Millions of small businesses globally, especially in emerging markets, have stayed offline for the better part of the past decade. Due to that, most of them still rely on scribbles using pen and paper or ledgers for bookkeeping and storing important information.
In Nigeria, some go to the extent of keeping information offhand. All these inefficiencies, asides from being time-consuming, lead to errors and affects cash flow and finance, which is why almost nine out of 10 small businesses in the country fizzle out in the first five years.
Nigerian startup Kippa, attempting to improve the life cycle of these small businesses with its finance management app, has raised $3.2 million in pre-seed funding.
The startup’s new financing round was led by Berlin-based VC Target Global. Entrée Capital, Alter Global and Rally Cap Ventures are the other participating VCs.
A number of angel investors -- Babs Ogundeyi, Kuda CEO; Sriram Krishnan, an investor in Khatabook; Raffael Johnen, Auxmoney CEO; Chris Bouwer; Kyane Kassiri; Edward Suh of Goodwater Capital; and Sajid Rahman -- invested in the startup.
Kippa works as a simple app where small business owners can keep track of their daily income and expense transactions, create invoices and receipts, manage inventory and generally monitor how their businesses ebb and flow over time.
One of the app’s most important features, according to the company, is that it helps merchants keep track of debtors and send automated reminders to them. The company claims that merchants who use Kippa this way “recover debts 3x faster.”
Most of these features are geared at onboarding a wide range of businesses in Nigeria to the platform; however, the strategy is to introduce credit and other financial services to them.
There is a cultural nuance to this, co-founder and CEO Kennedy Ekezie tells TechCrunch. The majority of transactions carried out by small businesses are cash-based, and more than 30% of sales happen on credit. So, at its core, the biggest problem businesses face is not the absence of bookkeeping or tools but the dearth of working capital or credit.
“For us, what we do is we have such a unique opportunity to provide financial services to users. For most of them, Kippa is the first B2B SaaS app that they’re using,” said the CEO, who started the company with Duke Ekezie and Jephthah Uche.
“And we do have a unique opportunity to help them accept online digital payments, to provide them with working capital, digital savings and plug them into the financial ecosystem.”
Many startups solving various needs of small businesses and startups have launched with bold promises this past year -- all with different approaches; some want to manage bookkeeping, some are keen on connecting small businesses with suppliers, others provide banking and software services.
But in reality, they all converge at one point, which is providing access to credit. CEO Ekezie says while this holds true, Kippa is “choosing to be digitally native, rather than pursue the digitization of analogue processes that previous players have done.” And that sets the company apart, according to the founder.
As Kippa remains free for businesses to use at the moment, the introduction of credit and other financial services will see the company make revenue by taking commission fees or interests off lending or working capital.
The bookkeeping and finance app claims to have grown an average of 126% month-on-month since launching in June. With over 130,000 active businesses, ranging from small kiosks and street corner shops to local food vendors and high-end merchants using the app, Kippa claims to have recorded more than $300 million in the past five months.
For lead investor Target Global, these metrics indicate a strong need for the product in the Nigerian market; consequently, that’s why it invested. According to Lina Chong, the firm’s investment director, “Our investment in Kippa will enable it to grow and be the first-choice financial management solution for small businesses in Africa.”
Ekezie and his co-founders started Kippa in February 2021. Before Kippa, the trio founded Africave, a software talent matching platform in 2019 that shuttered last year.
According to Ekezie, they moved on from Africave after recognizing imminent supply constraints that would put a cap on the company’s growth.
The CEO said the founders sought to solve another problem they felt was perfect for their strengths. After embarking on a founder-market-fit tour and meeting several small business owners across Nigeria to understand their pain points, Kippa was born.
“What we saw was a lot of them operating very manually using the ledgers, spending one hour or more at the end of the day balancing their books, making mistakes, cancelling out, complaining of their records being incomplete,” said Ekezie.
“And we saw a bigger problem -- which is the biggest problem small businesses face -- the lack of access to credit or financing to run properly. So we thought that was an interesting enough problem to solve.”
The team also spoke with founders and some founding team members of similar players in other emerging markets such as India’s Khatabook, Colombia’s Treinta, Indonesia’s BukuWarung and Bukukas to understand how they scaled their businesses.
And though there are some similarities, Ekezie believes he and his team have rewired Kippa to adapt to the needs of businesses in Nigeria. For instance, whereas Khatabook and other players are digitizing bookkeeping processes first before anything else, Kippa is solving broader access to finance problems.
Kippa’s pre-seed round, one of the largest in Nigeria and sub-Saharan Africa, will be invested in growing its merchant base, improving its product, scaling the team, and venturing into financial services.