The story of an African tech exit

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Disrupt Africa reported last week East Africa-based fintech company Beyonic, a digital payments management provider of business services for SMEs, fintechs and social impact entities, had been acquired by Johannesburg-based payments company MFS Africa.

For co-founders Dan Kleinbaum and Luke Kyohere, an eight-year journey has ended, and, as Kleinbaum writes in a post originally published here, there is good reason to feel “victorious”.

Building things is hard. Doing it early, in markets where traditional venture investments hadn’t yet paid off, and being constantly hamstrung by a lack of resources is ludicrously difficult. We took more risks than we intended, made more mistakes than I care to admit, one of our founders (me) quit, and we hit obstacles that felt insurmountable enough we thought we were going to shut the company down just about every year. Coming out of grad school at the University of Texas, Luke and I made a bet that we could create enough value for our customers that we could build a business that is profitable and worth investing in.

We did both.

This article is to tell a bit of a victory story in hopes that it inspires others to build things. In markets where there are no real ad-based revenue models that scale, people end up building things that matter. By their nature, building companies in these markets usually involves creating or hacking together the infrastructure necessary to get anything done. Beyonic was actually founded to help eliminate the need to integrate on a one-off basis with mobile network operators and their mobile money products. Creating infrastructure can be agonisingly slow and very little seems to be under your control. I usually describe the very early stages of startups as puppeteering with a slinky. You try like hell to move things in a general direction that resembles progress, but you have almost no fine control of the situation. As a founder, I know these ups and downs. In a moment when we signed a big customer, it was easy to think “I thrive in chaos”, and in other, darker times, of which there are many, it was easy to think that someone else is infinitely better at my job. Throughout it all, I had no idea what I was doing approximately 90 per cent of the time. Embrace that feeling. And keep going. It’s worth it.

Raising money

The funding environment was particularly challenging when we were getting started. Companies that raised “seed rounds” usually did so via donor funding (and consequently got sidetracked from building scalable products to hit donors’ impact metrics). The only immediate contemporaries in East Africa were Ben Lyon and Dylan Higgins at Kopo Kopo, who raised US$2.6 million in November 2013, shortly after we started Beyonic. Despite their success in fundraising, they did not unleash a massive wave of investment into the East African tech scene. As Luke and I embarked on our journey, we began to question what our strategy should be to raise money. The mythology around raising big funding rounds, where highly visible founders make exaggerated claims about changing the world, was consistently at odds with a slightly more understated approach we were taking with customers and other partners. We took a more scrappy, hands-on approach.

“Capital efficient” is a term that’s been used for us. For me, this meant not taking a salary for several years, constant negotiations with Kampala’s bodas (motorcycle taxis) to save an extra UGX1,000 (US$0.25) on a fare across town, and utilising the incredibly generous hospitality of friends in Kampala and Nairobi in the early days that were willing to put me up in their homes. The going rate in my Nairobi accommodation in 2015 was a bottle of scotch every few weeks — a fair price to be sure. Nearly all my roommates/hosts became Beyonic customers over the years. All of them are still friends. I didn’t deduct the scotch as a business expense.

The last time Beyonic raised capital was in 2016 coming out of TechStars’ Cape Town programme. In total, Beyonic raised less than US$1 million since we started the company and so the focus became on driving transaction volume up, i.e. revenue and profitability. In the early days, I remember distinctly when we hit US$100,000 per month in total volume and felt like we had won an Olympic medal. Those little victories slowly melted together into a roller coaster of ups and downs and felt less consequential. Sometime in 2018, the company hit US$1 million in annual revenue, and then we crossed a taboo line and became profitable. These milestones felt less important, so we gave ourselves a quick pat on the back during a board meeting and went back to fighting whatever fire had to be put out that day.

