Small enterprises in Africa have significant difficulties with cash flow. Long payment cycles, which may take anywhere from 30-90 days after services or goods have been given, and a lack of capital, which according to studies, affects 85 percent of African small and medium-sized firms, are the primary causes of cash flow problems.
This is an issue that several businesses are tackling for African SMBs in one form or another. The demand for their services has led to the investment of Ghanaian firm Float, which just raised a critical round of funding. The fintech company, which offers credit lines to companies, has acquired $17 million in investment, which it intends to extend its product offerings and geographical reach in the future.
The seed round consisted of a combination of stock and loan investments totaling $7 million. When it comes to equity, Tiger Global and JAM Fund, the investment company founded by Tinder co-founder Justin Mateen, played a role and Cauris in providing loan funding. Kinfolk, Soma Capital, Ingressive Capital, and Magic Fund are the venture capital companies that participated in the equity round.
Y Combinator CEO Michael Seibel, Sandy Kory of Horizon Partners, Ramp founders Karim Atiyeh and Eric Glyman, Gregory Rockson of mPharma, and Dutchie founders Zach Lipson and Ross Lipson were among the angel investors who attended.
President and CEO Jesse Ghansah founded the firm, known initially as Swipe, with Barima Effah in 2020. Following its rebranding, it launched its first product in June 2021. While working at OMG Digital, a media firm he created that was also accepted into YC, the chief executive came up with the YC-backed Ghanaian fintech.
“We needed credit, so we went ahead and obtained an overdraft from a long-term partner bank with whom we had transacted more than $100,000 in the previous year. We were refused an overdraft because the bank required us to deposit 100 percent collateral in cash, according to the two-time YC founder in a June interview with TechCrunch.
“I also recall borrowing money from loan sharks at exorbitant interest rates, sometimes as high as 20 percent a month, to make ends meet and pay the bills. “I was thrown into tackling those challenges using Float as a result.”
According to the study, more than 51 percent of the 44 million formal small and medium-sized enterprises (SMBs) in Sub-Saharan Africa believe they need more capital than they have access to expand their operations. Float offers finance to some of these enterprises that cannot get credit from regular banks because of their size or industry.
In addition to offering flexible credit lines for companies to bridge cash flow gaps, the company also provides business software solutions that allow them to manage accounts and wallets from a single dashboard and automate bill payments, vendor or supplier payments, and invoice collections. The firm aspires to function as a “financial operating system” for small and medium-sized enterprises (SMEs) in Africa.
Among the other services available on the site are invoice advance, the ability to register a business account, payment connections, the ability to manage budgets, and spend cards.
Recent enhancements include the addition of revenue advances and fast payments, which are both new to the firm. With the latter, Float hopes to encourage small firms to utilize its platform to access their income immediately rather than relying on payment channels, which may take days to process. Its invoice factoring service enables firms with unpaid invoices to get cash advances from financial institutions.
According to Ghansah, these elements give different types of loans for other businesses and verticals throughout the continent, including agriculture.
“The major difficulty is that the credit requirements of firms are so diverse. As the chief executive said, “the credit requirements of retail are significantly different from the credit needs of a services sector, or the credit needs of agricultural, business, or the credit needs of pharmaceutical or medical supply enterprises.”
We’re doing extensive research to understand better which credit products perform best for specific sectors. Thus that’s what we’ve been focusing our efforts on so far.”
Within seven months of its introduction, Float’s cash flow management and expenditure platform have onboarded hundreds of firms across various sectors, including retail and manufacturing, fintech, e-commerce, media, and healthcare.
The amount of credit spent and cash advances to firms through Float has reached $10 million over that period. The firm claims to have observed a 26x rise in payment transactions (invoices and vendor payments), measured in eight digits.
No other African financial startup has aspirations to become the “operating system” for small and medium-sized enterprises in the continent. Float is only one of several. Business finance and cash flow assistance and software services are provided by several companies, including Prospa, Brass, and Sparkle, among others.
Each firm asserts that it does not consider the others competitors; first, they feel that the market is large enough for all parties to coexist comfortably. Second, their goods elicit a sense of superiority in the minds of their customers – albeit they are reluctant to express this openly.
In the case of Float, it takes pleasure in providing companies with access to both financial and software services at the same time. Providing easily accessible flexible and short-term operating capital as an alternative to outright costly loans is another crucial step forward.
I believe that one of how we distinguish ourselves is in terms of how flexible our credit is, in terms of the rapidity with which it can be accessed and how soon it can be drawn down on,” said Ghansah. It’s also flexible in that you may take it out for a day and then reimburse yourself the next day, for example.”
Ghansah said on the conference call that Float, which is already active in Ghana and Nigeria, aims to utilize the fresh money to establish organizations in Kenya and South Africa by the second quarter of this year, as soon as it obtains operating licenses.
Also planned for this investment are enhancements to the company’s cash management platform and the introduction of new credit products suited to specific business verticals and sectors.
As the company’s chief executive said in a statement, “Float was founded to increase cash flow and liquidity for millions of companies throughout the continent to help them expand and achieve their full potential.”
‘With this additional capital, we will be able to develop both our credit and software products to provide the greatest possible experiences to our rapidly expanding client base.’ “We are thrilled to be the preferred growth partner for companies in Africa,” says the company.