Nigerian fintech and lending startup Lidya has announced the completion of its $8.3 million pre-Series B funding round. Alitheia Capital led the investment via its uMunthu Fund. Other investors that participated include Bamboo Capital Partners, Accion Venture Lab, and Flourish Ventures.
In addition to the $1.3 million seed round secured in 2017 and $6.9 million Series A a year later, Lidya has raised a total of $16.5 million. This investment will see Lidya grow its lending operations for small and medium businesses across its markets.
The idea for Lidya came about in Nigeria when Tunde Kehinde and Ercin Eksin saw the need to offer lending services while at their previous company Africa Courier Express (ACE). ACE was a last-mile e-commerce delivery company that provided logistics services to businesses and consumers.
The founders, who also held founding and executive roles at Jumia Nigeria, noticed that most of the businesses ACE worked with had credit and financing issues. And although options existed, the founders felt these platforms could not adequately cater to their ever-growing needs.
As co-CEOs, the pair launched Lidya as a digital SME lending platform in 2016. On the platform, businesses can create accounts and apply for loans ranging from $500 to $50,000, with decisions made within 24 hours.
Lidya claims to use 100 data points to evaluate each applicant and build a credit score for them to assess credit risk. When the company announced its raise in 2018, it had disbursed 1,500 business loans and was poised to enter new African markets. But it chose Europe instead.
In October 2019, Lidya announced that it had launched new lending operations in Poland and the Czech Republic. But it was not until March and April 2020 that the company’s activities in Eastern Europe fully kickstarted. Since then, Lidya claims to have disbursed over $3 million to SMEs in the two countries. To date, the company has disbursed over 25,000 loans and claims to have more than a 90% customer repeat rate.
So, what was behind the decision to expand to Europe instead of other African markets? “We wanted to build a global business from day one given the size of the problem where there is a $3 trillion credit gap,” CEO Kehinde said to TechCrunch. “We challenged ourselves not to limit ourselves to one market and went through some data before expanding to Europe.”
With this raise, Lidya wants to solidify its presence in the three markets. The investment has also brought a change to the company’s leadership structure. Per a statement released by the company, Eksin has left Lidya to pursue other projects while Kehinde takes over as the sole CEO.
Currently, both European markets represent about 30% of Lidya disbursement volume while the overall default rate is less than 1%. Unlike most lending companies that raise debt financing to fund loans, Lidya uses equity to fund its loan book. Quite the unconventional method, but Kehinde points out why the company thought that path was necessary.
“The idea was for us to show that our algorithms work and that we can disburse money into the market and get it back. Then we can transition to using debt for our lending operations,” the CEO said as the company looks to finalize deals with banks, family offices, and hedge funds in the coming months. This is in addition to the $300,000 line of credit Lidya has secured from Bamboo Capital Partners.
Lidya began lending in Europe at the height of the pandemic. Kehinde recounts how tough it was for the team, especially in a period that was so unusual.
“It is difficult enough to attempt to launch in two new countries but try doing that remotely,” he said. “We’re so decentralized. We had operations in Nigeria, and we were launching in Eastern Europe remotely, making sure the puzzle stayed together. The team stepped up. Everyone doubled down on the mission and we came out of the year without having any deterioration.”
The CEO adds, “Now the focus is to get back to gear. We want to be able to do 5x what we’ve done historically by this time next year. If we do that, we’ll be successful, and our customers will be successful as well.” Lidya will grow out its teams in Lagos, Prague, and Warsaw and use a portion of the funds to support lines of credit.
Speaking on the investment, Alitheia Capital co-founder and managing director Tokunboh Ishmael said, “Lidya is tackling the fundamental challenge of providing access to credit for dynamic small and growing businesses that otherwise have limited options for financing working capital to scale their businesses in Africa and Europe. Alitheia Capital and Goodwell are pleased to be backing a team whose mission aligns with our objective of driving growth, and social impact by enabling access and inclusion to finance and financial services.”
It’s quite rare to see expansion moves from Nigerian or African startups to Europe. An exception to that might be South African startups who frequently open offices in the U.K. and the Netherlands. Kehinde relishes the company’s achievement so far, having gained some foothold in both the Czech Republic and Poland. He says there is more to expect from the five-year-old digital lender.
“We’re excited about the fact that we started in Nigeria and now our product is live in two European countries. Typically people come into Nigeria from other parts of the world but we’ve gone from Nigeria to other parts. We’re proud of the traction we’ve gotten in our push to build the biggest finance house for SMEs in our markets.”
Conversation with Tunde Kehinde, Co-Founder, and CEO
Small and medium businesses have been some of the hardest hit by the COVID-19 pandemic. And all that has been as true in emerging markets as it has been for SMBs in the developed world.
Tunde Kehinde has had a front-row seat witnessing and responding to that crisis. He’s the CEO and co-founder of Lidya, a startup out of Nigeria that has built a platform for SMBs to apply for and get loans and other financial services, aimed at markets on the African continent and increasingly also in emerging economies in Europe. We sat down with him as part of our new virtual Disrupt series, where we have been connecting with some of the biggest movers and shakers in the tech world beyond the U.S.
Kehinde has been called the “Jeff Bezos of Africa,” a funny title you might think sounds like tenuous or cheesy marketing until you know more about his history in business and the impact it’s had so far (he’s not that old) in the region — and until you hear him speak.
Kehinde — born in Nigeria and exposed to a lot of the U.S. way of doing things through university years at Howard and then Harvard — was previously the co-founder of one of the biggest tech startups to have come out of the continent — Jumia — an Amazon-style marketplace that is slowly branching out into a wider web of services like payments, food delivery and more.
Initially incubated by Rocket Internet, Jumia raised hundreds of millions of dollars from VCs, scaled to multiple countries on the continent, and is now traded publicly on Nasdaq with a current market cap of $660 million — modest by Amazon standards maybe, but a real milestone for African tech.
That alone would probably cause some to wonder if he’s the “next Bezos,” but it’s been his follow-up act at Lidya that paints a broader picture. In short, there is a lot more potential for payment and online commerce services in emerging markets, and focusing on helping small businesses across the digital chasm is not just a good business opportunity, but a developmental one, too. Capital, specifically the lack thereof, has always been a huge hindrance to growth, and these days it’s an even more critical axiom to address.
You can see the full Disrupt conversation below, where Kehinde covers a lot of ground, not just about his company but about how tech is evolving in the region.
The breakout success of a handful of startups — which include the likes of new digital payments unicorn Interswitch as well as Jumia — venturing into multiple jurisdictions, he noted, is seeing more VCs also increase their interest and investment activity. He thinks the next very important step is to have more exits, which will confer a different kind of credibility and liquidity to the market.
And there should be, he added: There are few places like the African continent that is a blank slate, where you can come in quickly and build a dominant player if you have the right capital and team, he said.
“It’s night and day between seven years ago and now,” he added, but also admitted that while financial services and the related world of e-commerce are obvious places to start — it was also the classic category to tackle first in the U.S. and Europe many years earlier — he still sees more interest from VCs in the U.S., Europe, and Latin America.
His advice for VCs?
“If I were a VC I would look at what have been the biggest successes from folks like me,” he said. “Seeing Jumia and others going public, as more of these things happen the more you can develop a great policy and that will make it easier. I launched, I got to scale, I got a return on investment, the right infrastructure can be built.”
Tune in here to hear him also talk about China and how to handle investment from outside Africa; what other big deals in loans for SMBs, such as Kabbage getting acquired by Amex, mean for startups like Lidya, the impact of the global coronavirus pandemic on business; identifying opportunities beyond your immediate region; and more.
Credit: Techcrunch
