In African startupland, there is much talk of the values of corporate-startup partnerships, and rightly so. Yet the benefits of startups collaborating with each other is too often neglected.
One of the reasons for the relative lack of discussion around the topic is the relative lack of activity, or at least evident activity. Corporates announce their accelerators, pilots, investments and sponsorships with great gusto. Most startups are simply getting on with the job of surviving or scaling.
So it was refreshing at the beginning of March to see some fanfare around a partnership between two Nigerian tech startups that should serve to make both companies stronger.
Autochek builds digital solutions that enhance and enable a seamless and safe automotive commerce experience across Africa, while Okra is an API creating a secure portal and process to exchange real-time financial information between customers, applications and banks. The company is Africa’s first API “super-connector”.
The two startups have partnered in order to offer users of the former access to digital car loans facilitated by the latter, a move hailed by both parties as mutually beneficial to each other and extremely valuable to customers.
“Okra’s bank statements retrieval offering is vital to our auto loan product. Okra is trusted by most banks as an authentic source of bank statements,” said Chetan Seth, chief technology officer (CTO) at Autochek.
“Our engagement very quickly moved from a regular vendor-customer interaction to how our products could complement each other and offer maximum value to our customers.”
Okra chief executive officer (CEO) Fara Jituboh said her company had been looking closely at the impact of embedded fintech, and how it could build the necessary tools and services to enable businesses to drive better experiences for consumers.
“The initial conversation with the Autocheck team started mid last year. We were excited about their vision for the automobile industry in Africa. Both teams are mission-driven and worked tirelessly to make sure we were live by the first quarter in 2021, and here we are. We’re even more excited about the compounded impact this partnership will have on the economy in 2030,” she said.
Kenyan logistics platform Amitruck is a fast-growing, funded company that is also seeking out partnerships with other startups in order to help it grow its offering. Amitruck works with Twiga Foods to help it deliver produce across the country, and has partnered with ed-tech company Eneza to offer its partners’ families access to educational material at a much lower rate.
CEO Mark Mwangi said Amitruck is “constantly” looking for partner companies that can extend benefits to the users of our platform.
“We are able to offer interesting products that can have a large impact on our clients and partners without necessarily incurring the expense of setting it up. In each case we look for win-win situations where our partners can benefit our cargo owners or transporters. This in turn benefits the platform because the clients and transporters are happier,” he said.
Nika Naghavi is director of strategic partnerships at the South Africa-based MFS Africa, which operates the largest digital payments hub on the continent. She said a startup’s main goal is to grow and scale to either increase market share, get to profitability, or enter a new market.
“Building in-house arguably has a cost – learning cost, technical cost of building a product, cost of regulation and setting up a company in a new market, cost of building a customer base… These are all barriers and hurdles of doing things in-house, but partnerships will get you there faster. At the end of the day, it’s all about cost-benefit analysis and the speed to market,” Naghavi said.
Establishing startup-startup collaborations
As well-known as the many benefits of partnerships between startups and corporates are the pitfalls that befall these parties when they attempt to establish meaningful collaborations. Putting these working relationships together can be an arduous task with no guarantee of success.
Startup-startup arrangements, however, are quicker to arrange, and in the case of Autocheck and Okra, offered similar benefits. Seth said there were two big reasons for Autochek seeking out the deal – time to market, and coverage of most banks.
“We would have spent at least six months to get the first few banks. On an ongoing basis it saves us the relationship management and technical maintenance overhead,” he said.
“Most startup-corporate collaborations have long gestation periods. On the other hand, startup collaborations are quicker to materialise mostly due to agility and empathy. Startup deals are definitely easier to cook through. Similar cultures, similar challenges and open to knowledge-sharing. The startup community thrives on lessons learnt through failures and success.”
Mwangi agrees that such partnerships are easier to establish.
“Startups are generally willing to try out different ideas to see what could solve a common problem. Also layering on partnerships could work well, a bit like we saw with eBay overlaying PayPal – one got more sales done, the other got more payments through. The fintech space is one of the first areas that we have seen a lot of corporate-startup deals happen, but also startup-startup ones too,” he said.
Naghavi said another key benefit of startup-startup deals was that it was easier to talk to the decision-makers on both sides.
“Less layers are involved in comparison to corporates. Decisions are achieved faster, and if alignment is clear it might be easier to reach a decision,” she said.
There are some challenges, however. While such partnerships can have great potential when they can easily be implemented, most startups have limited resources and do not always have the spare capacity.
“This can greatly limit how much cooperation they do with each other,” Mwangi said. “For example, it might be there needs to be some integration to receive a desired outcome, but one startup’s developers might be working flat out just on developing their core offering, and therefore they pull out. This is why having a larger corporate as a partner can be so empowering as they might be able to provide the resources required.”
Naghavi agrees that capacity can be a challenge, while priorities may not always remain the same on each side of any partnership.
“Startups may change their direction and pivot, which means that though you might get a deal done faster there is a constant need for realignment along the way,” she said.
Fast-track to M&A?
In spite of challenges, more and more startups are seeing the benefits of collaboration. Could the establishment of such partnerships put some businesses on the road to M&A activity? Seth thinks so.
“Absolutely – as long as both startups complement each other’s product offering, mergers could be possible,” he said.
Mwangi strikes a more cautious note.
“Sometimes if there is a common client problem and a complementary offering this could work. But mostly partnerships happen vertically, and not necessarily on the same layer,” he said.
It is already happening to some extent, though usually such deals are painted as acquisitions rather than mergers. According to the African Tech Startups Funding Report 2020 (free download here), last year saw five cases of startups acquiring other startups to consolidate or complement their existing offering and place in the market. There were four such deals in 2019, and another five in 2018, meaning this is less a growing trend than a scenario that keeps repeating. Some key such deals can be seen here, here, here, here, and here (the latter also featuring Autochek).
Jituboh, however, does expect it to turn into a positive trend.
“We definitely expect to see more M&A activity in the coming years as the change in consumer behaviour has caused businesses to prioritise a digital-first experience. This is true for all businesses – small, medium and large,” she said. “The businesses that don’t realise early and move quickly will have to look for strategic partnerships to survive. This should drive activity in the capital markets in Nigeria and across the continent as well.”
Early signs of such activity are welcome, and the fact that African startups have other avenues to turn down than simply seeking corporate partnerships means there is more potential for growth within the ecosystem. Keep an eye out for more such partnerships over the coming years.