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Paga’s recent results review how startups can survive VC downturn

Tayo Oviosu, founder of Paga

Paga, a fintech company with a primary focus on the Nigerian market, has recently shown that while raising capital is important, survival depends on growing the market organically.

Last week, the first company to popularise mobile money among the unbanked population in Nigeria said its transaction value in five months had equalled the total it recorded in 2021. The volume of transactions between January and May 2022 grew to 25 million, representing N1.2 trillion in transaction value.

“Our vision is we want to make it a billion people with access to financial services. Out of principles, that already means going outside Nigeria,” Tayo Oviosu, co-founder and CEO of Paga, said. “We have actually gone through a journey of trying to figure out where we go, and why we should go; Nigeria is a big enough market. The first thing for us is if you are in a big enough market where the macro conditions are awesome, you will not need to leave. I think the macros of Nigeria support building big businesses here.”

The global venture capital (VC) market is experiencing a downturn. The downturn, which is largely hinged on uncertainties in the international economy, has impacted the funding activities of top investors such as Tiger Global, which has invested in Nigerian companies such as Flutterwave. The VC firm suffered huge losses in May with its tech stocks tumbling 14.3 percent, bringing its 2022 losses to over 50 percent.

“Our recent public fund performance is deeply frustrating. Our business is set up with duration to weather storms when they arise,” said Tiger Global in an investor letter.

Y Combinator, one of the top global accelerators and early-stage investors, has also warned its portfolio companies to brace for the worst.

“No one can predict how bad the economy will get, but things don’t look good,” Y Combinator said in the letter.

The global VC downturn notwithstanding, funding activities have continued in Africa and even set new records, according to data from Africa Big Deal, compiled by Max Cuvellier and Maxime Bayen. Tech companies on the continent, especially in Nigeria, are not immune to the downturn. For example, the growth of funding to Nigerian tech companies has slowed in the past five months and is trailing Kenya and Egypt.

Aaron Fu, head of growth at Catalyst Fund, another VC fund that has invested in Nigerian tech companies, said there are too many stories of VCs pulling out after signing term sheets in June 2022.

“We are witnessing a bunch of companies and employees going through their first downturn, and it’s not pretty,” Chijioke Dozie, CEO and co-founder of Carbon, tweeted last Friday.

Moreover, experts say most of the funding deals being announced by the tech companies in Africa would have started three to four months ago and only got signed, hence the announcement.

“When people say the global VC downturn isn’t affecting African tech startups yet, it is important to note that every fundraising announcement you read is a lagging indicator,” said Olabinjo Adeniran, co-founder of Future Africa. “The deal closes anywhere between three months to 12 months before they’re actually announced to the public.”

Therefore, for tech companies such as Paga, growing consumer adoption is the best strategy to stay liquid during this period. The last time the fintech company raised money was in 2018 when it secured $10 million in Series B funding from the Global Innovation Fund.

Paga has also been busy in the merger and acquisition market. In 2020, it announced the acquisition of Apposit, a software development company based in Ethiopia, for an undisclosed amount.

“Ultimately, founders have to realise that they are running a business and they are only as good as the value they create to the problems in the society,” said Henry Ojuor, founder in residence of Startupbootcamp.

“They should focus on building and you have to understand that the whole idea of excessive funding sometimes gives the founders the wrong impression; so maybe this is good for the ecosystem to remind us that fundamentals matter and we start building assuming there will be no VC funding,” he said.

Building fundamentals appear to be a priority now for Paga so the company is developing different solutions to address every payment problem customers will have.

“In addition to our PoS devices, we’ve created other options that make payments simple, such as our sound and scan-to-pay options, USSD, bank transfers, and dynamic NUBAN links,” Daniel Oparison, head of growth at Paga, said at the Lagos Leather Fair on Saturday.

What do you think?

Written by Duresky

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