Cash flow is a major problem for small businesses in Africa. Long payment cycles, which can take 30-90 days after services or products have been rendered, and little or no capital, which research indicates 85% of African small and medium enterprises are subject to, are the main culprits for cash flow problems.
Many startups are solving these problems for African SMEs in one form or another, and the demand for their services has seen Ghanaian startup Float secure significant funding. The fintech that provides lines of credit to businesses has raised $17 million, funding it will use to bolster its offerings and expand geographically.
The round was a mix of $7 million in equity and $10 million in debt. While Cauris provided debt financing, Tiger Global and JAM Fund, the investment company of Tinder co-founder Justin Mateen, co-led the stake. Other venture capital firms involved in the round include Kinfolk, Soma Capital, Ingressive Capital and Magic Fund.
A few angel investors also participated: Michael Seibel, CEO of Y Combinator, Sandy Kory of Horizon Partners, Ramp founders Karim Atiyeh and Eric Glyman, Gregory Rockson of mPharma, and Dutchie founders Zach Lipson and Ross Lipson.
CEO Jesse Ghansah launched the company, formerly known as Swipe, with Barima Effah in 2020, and after renaming it to Float, launched his product in June 2021. The idea of the Ghanaian fintech backed by YC came during the CEO’s time at OMG Digital, a media company he founded that also entered YC, in 2016.
“We needed credit and proceeded to obtain an overdraft from a long-standing partner bank where we had transacted more than $100,000. But the bank wanted us to post 100% cash collateral before they could grant the overdraft,” the two-time YC founder told TechCrunch in an interview in June.
“I also remember taking money from loan sharks with ridiculous interest rates, sometimes as high as 20% per month, to meet payroll. This prompted me to solve these problems with Float.
It’s a similar problem for more than 51% of the 44 million formal SMEs in sub-Saharan Africa who say they need more finance than they can access to grow their businesses, according to research. Float provides credit to some of these businesses that have difficulty obtaining traditional banks.
In addition to flexible lines of credit allowing companies to cover cash flow gaps, Float also offers software tools allowing companies to manage accounts and portfolios in a single dashboard, as well as automate invoices, payments suppliers or vendors and bill collections. The company aims to serve as a “financial operating system” for African small and medium enterprises.
Other platform features include invoice advance, business account opening, payment links, budget management, and expense cards.
The company also recently introduced other features: revenue advances and instant payments. With the latter, Float wants small businesses to use its platform to tap into their revenue instantly instead of using gateways, which take days to set up. Its invoice factoring helps companies with unpaid invoices obtain cash advances.
Ghansah said all of these features provide different forms of credit for various industries and verticals across the continent.
“The big challenge is that companies’ credit needs are very different. Retail credit needs are very different from the credit needs of a service business or the credit needs of agricultural, commercial or pharmaceutical or medical supply businesses,” the CEO said.
“So we’re trying to dig deep into which credit products work for certain verticals. And so that’s what we’ve been working on so far.
In the seven months since launching Float, the cash flow and expense management platform has onboarded hundreds of businesses across a wide range of industries: retail and manufacturing, fintech, e-commerce, media and health.
Float also reached $10 million in credit spending and business cash advances during this period. The company claims to have seen its eight-digit payment transaction volume (invoicing and supplier payments) increase by 26 times.
Float is not the only African fintech newcomer with plans to be the “operating system” for small and medium-sized businesses in the region. Prospa, Brass, and Sparkle are some of these startups that provide financial and treasury support and software services to businesses.
Each company claims not to see the others as competition; First, they think the market is big enough for all parties to coexist. Second, there is a sense of superiority in their products – although they don’t say so publicly.
For Float, it prides itself on giving businesses simultaneous access to financial and software services. And then by providing readily available, flexible, short-term working capital instead of outright expensive loans.
“I think part of how we differentiate ourselves is the flexibility of our credit, in terms of speed of access, how quickly you can withdraw credit,” Ghansah said. “And then like it’s flexible in terms of how you can just withdraw it for one day and then pay it back the next day, for example.”
Float, which has operations in Ghana and Nigeria, intends to use this new capital to set up entities in Kenya and South Africa by the second quarter once it has obtained operating licenses, said Ghansah on the call.
The company will also use this investment to enhance its cash management platform and launch new credit products tailored to specific sectors and business sectors.
“Float is on a mission to provide more cash and liquidity to millions of businesses across the continent to help them grow and reach their true potential,” the chief executive said in a statement.
“With this new funding, we will continue to refine our credit and software products to deliver the best experiences to our growing customer base. We are excited to be the growth partner of choice for businesses in Africa.