TradeDepot successfully raises new $110M from IFC, Novastar to extend BNPL service to merchants across Africa
Startups digitizing B2B e-commerce and retail in Africa continue to grab the headlines after the pandemic paved the way for widespread offline retail and commerce disruption.
TradeDepot, a Nigeria– and U.S.-based company that connects consumer goods brands to thousands of retailers and help out with distribution, has raised $110 million in new equity and debt funding round as it looks to bring in more retail stores and expand its buy now, pay later service across the continent.
Though TradeDepot did not comment on the share of equity to debt, data from the company’s SEC filing pegs the equity share at almost $42 million.
The Series B funding is coming almost eighteen months after raising $10 million co-led by Partech Africa and the International Finance Corporation (IFC).
IFC led the round this time while Novastar, Sahel Capital, CDC Group, Endeavor Catalyst and existing investors, Partech and MSA Capital participated. The debt funding was led by Arcadia Funds, a lender that specializes in p2p and marketplace lending and insurance-linked securities.
As part of the round, Wale Ayeni, the head of Africa Venture Capital Investment for the IFC and Brian Odhiambo, the West Africa director of Novastar Ventures, will join TradeDepot’s board.
TradeDepot operates a B2B marketplace that connects small shops, kiosks, retailers with wholesalers of global consumer brands who have access to food, beverages and personal care products. The company owns its warehouses and fleets of drivers to carry out distribution.
Last year, the company had over 40,000 merchants on its platform; now, it is servicing more than 100,000 merchants, according to CEO Onyekachi Izukanne. On the call with the CEO, he also mentioned that TradeDepot grew its GMV by 5x within this period.
In the past five years, TradeDepot’s main work centred around building out the supply chain with technology and onboarding retailers one at a time. The company now provides a full range of products to those onboarded, rolling out digital wallets and financial services, particularly credit or BNPL offerings.
The BNPL offering is embedded within the company’s ShopTopUp platform, where retailers can access a credit line for all consumer goods on the application.
However, just as any B2B e-commerce platform offering BNPL services, TradeDepot does not provide these merchants with cash advances. Instead, it sends the products directly to them while they pay in instalments. The repayment value stands at almost 5% per month.
“Merchants are able to double or triple what they normally buy just because of this access. We think that these embedded financial services will be a key part of this narrative: Supply chain on the one hand, and everything related to financial services to make these businesses work on the other,” said the CEO. “We think they go together. And the last year and a half have been defined by us focusing on bringing more of these embedded finance products to market.”
In 2020 when the five-year-old company announced plans to offer credit, it built scoring models by using equity to finance credit to the retailers off its balance sheets. The company claims its BNPL model has led to a 200% increase in transaction volumes for retail store owners.
It’s on the back of track of lending to these retailers (looking into their purchase history, previous repayment performance and other related data points to predict their creditworthiness) for 18 months that TradeDepot is setting up a debt structure to execute at scale.
A large majority of small and medium-sized businesses in Nigeria and across Africa are offline. These businesses generate $1 trillion in sales annually and contribute $2.6 trillion to the continent’s nominal GDP.
These numbers are catching the eyes of a growing cohort of startups who see opportunity in providing digital infrastructure and financing to a fragmented distribution network across the value chain. And while the jury is still out on whether retailers can effectively use and scale with online methods, prominent players such as Capiter, Sokowatch, Alerzo, MarketForce, Sabi and Omnibiz, keep expanding across major African markets.
“The informal sector is a large and critical part of Africa’s economy, accounting for around 80% of jobs in the region,” said Makhtar Diop, IFC’s Managing Director, in a statement. “We are excited to work with TradeDepot to leverage technology to help small businesses across the continent, particularly the many retailers led by women, access the resources they need to grow and scale.”
TradeDepot’s Series B round is the largest for any B2B e-commerce platform in Africa at the moment, both in equity and debt. The company was one of the earliest players in the space and started out distributing milk to small retailers in Lagos, Nigeria.
Izukanne believes the emergence of new startups targeting the market at various touchpoints, inserting convenience and innovative pricing has made it easier for investors to see the opportunity in offline retail digitization.
“Four or five years ago, if you were having a conversation with an investor, there was a lot of education required to convince them why this was an opportunity and why they should come on board,” said the CEO who founded the company with Michael Ukpong and Ruke Awaritefe.
“I think what we’re seeing is that the market is now awake to that opportunity. You have more parties, especially several serious ones coming in and trying to help build this. There’s a lot of iteration required to figure out the models that work. And more parties that you find hacking at this kind of speeds up innovation within the space, so that’s super useful.
TradeDepot is active across 12 cities in Nigeria, Ghana and South Africa (Accra, Johannesburg and ten cities in Nigeria). Izukanne said with the new funding, TradeDepot will double down activities in these three countries and increase its footprint across Nigeria, trying to capture more of the 5 million SMEs it sees as its target market. The debt financing will support the delivery of the BNPL service to these retailers.