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3 startup lessons from Kobo360’s $30 million fund raise
Having relevant experience or skills for your startup’s industry provides an investor with confidence that you can visualize an innovative way of defining your industry,
This week, we were proud to co-lead the $30 million Series A funding for one of our portfolio companies, e-logistics platform Kobo360, building upon their $6 million seed funding in 2018. For African tech startups, it’s an indication of not only how much this sector is evolving, but also an inspiration for those at an earlier stage in their startup journey. In light of this, I wanted to discuss what we saw in Kobo360, from an early stage, and use this to share three key lessons African startups can take as they embark on a similar path.
An extraordinary team with a clear strategy to win in a large market
From the start of our conversations with Kobo360, the combined expertise of their founders, Obi Ozor and Ife Oyedele, shone through. From Obi’s logistics background and experience with Uber to Ife’s technical expertise, they demonstrated that they had the skill set to lead a business that could sit comfortably between the worlds of logistics and technology. They also showed an extraordinary ability to articulate and execute a strong strategy built around superior business fundamentals. A large under served market that suffers from fundamental inefficiencies is what the Kobo360 business model is designed to overcome.
Having relevant experience or skills for your startup’s industry provides an investor with confidence that you can visualize an innovative way of defining your industry, that you’re aware of the key challenges your sector faces and also have the capacity to solve them. However, founders are only humans and can only do so much by themselves — the important thing is that they’re self-aware enough to identify their weaknesses and recruit people who can complement them. In recent months, they’ve built out a dynamic executive team members who are helping them to execute on their vision.
Deliver on your targets — execute your strategy
Since joining the Kobo360 board, one thing that has stood out to me is the company’s focus on execution. It’s something that flows through Obi and Ife to the rest of the team, keeps them on track for their goals and was a key reason why we decided to build upon our initial investment. Since their seed funding, they’ve expanded into Togo, Ghana and Kenya, which moves them closer towards their goal of building their G-LOS (Global Logistics Operating System) Network that will connect supply chain operations across Africa.
Every startup has aspirations, but it’s the ones who can show evidence of how they’re achieving them that will stand out to investors. If you’re a business currently targeting your next raise or even your first one, it’s vital that you can show how your current pool of funding has supported your business objectives. If investors can’t see this, it’s highly unlikely they’ll be willing to give you more cash. It’s more than okay — in fact it is very smart — to change your mind about elements of your strategy and how to execute, as long as you manage to dynamically keep a good level of consistency between
(a) constantly improving your strategy and understanding of the market, and
(b) between your strategy and your execution capabilities, starting with capital and human resources.
Attract a complementary set of investors at the service of your value generation strategy
At TLcom, we’re interested in scalable companies looking to solve key challenges in Africa by leveraging technology. Kobo360 fits right into that model. For decades, poor logistics has stunted the growth of African trade. When we came across Kobo360, their case for increased speed, transparency and efficiency in the sector was strong. On top of this, their vision for building their thousand-strong driver fleet spoke to another core problem in Africa — unemployment. Not only are they getting the continent moving, they are also addressing the considerable problem of widespread unemployment across the continent. We need more start-ups and SMEs to catalyze Africa’s economies through mass-employment opportunities.
Every investor has their own unique criteria for investment so it’s key startups that decipher which ones are right for them and make a strong case once they do. At the same time, entrepreneurs should also investigate about the contribution that an investor can provide beyond capital. After all, the startup-investor relationship is a long-term one, so it’s important to find someone truly aligned with your vision.
TLcom brings a unique combination of a global 20 years VC track record and a strong on-the-ground presence in the key African VC clusters of Lagos and Nairobi. We can challenge your strategy and support your execution and we can offer access to local African networks as well as global talent and co-investors. Other investors can bring vertical industry expertise or other critical capabilities. In the case of Kobo360, leading Series A investor, Goldman Sachs brings unparalleled access to global capital markets, investment experience in similar companies across several emerging markets, and global opportunities for exit in the form of M&A or IPO.
NOTE: This list is by no means exhaustive and not every startup will secure $30 million in funding. However, they are basic principles that will ensure founders can move a step closer towards their goals. It’s undoubtedly a tough feat to be an entrepreneur (and even tougher when you’re based in Africa), however, Kobo360’s success should be a source of encouragement to African startups that with the right guidance in place, their ambitions can become a reality.
We at TLcom congratulate Obi, Ife and the entire team, on and what has been a transformational year, and we look forward to continuing working at the service of their value generation vision as they scale.
This article was contributed by Omobola Johnson.
