Small and medium-sized companies (SMBs) in sub-Saharan Africa's conventional retail sector are constantly digitizing their operations. According to statistics, there are approximately 40 million enterprises of various sizes in this $200 billion market in Nigeria alone.
Traditional retail in the nation consists of little kiosks and outdoor marketplaces selling a range of goods, including food, drinks, groceries, personal care items, and stationery. Startups in the B2B digital marketplace space like TradeDepot, Sabi, and Omnibiz have raised millions of dollars to support thousands of these businesses buy inventory from manufacturers while also offering solutions to track cash flow, payments, and capital access. To help these businesses with their bookkeeping and sales monitoring procedures, another group of firms offers software and apps.
Small and medium-sized companies (SMBs) in sub-Saharan Africa's conventional retail sector are constantly digitizing their operations. According to statistics, there are approximately 40 million enterprises of various sizes in this $200 billion market in Nigeria alone.
The second-place startup Pastel, which has been operating under the radar for more than a year, has announced a $5.5 million seed round sponsored by the pan-African venture capital firm TLcom Capital. The seed round also included participation from other VC firms, including Global Founders Capital (GFC), Golden Palm Investments, DFS Labs, Ulu Ventures, Plug and Play, and Soma Cap. Pre-seed funding of $620,000 was raised by the business from several of its current investors last year.
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Formerly known as Sabi Cash, Pastel was founded by Stanford graduate students Abuzar Royesh, Olamide Oladeji, and Izunna Okonkwo who, according to co-founder and chief growth officer (CGO) Okonkwo in an interview with TechCrunch, had similar interests in developing solutions for micro and SMBs in emerging markets, particularly from their countries of origin: Nigeria (Oladeji) and Afghanistan (Royesh) (Oladeji and Okonkwo).
The company's flagship product, Sabi, is a digital bookkeeping app that enables small businesses to track and manage their transactions and customers, gain insights into their cashflows, issue receipts, and successfully manage customers who owe them money. This product should not be confused with a B2B e-commerce marketplace of the same name.
Small businesses in Nigeria have been operating offline for years, keeping all pertinent information and data on hand in the form of paper or ledgers. Nine out of ten small firms in the nation fail within the first five years due to all these inefficiencies, which take up time, result in mistakes, and impair cash flow and finances. These companies save money and digitally streamline their processes with the aid of bookkeeping systems like Pastel's.
The bookkeeping and customer relationship management Pastel launched last year recorded more than 100,000 merchant sign-ups by December 2021, said Okonkwo. The free app currently has more than 45,000 active merchant users. Pastel has recently added more features for merchants to capture more value in this chain. However, unlike other platforms that have bundled several features into one app, Pastel chose a different strategy and made each product standalone: Quick Receipt and Pastel Financing.
“Our thought process was to get traction quickly by solving a merchant’s pain point with a free and easy solution. The next step was to capture value. So we added value capture features to the Sabi app that our customers love. Now we are building a lot more,” Okonkwo said about the company’s decision to build three standalone platforms instead of coupling them all into one app. “The way we’ve thought about it is, as opposed to creating a super app that a lot of other fintechs have or are in pursuit of, we are taking a more platform approach, meaning that any Pastel user can create an account with any of our apps. With the same login they can access all the other solutions that we’re providing.”
The Quick Receipt app provides businesses with simple invoicing and receipts tools and over 60,000 active merchant users. On the other hand, the Swift Money app, which leverages local saving groups called ajo in Nigeria to provide financing for businesses, has been stealthily built for the last three months through Pastel Financing.
Ajo or esusu is a popular financial scheme in Nigeria where a group of people contributes money in varying intervals to a leader who stores the cash on their behalf. They can have different purposes for engaging in this activity, such as saving toward a particular goal or accessing a large pool of credit.
The Swift Money app is designed to work with already established ajo leaders and their groups. Pastel does not aim to replace these leaders, but rather provide them with tools to better track their groups’ well-being, as well as provide financing for the group members. In addition to engaging with the formalities of cash collection and depositing cash in a [Pastel] bank account for savings, the leader downloads the app to set up profiles for members. When any of the members (which in this case are merchants) want to access loans, the leader requests on the app, the member is evaluated based on their saving history and if credit worthy, a business loan is disbursed to them.
The leader is then in charge of recollection of these loans to a pastel account similar to the way they have always done their savings collections.
Pastel only started making revenue recently and does so by charging interest and a small fee on these loans; it also has access to savings to use as a float for loan financing. The one-year-old company plans to raise debt capital by January to complement this process, Okonkwo said. “We’ve not raised debt now because we’ve not scaled out our loan product.”
The U.S.-headquartered and Lagos-based Pastel isn’t the only startup operating in this line of business. In the last 24 months, several startups across West Africa, including Kippa, Bumpa (which recently launched a social commerce integration with Meta), OZÉ and Bamba, have ventured to serve small and medium businesses with bookkeeping tools and credit. While they offer almost identical features such as handling bookkeeping, managing inventory and tracking sales, Okonkwo argues that Pastel’s product-centric approach distinguishes the company from others.
According to the co-founder, "as a team, we are using a product-led growth approach where we iterate following extensive research into how people are using the solutions and what they are asking for." In order to grow its product offerings and create more productivity and finance management features and capabilities around group savings, loans, and payments for small businesses, Pastel will be able to increase its efforts in this area with the help of the new funds.
