Startup exit is the dream of many investors and founders and in a place like Nigeria, it does not happen very often given that the startup ecosystem is still at an infant stage and many startups are at the stage where they need as much cash they can gather to survive.
So, when a startup voluntarily offers investors an exit, everyone takes notice.
Kuda Bank, a digital banking platform, has announced plans to offer early investors an ideal opportunity to exit their investment via secondary sale. In other words, Kuda Bank wants to buy out these early-stage investors.
The investors which include SM River, the consortium of angel investors consisting of Raj Kulasingam, Haresh Aswani, Vishal Agarwal, and Alwin Magimay, led a $1.6 million pre-seed round in Kuda Bank in September 2019. At the time the bank had just secured its microfinance bank licence, the first digital banking platform to do so.
There are many reasons this is a big deal. To start with, investors live by exits but not many founders fancy the word unless it translates into an IPO or an acquisition. In other words, there are not too many Kuda Banks out there that would voluntarily offer investors exits.
An exit is said to have taken place when an investor decides to get rid of their stake in a company. If an investor “exits”, then they will either have a profit or a loss. Every investor expects to make a profit but exits do not happen overnight.
READ ALSO: 5 emerging Nigerian fintech products showing huge potential
There have been some exits in the startup ecosystem in Nigeria. The list includes Interswitch acquired by Helios; Paycom acquired by OPay; Amplify acquired by Carbon (former Paylater), and Paystack acquired by Stripe. Many investors also exited when Jumia went IPO and Flutterwave secured $170 million to become a unicorn.
Kuda Bank is arguably the first fintech company to offer its early investors an exit opportunity without first securing an acquisition or going public.
“This is the dream of any angel investor,” Collins Onuegbu, executive vice chairman of Signal Alliance and a director at Lagos Angels Network, said. “Exit provides liquidity to allow the early investors continue with other investment opportunities.”
While angel investors invest mainly in startups at the early stage, their role and relationship are time-bound with any startup.
Kuda Bank’s offer could be a sign the company’s finances are in good health. This would likely look very good on its books particularly when it goes for a series B. After raising $25 million in Series A in March 2021, Kuda Bank took its total funding stash to $36.6 million ($10 million in the largest seed round to be raised in Africa and $1.6 million in pre-seed).
There is no secret about the ambitions of Kuda Bank. In November 2020, Babs Ogundeyi, CEO of the company, said Kuda’s mission is to “bank every African on the planet, wherever you are in the world”. It will take as much money as Kuda Bank can find to achieve such a tall dream. Hence, while the bank is busy sending off its early investors, it is most likely preparing for new investors with deep pockets.
Kuda Bank may also have the numbers to show when the investors come knocking. As of March, the bank said it has 650,000 customers and processed $2.2 billion transactions in February 2021 alone, representing a massive increase from $5.2 million processed in February 2020.
The exit offer may also be part of the expansion plans set in motion by the company when it announced its Series A in March. Apart from eyeing more African countries, Kuda Bank is also planning to add more services on its platform. One of such services is loans with more competitive interest rates. Ogundeyi said its loan services would be based on how much people are spending on the platform.
“We can offer loans to salaried customers instantly as long as their salary is with Kuda,” Ogundeyi said in an interview.
It is also important to note that Kuda may not necessarily be the entity buying out the early investors. It is offering to exit their investment via secondary sale or buyout. A secondary buyout is a financial transaction that involves the sale of a portfolio company – an entity in which a corporation has an investment. The buyer and seller are normally a financial sponsor or a private equity firm. A secondary buyout offers a clean break between the seller and other partner investors.
According to the bank, SM River was the largest investor in Kuda’s pre-seed round, and its stake was bought by other investors.
SM River’s exit and consequent relinquishing of its seat on the company’s board also clears the path for new investors and investments in the company.
