intersection of Fintech and Sustainability

As the world becomes more aware of the need for environmental preservation, the role of fintech companies in promoting sustainability has become increasingly important.

Many believe that as consumers become more conscious of the impact of their financial decisions, the demand for sustainable finance solutions is set to grow.

Some financial technology firms are already driving positive change by integrating eco-friendly practices into their operations and product offerings. Here are a few of themπŸ‘‡

  • Aspiration aims to provide sustainable banking and investment solutions for individuals who want to align their financial decisions with their environmental values. It offers fossil fuel-free investment options and a unique feature called "Aspiration Impact Measurement" that allows users to track the environmental and social impact of their spending.

  • Treecard is a fintech company that promotes sustainable living by combating deforestation. Its core offering is a debit card that plants a tree for every dollar spent, contributing to reforestation efforts around the world.

  • Starling Bank offers a variety of innovative services that promote responsible financial practices. The company's emphasis on paperless banking reduces paper waste and the environmental impact of traditional banking processes. Starling Bank's cards are made of recycled plastic, and their packaging is 100% recyclable, using a more eco-friendly water-based glue. Additionally, their three UK offices are powered by renewable energy.

  • Almond is a leading fintech company that promotes sustainable finance and environmentally conscious decision-making. It offers a platform that tracks and calculates the carbon footprint of individual transactions, providing users with real-time insights into the environmental impact of their spending. Almond also offers personalized recommendations and tips on reducing carbon footprints and making eco-friendly choices.

Raising Funds in a Downturn: Tips for Fintech Startups

  • In 2021, Yonder secured $77m in Series A funding only six months after securing a $6.2m seed round.

  • With the decline in FOMO investments and the increased scrutiny on profitability, unit economics, and forecasts, raising funds has become more difficult.

  • Yonder CEO, Tim Chong, shared a few tips for founders:

  • Turn investors into customers. Encouraging investors to use the product can make the investment process easier. The reason is simple: it is more efficient to spend time with investors who are interested in the product rather than those who need persuading.

  • Adapt your approach to the type of capital you are seeking. When raising debt, it is more about the quantitative data, and you need someone who is conservative and hyper-focused on the numbers. When raising equity, you need to be the hype-person for your product and show investors this is something to get excited about.

  • Be prepared for things to deviate from your ideal plan. Raising Series A funding takes much longer than seed funding, with three to four times as many meetings, and investors needing more time to make decisions. Additionally, investors' expectations may differ from reality, and your business milestones may not be achieved at the right time. Ensure your timelines and runway are flexible to account for this.

  • You should understand the quality of your revenue streams. Investors are starting to focus more on revenue, not just customer numbers. Understanding how your startup will be valued based on revenue multiples is crucial. Different revenue streams are often valued differently in the public market. For example, subscription revenues will be viewed very differently compared to lending revenue. Ansaf Kareem's "Alchemy of Fintech Valuations" offers useful insights into fintech valuations.

  • Ignore venture capital noise. Building a great business takes time and requires conviction in the product, regardless of investor sentiment. While it's true that fundraising is harder now and there is more scrutiny on the strength of offerings, this has led to more solid companies being built from the outset. You can succeed as long as you focus on solid metrics and a product you believe in.

🍟 Extra Fries

  • AXA Venture Partners has launched a €1.5bn fund to support the growth of late-stage tech companies in Europe and North America, focusing on software, fintech/insurtech, digital health, and consumer technologies. (Read More)

  • QED Investors has closed two new funds totaling $925 million, which will be used to back early-stage financial technology startups, as well as growth rounds for later stage companies. The funds will be aimed at backing fintech companies primarily in the U.S., the United Kingdom and Europe, Latin America, Africa and Southeast Asia. (Read More)

πŸ’Έ Funding Rounds

  • PhonePe | $100m: mobile payment application that enables users to transfer money (link)

  • Nue.io | $9m: easy-to-manage quote-to-revenue platform designed to meet the needs of the modern business (link)

  • Skorlife | $4m: free credit score and credit reports for Indonesian consumers to access easily and instantly (link)

  • Plenty | $2.75m: wealth building platform for every household (link)

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