Prospa, a startup helping small businesses manage their banking and business on a single platform, has raised a $3.8 million pre-seed round months after graduating from Y Combinator, to increase its customer base and hire more product and engineering talents.
This is the largest pre-seed round recorded in Nigeria and Sub-saharan Africa with participation from Global Founders Capital and Silicon Valley-based Liquid 2 Ventures. Global founders like Immad Akhund of Mercury, Karim Atiyeh of Ramp, and executives from Teachable, Square, Facebook, and Nubank also participated in the round.
Prospa was founded in October 2019 by Frederik Obasi, Chioma Ugo, and Rodney Jackson-Cole to help small and micro businesses consolidate all the moving parts of their business management like inventory and invoicing, employee management; and banking into one single vehicle.
Let’s understand the problem
For small businesses, managing the daily operations of the business and keeping track of the finances can be strenuous and error-prone; it can even be time-consuming, especially when the business enters its growth phase.
“The entire business stack is fragmented right from business banking to inventory management, customer management and everything else in-between. Prior to Prospa the average business owner would need about five different tools or apps just to manage their business.” Chima Ugo, Prospa’s co-founder and head of growth, told TechCabal.
Conventional banks do their part to provide savings, loans and sometimes advisory services, but small business owners are left to figure out operational complexities on their own. On the part of companies providing business management software, there are hardly any banking functionalities to support SMEs with their bank runnings; hence leaving a gap for fragmentation to still exist.
This is a latent problem entrepreneur like Prospa’s founders who have their skins deep in the game could see and understand.
“Traditional financial service businesses are not solving the software problem and software businesses have not figured out the way to integrate with the financial stack,” Ugo added.
Here’s how Prospa entered the tunnel with the light
For the Prospa’s founders, what’s needed to be done was obvious after the problem has been understood; build an infrastructure that unifies both fragmented bits: business management software and banking system.
On Prospa, pre-registered businesses get instant access to opening and managing a business account and other business management features like a digital storefront, inventory management and more.
Unregistered businesses will have to go through a sort of formal process of submitting a few details they need to get registered with the Cooperate Affairs Commission CAC, all on the Prospa’s platform. One would wonder how the startup is cracking through the notorious bureaucracy that mostly slows down business registration in Nigeria. But according to Ugo, the startup gets this done through key partnerships. She also mentioned that the CAC has gone through lots of improvement.
Prospa branded itself as a technology company building the operating system for African entrepreneurs and businesses. This is interesting because customers can opt-in for business registration and then stay for its business management tools, or the other way round. For Prospa, there are just enough entry options.
On traction and growth
From the size of the investment the startup closed in this round, it’s easy to guess that Prospa has seen enormous growth, and that guess would have been true. It reportedly has tens of thousands of businesses using its platform, managed over 150,000 product catalogues and over 360,000 invoices have been dispatched from the platform.
The company is said to be growing at a 35% month-on-month rate. The company’s subscription rate varies according to customers’ turnover. For instance, a business with a turnover of ₦100,000 ($200) or below won’t be charged a subscription fee. But it charges between ₦3,000 ($6) and ₦5,000 ($10) monthly on businesses with turnovers exceeding ₦100,000.
There is currently an uprising in the number of startups building solutions for the 41 million SMEs market in Nigeria and helping them move and manage their business online. Although this sector of the tech ecosystem is nascent, competition is coming alive. There are Sabi and Bumpa actively playing in the same market and have both raised institutional funds to continue scoping market shares.
When asked how the company keep tabs on competitors, Ugo said their competitors are the big social network like Instagram and TikTok that help entrepreneurs grow by acquiring new customers.
“They are constantly building tools to help entrepreneurs manage their businesses also. Adding financial services on top of their infrastructure and multi-million user network would be a compelling proposition. However, we have local knowledge of the Nigerian market and the nuance that exist within it.” She concluded.
Prospa is presently not considering expanding into new markets; for now, it only wants to focus on the huge opportunities the Nigerian market has to offer. This could be a good decision because as part of the sector’s pioneering cohort, it’s advisable to control a solid share of the market before expansion. Also, when you zoom in at the market, all the players are barely scratching the surface; what’s tens of thousands in a pool of 41 million entities?
However, in the local market, there is likely to be an edge in Prospa’s favour. There’s an expectation that Prospa’s banking and business registration services will be its trump card in this budding competition. Prospa is expected to float the market as many small businesses still don’t know how to navigate the business registration process in Nigeria. But like Ugo said, “let’s talk about competitors in the next 5 years.”