Futuregrowth the first SA institutional investor in payments disruptor Yoco

JOHANNESBURG — Yoco, the makers of a card reader device that connects with a merchant’s smartphone or tablet, has raised a Series B round of $16m (R230m) led by Partech, a venture capital firm based in Silicon Valley and including the likes of South African-based Futuregrowth. Yoco is a fascinating local business as it was only started in 2015 but has managed to grow its base to over 27,000 South African small businesses, 75% of which had never accepted cards previously. In this interview with Amrish Narrandes, an investment analyst at Futuregrowth, and Carl Wazen, who is the co-founder of sale payments provider Yoco; the pair tell us all about the latest capital raising round. – Gareth van Zyl

On the line I have Amrish Narrandes, an investment analyst at Futuregrowth and Carl Wazen, who is the co-founder of sale payments provider Yoco. Yoco has just raised a series B round of funding of $16m led by Silicon Valley VC Partech along with the likes of South Africa’s Futuregrowth.

Amrish, it’s interesting to see that Futuregrowth also invests in venture capital.

Hi Gareth, yes, as per our last interview, Futuregrowth is everywhere right? We play across capital structures and within our development equity fund, again, you know we have a mandate that allows for 10% early stage companies and this is where the VC falls in. Therefore, we look at it as follows: South Africa needs to empower entrepreneurs to pretty much assist with funding that have brilliant ideas and capital should never be an issue. A brilliant idea with a brilliant business model, can we provide that funding for them. Let’s back these individuals and in doing so, hopefully, it’s developmental as well in the sense that we think it will, in the bigger scheme of things, assist towards decreasing the high unemployment rate in the country.

Carl, tell us about Yoco. What does it do exactly and what has the growth trajectory been like?

In South Africa, there is an extremely high card penetration, so 75% of South Africans have bank cards, but on the acceptance side, that figure is far lower, closer to 7%. Therefore, our role as Yoco is to come in and help close that gap in order to enable small businesses to transact with all forms of payment and not just to transact with cash. We launched the business in late 2015 and back then we had about 500 merchants. We came out of beta. Today we have 27 000 small businesses on the platform and we’re adding about 1 500 every month. Our customers are primarily in the retail, food and drink, hospitality and health and beauty segments – and we operate nationwide.

Carl, the device itself connects to a smartphone, right?

That’s correct. So the way it works is it’s a very affordable mobile card reader that a business can just purchase outright and from there, there are no monthly fees. The device connects to the merchant’s smartphone or tablet via Bluetooth and then on that smartphone or tablet they’d be running a Point of Sale app, which is free and which doubles up as a cash register. It has the ability to track sales and to manage products and give reports, so it’s really a small operating system for the small business at a very affordable price.

Amrish Narrandes, investment analyst, Futuregrowth

Carl, can you tell us about some of your cofounders as well?

Absolutely, the business was founded by myself, by Katlego Maphai – who is the CEO – and by Bradley Wattrus – who is the CFO – and then Lungisa Matshoba – who is the CTO. The four of us have known each other quite a while and we’ve worked together in different capacities in the past. We got together because we shared a similar passion for smart technology and also for small businesses.

Carl, who are the investors?

Yes, the round was led by Partech, which is a global venture capital firm. It’s been around for about 35 years and it manages about $1.2bn globally. They have a dedicated Africa fund, which is about $100m and it has an office in Dakar, so it’s very global, but with a strong Africa presence and we’re the second investment from their fund. They’re also being joined by Orange Digital Ventures, which is the corporate venture arm for Orange Group, which is France Telecom Group, a global telecoms group and their corporate venture fund invests about 50m into Africa and about 150mn globally, so you have a very global remit. Thirdly, FMO, which is the Dutch development bank, so the Dutch government finance institution, it’s government money from The Netherlands and you know they have a very strong presence in Africa and about $10bn that they’re investing across the world.

They’ve been extremely supportive of our mission and it’s great to have them on board. We are the first direct FinTech investment that they’ve made globally, so we’re really excited about that vote of confidence. Then on the South African side, of course, we have Futuregrowth, which is the first South African institutional investor that we’ve brought on board, so it’s an important milestone for us. So far most of our capital has actually been international. We think we have a great combination of global knowledge with a strong African execution and presence.