Omobola Johnson is a Senior Partner at TLcom Capital, a venture capital firm focused on investments in technology-enabled companies in sub-Saharan Africa. She is the Honorary Chairperson of the global Alliance for Affordable Internet. She is also a former Minister of Communication Technology in the cabinet of President Goodluck Jonathan.
Johnson serves on the Board of a number of not-for-profit and for-profit organisations, including MTN Nigeria, Guinness Nigeria, Women in Management and Business (WIMBIZ) where she was the founding Chairperson.
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How Access Bank got Japaul to pay up N37 billion loan that had gone bad
Brute force, Courts, quid quo pro are hallmarks of Access Bank’s debt recovery schemes.
In 2018 when Access Bank took over Diamond Bank, in what is the largest merger in Nigeria’s banking history, they knew it was not a match made in heaven like their PR agencies will make you believe.
In merging with Diamond Bank and taking over their juicy assets, they had also taken over the lemons that had for years bedeviled the bank who had pioneered mobile banking applications well ahead of its time.
When Access Bank merged with Diamond Bank, the latter had total loans and advances of N787.8 billion out of which N219.9 billion in loans were impaired. Oil and gas-related loans made up a significant chunk of the loans and were estimated at about N302.6 billion, most of them distressed.
READ: Access Bank will no longer accept cheques with logo of defunct Diamond Bank
Included in the oil and gas loans was a $66.4 million in loans owed to the bank by Japaul Oil and Maritime, as they were referred to at the time. The loans had gone bad accumulating unpaid interest of about $11.2 million. By the time Access Bank took over the loans, Japaul agreed to a restructuring rolling over both the principal and interest.
This is typical of most Nigerian companies burdened with debts they cannot pay. To avoid being run over by the bank, the debtors will negotiate a restructuring, extending the loans by one to three years and if lucky, reducing the interest rates. In return, the bank books new fees (which are often paid in advance of the restructuring) and then gets to avoid huge provisioning mandated by the central bank.
READ: Over 1 million people took loans from banks below 20% interest rate in 1 year- CBN
It is often a ‘win-win’ situation that essentially kicks the can down the road until, like in the case of Diamond Bank, the chicken comes home to roost. But Access Bank is not new to slugging it out with debtors, particularly those who do not pay up. Upon takeover in 2019, Herbert Wigwe, the CEO of Access Bank announced that his bank was going to go after Diamond Bank debtors. In an interview in 2019 he maintained that “we recovered N2.2 billion bad debt in the year under review. Access Bank will intensify effort to ensure that it recovers the debt owed to Diamond Bank. We will go out for Diamond Bank’ debtors and if they are not ready to redeem their debt we will publish their names in the newspapers.”
In 2019, Access Bank swooped on Japaul Plc seeking repayment of their Diamond Bank loans which was now about N37 billion. The bank took over Japaul’s trading assets and integral to the going concern status of the company. Before now, Japaul made money rendering marine services, dredging, mining and construction mostly for the oil and gas companies.
READ: Access Bank vs. Seplat: Of subterfuge and corporate brutality
But business has been bad for years now leading the company into net accumulated losses of over N50 billion as of 2018. For the 5 years leading to 2018, the company posted back to back losses with revenues going from N5.3 billion in 2015 to about N85.8 million in 2019. External loans had also ballooned from about N18.8 billion to about N38.8 billion. Its share price had also fallen to about 20 kobo per share by the end of 2019. It was nearing bankruptcy and something had to give.
They began a court battle with Access Bank over the loans and the threat of a liquidation eventually settling for a deal. Sources inform Nairametrics that Access Bank is one of the most aggressive banks in the business when it comes to playing dirty with debtors. Unlike Diamond Bank, Access Bank is ready to battle in the courts and is ready to deploy any legal means necessary to recover their loans even if their actions are viewed as uncanny.
READ: Former bankers who stole from Diamond Bank (Access Bank) get jail terms
Recently, the bank obtained a Mareva injunction sealing the offices and taking over the assets of Seplat due to a related party loan owed by the latter’s Chairman, ABC Orjiakor. Just like Japaul, the loans owed by ABC Orjiakor were also obtained from Diamond Bank. According to sources, when Access Bank swoops in for their loan recoveries, they deploy all tactics in the books to ensure all or most parts of the loans are recovered from chronic debtors.
Eventually, Access Bank and Japaul agreed to settle the matter outside the court. In exchange for repaying the N38 billion loan, Access Bank settled for a repayment of N30.9 billion. The deal involves Access Bank taking over two of Japaul’ s Dredgers (12& 13) for N5 billion and a Barge (Beau Geste) for N25.9 billion. Japaul also gave up its land in exchange for working capital of N1.5 billion from the bank.
