There is no end to the digitalization of small and medium enterprise (SME) operations in the traditional retail sector in Sub-Saharan Africa. In Nigeria alone, this industry, worth more than $200 billion, comprises more than 40 million businesses of various sizes, according to reports.
Traditional retail in the country includes small kiosks and open-air markets selling various products ranging from food and beverages and groceries to personal care products and stationery. B2B digital marketplace startups such as TradeDepot, Sabi, and Omnibiz have raised millions of dollars to help thousands of these businesses buy inventory from manufacturers while providing solutions to track cash flow, payments, and access the capital. Meanwhile, another group of startups provides software and apps to help these retailers with their accounting and sales tracking processes, among other features.
Pastel, a tier-two startup under the radar for more than a year, announces a $5.5 million fundraising round led by pan-African venture capital firm TLcom Capital. Other venture capital firms such as Global Founders Capital (GFC), Golden Palm Investments, DFS Labs, Ulu Ventures, Plug and Play and Soma Cap also participated in the round. The startup raised a $620,000 pre-seed last year from some of its existing investors.
Formerly Sabi Cash, Pastel was founded by Abuzar Royesh, Olamide Oladeji and Izunna Okonkwo, Stanford graduate students who, according to co-founder and Chief Growth Officer (CGO) Okonkwo, in an interview with TechCrunch, shared similar interests. in the creation of solutions for micro and SMEs in emerging markets, particularly in their countries of origin: Afghanistan (Royesh) and Nigeria (Oladeji and Okonkwo).
The company’s flagship product, Sabi (not to be confused with a B2B e-commerce marketplace of the same name), is a digital accounting application that allows small businesses to monitor and manage their transactions and customers, obtain information on their cash flow, issue receipts, and effectively manage customers who are indebted to them.
Nigerian small businesses have gone offline for years, storing critical information and data on the fly, on paper or in ledgers. All of these inefficiencies, besides taking time, lead to errors and affect cash flow and finances, which is why nine out of 10 small businesses in the country die within the first five years. Accounting solutions like Pastel help these businesses digitally streamline processes and save money.
The accounting and customer relationship management that Pastel launched last year has seen more than 100,000 merchant registrations by December 2021, Okonkwo said. The free app currently has over 45,000 active merchant users. Pastel recently added more features for merchants to capture more value in this channel. However, unlike other platforms that bundled multiple features into a single app, Pastel chose a different strategy and made each product standalone: Quick Receipt and Pastel Financing.
“Our thought process was get traction fast by solving pain point of a merchant with a simple and free solution. Jhe the next step was to capture assess. So We have added value capturee features to Sabi application that our customers love. Now we build a lot more“, Okonkwo said of the company’s decision to create three standalone platforms instead of coupling them all into one application. “The way we thought about it is, as opposed to creating one great app than many others fintechs have or are pursuing, we take a more platform approach, meaning any Pastel user can create an account with any of our apps. Owith the same login they can to access everything the other solutions we offer.
The Quick Receipt app provides businesses with easy invoicing and receipting tools and over 60,000 active merchant users. On the other hand, the Swift Money app, which relies on local savings groups called ajo in Nigeria to provide finance to businesses, has been stealthily built over the past three months through Pastel Financing.
Ajo or esusu is a popular financial system in Nigeria where a group of people contribute money at varying intervals to a ruler who stores the money on their behalf. They may have different purposes for engaging in this activity, such as saving for a particular purpose or accessing a large pool of credit.
fast money the app is designed for work with established ajo leaders and their groups. Pastel is not intended to replace these leaders but rather to provide themols to better track the well-being of their groups, as well as provide funding to group members. In in addition to carrying out the formalities for collecting and depositing cash in a [Pastel] Bank account for savings, chef uploads the app to set up profiles for members. OWhen any of the members (who in this case are traders) want to access the loans, the leader asks on the appthe member is evaluated based on their backup history and if solvent, a business loan is disbursed for them.
The leader is then in charge of recovering these one-step loansphone account similar to the way they have always collected savings.
Pastel only recently started generating revenue and does so by charging interest and a small commission on these loans; it also has access to savings to use as working capital for financing loans. The company, which has been around for a year, plans to raise loan capital by January to complete this process, Okonkwo said. “We did not incur any debt now because we have not increased our loan product.”
Lagos-based US-based Pastel is not the only startup operating in this line of business. Over the past 24 months, several startups across West Africa, including Kippa, bumpa (which recently spear a social commerce integration with Meta), OZE and Bamba, have ventured into serving small and medium sized businesses with accounting and credit tools. Although they offer nearly identical features such as accounting management, inventory management and sales tracking, Okonkwo says Pastel’s product-centric approach sets the company apart from the rest.
“As a team, we take a product-driven approach to growth where we iterate after doing massive research on how users are using solutions and what they are asking for,” the co-founder said. The new capital will help Pastel scale up its efforts in this area as it seeks to expand its product offerings and develop more productivity and financial management features and tools around savings, loans and collective payments for small businesses.