Sequoia Heritage, Stripe, and other investors invest $200M into African fintech Wave valued at $1.7B. This is the largest Series A in Africa. It's geared towards taking up telecom-led mobile money
Francophone Africa's first unicorn has been created, and it will not surprise anyone who follows tech in the region.
Wave, an American and Senegal-based mobile payment provider, has raised $200m in Series A funding. Wave is valued at $1.7 billion. This investment represents the largest Series A round ever for the region.
The round Sequoia Heritage was led by four big-name backers. It is a private investment fund that is a subsidiary to Sequoia, Founders Fund, Stripe payments startup and Ribbit capital. Partech Africa, an existing investor, and Sam Altman (the former CEO of Y Combinator; currently CEO of OpenAI) are also part of the round.
Mobile money is growing rapidly in sub-Saharan Africa. In the past year, more than $500 billion was transferred through the accounts of the 300 million mobile money users. This is only a small fraction of the global alternative financial infrastructure market.
According to the International Monetary Fund, only 43% of sub-Saharan African adults were able to access their money via a bank account or mobile money account. Mobile money, which is based on simpler technology, has a faster onboarding process, and will capture more market share than traditional banking in the area, is expected to grow that percentage. Investors, especially from abroad, are excited about this and eager to join the ranks.
Neobanking, which is also based on mobile technology, falls somewhere between the two.
Sendwave to Wave
Wave is a spinoff of Sendwave, an African-focused remittance service provider.
Drew Durbin, Lincoln Quirk and Lincoln Quirk created Sendwave in 2014 to provide remittances for a small or no fee from North America and Europe to selected African and Asian countries. Sendwave, a YC-backed business, became a WorldRemit subsidiary in 2014 when the global fintech paid $500 million in cash as well as stock to sendwave.
The team worked secretly on a mobile money product that was free of account fees, instantly accessible and accepted all over the world.
The product was initially piloted in Senegal as Wave, but it was still part of the Sendwave ecosystem. Durbin and his team shifted their attention to Wave after WorldRemit purchased Sendwave.
Durbin spoke to TechCrunch about the opportunity to have a greater impact by building a mobile money service that is better and more affordable than what telcos in sub-Saharan Africa are offering. There weren't any other companies trying to solve this problem than the telcos.
Competing against incumbents
Banks and telecom operators were the first to enter the mobile money market. This is due to the fact that they have a lot of infrastructure, including mobile subscribers using their networks, as well as building the financial services needed to manage money and payments.
These incumbents have been beaten by third-party providers, mainly fintechs. Wave wants to disrupt the market.
TechCrunch's Durbin says that Wave is creating a mobile money service that is extremely affordable, unlike M-Pesa (the mobile payment provider managed by Safaricom) and other products from telecom operators like Orange, Tigo, and Orange.
Dakar-based platform PayPal is similar to PayPal, but with mobile money accounts and not bank accounts. It has an agent network that uses their cash to serve Wave users. Users can withdraw and deposit money free of charge and pay a 1% fee to send money.
Durbin claims that this money is 70% less expensive than telecom-led mobile money. In addition, if there is an issue with a transfer, the refunds are processed immediately, as opposed to incumbents, which can take up to a few days.
Waves technology is also different from mobile money that is based on telecom. Wave's technology is entirely app-based, unlike incumbents who tend to focus on USSD. However, there are also provisions for using applications. Wave offers a QR-card that allows users to transact with agents without a smartphone.
Wave's infrastructure includes a full-stack agent network, consumer and agent applications, QR cards and business collections. Wave also disburses billions of dollars annually.
Two-year-old startup claims it is the biggest mobile money player in Senegal. It also claims that more than half of the country's adult population are active users. Wave hopes to replicate the growth in Ivory Coast which it expanded into last year, putting the number of users at between 4 and 5 million.
This kind of growth pressure is on telecom operators. Orange, the largest telecom operator in both countries, has seen this happen. The telecom operator blocked users from Senegal from purchasing Orange Airtime via Waves Mobile Application in June.
Wave claimed that Orange used anti-competitive tactics to restrict it from selling direct or through an approved wholesaler. Orange claimed it had submitted proposals that were in line with other providers' and that Wave demanded special treatment.
Both parties work with the regulatory authority responsible, Regulatory Authority for Telecommunications and Posts. If the regulator is not able to settle the matter, BCEAO (the regional bank of Francophone nations) will be next in line.
Waves CEO says that Wave was able to defeat the telecom operators because of the banks regulatory approach. Why not start with Senegal? It is an emerging market in West Africa, where mobile money is common.
Senegal is large enough that we would need to put in a lot of effort to win this market. It is also a small market, so if we do well, we can win the market faster than if it were a huge country. Durbin noted that this combination made it seem like a good spot to start.
Wave will increase its presence in Senegal, Ivory Coast, and expand its existing 800-strong product, engineering, business team. Wave will also expand to other markets that it considers regulatory-friendly, such as Uganda.
There are many countries with strong central banks, clear regulations and open players. So we have many licenses in process. We will prioritize those countries that can get started faster than the ones that take longer.
A unicorn after two rounds
Some reports claim Wave raised $13.8 million before this. Durbin, however, declined to comment. He did mention that Partech (a French company with an African fund) invested in a seed round along with other investors such as Stripe and Founders Fund.
Sequoia, Sam Altman and the same group of investors participated in this massive Series A round.
Partech general partner Tidjane Deme says Wave will benefit from the investment in a market that has historically been lacking innovation.
We have supported Wave since 2018, because we believe mobile money in Africa is an unsolved issue, he stated in a statement. Wave is a great company with a stellar product design and execution. It also has a strong financial track record. It is a proud accomplishment to be the first unicorn in Senegal.
Sequoia Capital made its first major deal in Africa by investing in Egyptian fintech Telda in May. Wave, however, will be made via Sequoia Heritage, which is its first investment in an Africa-focused startup.
Altman spoke with TechCrunch to say that Wave met all the criteria he looks for in an investment firm founders. This is an important issue in large markets, a working product and traction.
These founders have been my friends for many years. I believe they are amazing. He said that I was impressed by their ability to understand the needs of users and to help them grow. The company seems to be solving the biggest problem in Africa regarding money transfer and repairing inefficient agent networks.
OPays latest $400 million fundraise in 2016 and Jumias' equivalent in 2016, are the largest venture rounds in Africa. Both were Series C rounds. Next came Interswitch's $200 million Visa investment and Flutterwaves $170 Million Series C.
After their respective rounds, all these companies were granted unicorn status. Wave is also a unicorn, but Wave's Series A round was more impressive than expected. It transcends the region and is the largest A-round globally this year.
Wave joins OPay, Flutterwave and Interswitch as the new unicorns in Africa. These startups are valued at more than $1 billion. Publicly traded Jumia, an Egyptian fintech Fawry, are two other billion-dollar businesses.
Africa is experiencing an inflection point as funding rounds for Africa continue to grow. Wave is not the only one who has questioned the valuations.
Wave's high valuation could be explained by the fact that Airtel and MTN are both looking to list their mobile money business between $2 and $6 billion, despite having been in operation for many years in multiple African countries.
Altman, like all investors optimistic about portfolio companies, doesn't think Wave is overvalued. Altman believes that Wave is actually undervalued.
There is a lot of opportunity for the company. However, there have been many times when I've made mistakes, so you never know. He said that Wave is a great investment opportunity. I have had the fortune to make many great investments. Many companies will see Africa as the most important and fastest-growing market in the coming decades. People are starting to realize the potential market and the value that can be created. I expect more of these things to happen.