Despite our growth, our capital efficiency, and a wave of investments into Nigerian, Kenyan and South African companies, we continued to slowly but steadily grow the company without a large external source of capital. We certainly had conversations with investors to test the waters and gather feedback on where we stood as an “investable company”. We consistently found ourselves in a no man’s land of “feeling like an impact organisation” where traditional investors asked “do you want to make money doing this?”. My snarky answer is usually, “no, we want to make a shit tonne of money”, which didn’t really convince anyone. For impact investors, the clear B2B value proposition did not lend itself to a bottom-line impact metric despite our attempts to make a different case. The answer to this conundrum was, and always will be, to get back to work.

In the early days, our customer acquisition costs and the time it took to close new customers were too high, particularly for US investors who have “blitzscaling” and “#growthhack” tattooed somewhere on their body. What I can tell you though is that trust, particularly in fintech, compounds over time in ways that are very easy to undervalue. Customer acquisition becomes driven by word of mouth, it gets easier to integrate with more bank and MNO partners, and all of a sudden the transaction volume starts to increase exponentially without a significant investment in acquiring new customers.

The company continued to grow at a significant rate and we started seriously exploring a growth round late last year and getting some traction. But the funding round ended up taking an unexpected turn – to where we find ourselves today. Two things became clear. The first is that the funding environment in Sub-Saharan Africa is significantly better than it was early on. The second is that the potential of a combined product offering with the right partner, in this case MFS Africa, would be a way to achieve the same kind of scale. Some might call this product-market fit. Either way, the potential to build a bigger company together is closer than it ever has been and I am excited about where this has landed. Getting back to work building and selling products customers want makes all this easier. The team helps too.

The team

Over the course of six years, there were moments when either Luke or I wanted to quit. Luckily, we never got to a point where we both wanted to quit or we never would’ve gotten this far. The Beyonic team is a big part of why we kept going. We have been able to recruit some very talented, hard-working people at Beyonic. I hope that we managed to insulate them from the chaos and uncertainty I felt along the way. Something I’m proud of is that the Beyonic currently has 22 employees and every single one is going to have a role at MFS Africa after the transition.

In a testament to his perseverance, Luke continued to run the company even after I left. Leaving Beyonic was done on relatively amicable terms, although Luke and I have had our differences over the years. It became increasingly clear that scaling the business involved creating processes and streamlining operations in a way that scales – and I am much better at using slinkies. For me, stepping back wasn’t a decision for the company though – I needed to do it to maintain my sanity. Burnout is real. And it can take a toll. After leaving, it took us eight months to find, and bring on, Carina Ru0mberger. We ended up convincing her to run the company, and this is a large part of why we’ve remained successful. She has done a magnificent job the last two years.

The future

Beyonic offers infrastructure for innovators and businesses to build on top of mobile payment networks. Investment in infrastructure by MNOs made it possible for us to succeed. Over the course of the last 8 years, Beyonic has, in turn, been infrastructure to other innovators. Numida, Asaak, Eversend, and Umba are helping individuals and SMEs access financial services. Save the Children, IPA, and other NGOs are streamlining their operations and making more impact, dollar for dollar, than they were before. SafeBoda is one of the contenders to become a superapp, following the Chinese and Indonesia model. Beyonic will continue to build out this infrastructure under the leadership of MFS Africa, and the company will continue to offer cash disbursement and collections tools as well as a streamlined API across MFS Africa’s disbursement network. The companies have a shared vision, and the roots are similar, and together, they will probably achieve some truly great things. If you’re building new tools and want payment capabilities, get a hold of the team.

MFS Africa will also need to keep investing to realise its mission, and they are one of hundreds of companies that are building out viable products and services on the continent that need the right type of investment to keep growing. The next set of innovators are currently out building things. If that’s you, I’d like to keep working with great fintech founders going forward. Email me, and let me know what you are working on. I’m a firm believer more investment should be put into emerging markets, and there’s no better way to do that than by investing myself.

Lastly, I also have an ulterior motive in telling a victory story and that is to provide any founder or investor an answer to the question “but what does your path to an exit look like?”. Beyonic’s investors all made a solid return on investment, and I’m excited to be added into a growing list of exits in Sub-Saharan Africa. There are many more to come.

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Key players from Africa's startup and investment ecosystem post on issues close to their heart for Disrupt Africa.

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