READ: Access Bank recover N14 billion in bad loans after merger with Diamond Bank
In return, Japaul gets to clean up its balance sheet erasing what is left of its debt, booking a profit of about N40 billion and wiping off its negative equity of N35.5 billion. However, in one fell swoop. From negative equity of N35.5 billion, the company’s net assets are now N4.69 billion. A win-win for everyone.
We are not exactly sure what Access Bank plans to do with dredgers and barges it took over from Japaul. Interestingly, in the deal, Japaul also gets to lease back the two dredgers for a period of 6 years from Access Bank for a sum of N1 billion paid annually from 2021 – 2026. Japaul got a one-year moratorium on repayment expiring in December 2020.
READ: Nigeria, other African oil-producing countries will lose $1tn oil revenue in 20 years – PWC
Japaul has since changed its name to Japaul Gold and Ventures citing the dwindling oil and gas sector for its reasons. The company believes gold mining and technology are the future and is seeking to raise N25 billion in equity to pursue this course. Its share price has ostensibly risen by 150% since the turn of the new year, the best performing on the stock exchange.
For Access Bank, aggressively going after bad loans have paid off immensely. In 2019 the bank recovered N38.9 billion in bad loans barely a year after taking over Diamond Bank. In the first 9 months of 2019, a total of N24.7 billion was captured in bad debts recovered. It is a strategy that is working and there is no betting against Access Bank doubling down on aggressive recovery this year.
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Champion Breweries, Raysun deal highlights disclosure shortcomings
Is Heineken taking over Champions Brewery?
Champion Breweries Plc informed the Nigerian Stock Exchange, last week, via a press release that an insider, Raysun, had purchased about 1.9 billion shares at a price of N2.6 per share.
The disclosure was part of the stock exchange’s requirement that listed companies must reveal deals made by insiders of the company for the benefit of shareholders and the investor community.
That’s about how far the press release went. It did not reveal why Raysun was purchasing? Who they purchased the shares from and why the deal is being consummated? In terms of corporate disclosure, this was a dud.
READ: Analysis: Japaul, Ardova, Champion Breweries; What is behind the deals?
Raysun is the largest shareholder and majority owner of Champions Breweries. Raysun is also an entity owned by Heineken, the majority shareholder in Nigeria Breweries Plc – the largest brewer in the country. Thus, Heineken is an indirect shareholder of Champions Breweries.
These relationships give this deal enough scrutiny to warrant a better disclosure starting from the actual purchase of shares revealed in the press release.
Here are some contexts;
Champion Breweries shares breakdown
- Champions Breweries has a total of 7.82 million shares outstanding at the time of this purchase
- Raysun held about 60.4% shares in Champions Breweries according to disclosure in its 2019 annual report.
- Asset Management Nominees and Akwa Ibom Investment Corporation own 12.3% and 10% respectively. The rest of its shareholders own about 17.3% or 1,351,954 units.
- At the current share price of N1.12, Champion Breweries is valued at N10.57 billion by the market.
- However, Raysun’s purchase of 1.9 billion shares at N2.6 per share (valued at N4.9 billion, almost half of the current market capitalization), now values the company at about N20.3 billion.
READ: Court threatens to sell Ecobank and Union Bank branches
Where did the shares come from? This is a vital question and here is why.
Going by the number of shares they bought last week (24% of equity), they only could have been able to purchase that many shares by buying up all the shares owned by the Asset Nominees (12.3%), all the shares owned by Akwa Ibom Investment Corporation (10%) and another 3% from other regular shareholders.
It could also be that either or both Asset Nominees and Akwa Ibom IC sold part of their shares and then they made up the rest by purchasing some from the market. Why is Heineken, through Raysun, acquiring so many shares? Is there a takeover deal in the offing? Do they plan to merge Champions Breweries with Nigeria Breweries or still keep it as a standalone company? Will Champions Brewery cease to exist if there is a merger or will they delist following this massive acquisition of the shares of their subsidiary?
READ: Champion Breweries gains 32.35% in a week, following Heineken’s indirect acquisition of its shares
The speculation is palpable.
This is what happens when listed companies refuse to properly disclose transactions involving mega share purchases of this nature. How does a majority shareholder go from 60.4% of shares to 84% and an announcement is not made explaining or clarifying who sold and if this is a takeover bid.
But investors seem not to mind at the moment, if the momentum of the share price is anything to go by. A 57% year to date gain is a testament to this. It appears investors expect a mandatory takeover announcement to be made anytime soon and are scrambling for the shares ahead of any announcement.