Amrish, to get back to you, what exactly do you look for from Futuregrowth’s perspective in a company like Yoco in order for it to qualify for funding?

Gareth, ultimately one of the first things we look at is the underlying premise and the idea. Is the idea compelling? Using Yoco as an example, in South Africa, there are many small-medium enterprise businesses. Many people, I mean I myself hardly carry cash and always have a card on me and if these businesses can’t potentially transact a close of sale, let alone the point of sale aspect that Carl was talking about, which basically educates the entrepreneur and assists him in running his business.

I mean it was a no-brainer, that’s a brilliant idea and it’s an idea that we like. If you really look at the small businesses in South Africa, initially they would have to go to a traditional bank, but if you look at the red tape around that and at the time that it takes to get it done through a bank Yoco has just eliminated that entire process. It’s literally go online and it’s extremely quick and easy getting to that idea that you have bought into. However, that being said, you must be careful because almost every entrepreneur has a brilliant idea and sometimes and, in most cases, having an idea is not necessarily enough. You could get up in the morning one day and say, “Oh, I have a brilliant idea”, yes, but it doesn’t mean that you’ll attract venture capital. There’s a bit more to it than that.

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An idea alone, as I said is not necessarily enough to get venture capital funding, but let me give your listeners a bit more; what else is it? Obviously, there’s an idea, but there has to be a market opportunity and if you look at the market, how big is this market and is their product or solution tapping in – is it capturing that market? So that’s the market opportunity. In addition to market opportunity, we also look at the team and I must say if you look at Yoco and Carl’s already spoken about the founders, they have a very multi-disciplined team, which is amazing because in startups you normally just have a tech entrepreneur who still needs to add other resources, but from the financial aspect to the tech they are quite covered. They’re a team has gone out there and proven themselves through earlier stage rounds that this can be done, so the team is very important, right.

The next aspect we look at is the technology: is there competitive advantage and what is that advantage? Again, with the likes of Yoco, the point of sale reporting that they give to the underlying SMEs and the state of the art, they’re the best in the business. Do we think that this team can deliver, see that through, and maintain that technology advantage? Definitely, you must be able to show that ultimately the competitive advantage can be sustained and that talks to my earlier point about the team. Then overall we talk about forecasting and evaluations.

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Forecasting, reporting, and numbers from the underlying business, that’s an art on its own and I urge entrepreneurs out there – (and everyone wants the next unicorn, billion Dollar/billion Rand companies) but let’s be realistic with the forecast because what you show us as funders, you still have to live up to it. If we close a certain round at a mass evaluation you still have to show your growth for that and Yoco has done that consistently in their earlier stages. Therefore, we look at the forecast, are their numbers actually telling the story, and is what’s happening operationally talking to the numbers, which is one aspect.

The last thing is validation, which is probably one of the most important, how is the market responding to this? In Yoco’s case, the stat’s out there, they’re signing up quite a large sum of merchants every month and that’s validation. There’s no better way to look at it, if the product’s validated then there’s definitely going to be a market we would want to look at. But I think that’s also been in Yoco’s case, with this round obviously already Carl mentioned what they will use the money for, both markets that they still want to open and it’s quite exciting. However, if you tick all these boxes as an entrepreneur, then ultimately I think your business should lend itself to chatting to us with regard to unlocking venture funding.

Carl, in terms of the funding that you’ve just raised, what are you planning to use the money for?

The funding will primarily be used to grow our network of small businesses, to invest in our product development and in our payment experience for our merchants and to invest in operational scalability in order to support a much larger base of small businesses and then finally to also attract top-tier talent to the business, particularly FinTech talent.

Amrish, how can entrepreneurs looking to raise venture capital reach you?

They could follow me on Twitter. My Twitter handle is @amanarrandes or follow me on LinkedIn, DM me, I have a platform and I’ll try to get back to you.

Great, Amrish and Carl thank you so much for chatting to us today, it’s been a fascinating discussion and I wish you the best of luck with Yoco.

Thanks Gareth.

Great, thanks guys.

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