READ: Resort savings raises N4.3 billion, as Camey and Rock acquire majority shares
Unfortunately, this is not how markets should work anywhere, and the sooner it stops the better. The Nigerian Stock Exchange has made massive progress with compliance to disclosure requirements and we believe strongly that they will at some point bring Champion Breweries to order and have them disclose all the requisite information about this transaction. Better late than never.
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Downstream players suffer revenue declines due to Covid-19, forex, fuel subsidy
2020 has no doubt been one of the most challenging years for players in the oil and gas downstream sector, having to deal with several issues.
Nigeria’s downstream oil and gas players are in the midst of one of the lowest revenue declines in their history of operations. In an industry used to the highs and lows of economic and commodity price cycles, 2020 poses one of the greatest challenges to oil and gas companies.
Total Plc, 11 Plc, MRS, Ardova and Conoil are some of the major downstream players (all quoted) that have suffered revenue declines and margin drops in one of the worst years in modern history.
READ: Aviation: Nigerian ground handling firms count revenue losses due to pandemic-induced plunge
- Conoil Plc, one of the major downstream players reported its 2020 9 months results revealing revenue declined 21.84% YoY t0 N88.1 billion.
- 11Plc, another major player in the sector, also saw its topline revenues plummet from N141.5 billion in the first 9 months of 2019 to N114.7 billion in the corresponding period in 2020.
- Total Nigeria Plc, one of the largest players in the downstream sector also recorded declining revenues. In 2019 it reported total sales of N181.6 billion compared to N117.3 billion in 2019. The 35% drop was the largest of the lot.
- The only outlier of the lot was Ardova Petroleum which somehow managed to record revenue growth with 2020 9 months revenue rising to N116 billion compared to N110.7 billion same period the year before.
READ: Nigeria’s 5,000 BPD refinery will produce 271 million liters of petrol every year
In general, revenues for the major oil and gas downstream players in the country fell by a whopping 21% from N646.8 billion in 2019 (9M) to N514.2 billion in the corresponding period in 2020. What is to blame for these declines? Covid-19!
The Covid-19 pandemic triggered a nationwide lockdown for most of 2020 that has negatively impacted demand for petroleum products across the country. The lockdown has grossly affected volumes for downstream oil and gas companies hitting their margins and profitability.
READ: Why listing of oil companies will stimulate industry growth – NCDMB
Businesses across the country such as manufacturers, airlines, restaurants, schools, the transportation sector and motor vehicle owners have all reduced their demand for fossil fuel.
The downstream sector has also struggled to take advantage of the drop in oil prices as they still need to deal with the multiple devaluation of the naira and being able to gain access to foreign exchange. Their inability to access the forex market leaves them with little choice but to continue to rely on NNPC, the sole importer of petroleum products for their inventories.
READ: Jitters as Nigerian banks brace up for more loan provisioning
In a recent comment, the Chairman of Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), Mrs. Winifred Akpani, lamented that “the inability to source FOREX from the official CBN FOREX window by independent marketers is continually hindering the effectiveness of the principles of DEMAND and SUPPLY market forces to correct the current inefficiencies in the pricing mechanisms adopted in the deregulation process.”
Mrs. Akpani also explained that inability of marketers to source FOREX creates a situation which can be described as “pseudo subsidy” in the market, suggesting that being forced to sell petroleum products at fixed prices means they cannot recover their importation cost, most of which is paid for in US dollars.
READ: FG gives reason oil marketers are not yet importing petrol, stops monthly price fixing
This is further exacerbated by the fact that the federal government regulates pricing irrespective of the unique operating costs of these private oil companies. Also, being the sole importer of petroleum products means the NNPC will likely pass on inefficiencies in managing cost to petroleum marketers, eliminating any chances of efficient pricing that can be obtained from increased competition. The effects of these are low profit margins and ‘never-shifting’ revenue positions, except for exceptional cases.
READ: Has petroleum product deregulation finally come to roost?
Last December, the Federal Government revealed it was ending its subsidy programme, increasing fuel to reflect its market cost. However, it balked after pressure from the labour unions, reducing prices without recourse to sector players.
Despite these challenges, the sector will likely eke out some profits largely due to cost cutting initiatives and income from ancillary businesses. However, dividend payment might be a challenge as it will be advisable for these companies to set aside cash for what could be a pivotal year.
READ: Nigeria to import petroleum products from Niger Republic, sign MoU on transportation, storage
The Petroleum Industry Bill (PIB) will likely be signed into law this year and will produce new investment opportunities for the downstream sector if things go as planned. The government will likely relinquish its hold on the sector and fully deregulate the downstream before the end of the year.
When it does, those with a strong balance sheet will be winners.
