Q&A: Ignatius Akpabio on TradeDepot’s $110m fundraise and the rise of e-commerce in Africa

2021 has been a remarkable year for venture capital in Africa (well, everywhere, in fact.) Startups in Africa have raised $4.3 billion, more than two and a half times the amount raised in 2020, according to The big deal.

B2B e-commerce company TradeDepot signed one of the last big deals of the year: a $110 million Series B capital and debt funding round that will enable the Nigerian startup to expand business and financial services to small traders on the continent.

TradeDepot debuted in 2016 as one of the few companies in Africa to offer technology services such as inventory management and digital payments to Nigeria’s informal retail businesses, which are mostly run by women. These retailers, most of which are one- or two-person businesses, sell about 80% to 90% of food and consumer goods on the continent. Yet they have always been run as unbanked, cash-based businesses.

That’s changing as companies like TradeDepot work to improve supply chain connections between retailers and fast-moving consumer goods (FMCG) brands. In doing so, these startups gather treasure troves of data on inventory storage and retailer selling patterns, which in turn enables them to create an on-ramp to financial services.

APN spoke to TradeDepot’s Head of Strategy and Expansion, Ignatius Akpabio (IA), about how technology and e-commerce are changing the face of the FMCG and retail sectors in Africa:

NFA: When TradeDepot started, you were one of the few tech startups catering to the informal retail sector. Now there are so many. Why have you, and now so many other entrepreneurs and investors, listened to the digital needs of this business community?

AI: It is important to give a digital identity to the informal trader. Their challenges are pretty obvious: if you approach a store owner and ask them what their biggest headaches are, they’ll tell you “access to product” and “access to adequate funding.” These are two things that we are in the process of solving.

Today you have a lot of investors coming in and you see a lot of competition. Being able to see other players come to market, grow significantly and attract investors has been encouraging. When we started, it was much more difficult to convince investors because there was little or no understanding of the space at that time. It took us a while to get here.

Back then, it was B2C games that drove traction in the logistics or e-commerce space [rather than B2B]. I think the lack of success in this space has made investors worried.

NFA: Explain what TradeDepot does for the micro and small retail sector.

We give our clients a digital identity that allows them to use digital platforms to help their businesses. Our platform offers them products to [better] price and allows them to buy more [inventory] than they otherwise could with their working capital.

We have over 100,000 customers.

We have made a conscious decision to go completely digital and have made all of our incentives exclusively available digitally. For example, we have made the products strictly available digitally but at cheaper prices than elsewhere. It took us a while to get to a point where we were 100% sure that retailers would use smartphones. But customer acquisition is quite simple if you entice a retailer enough to leverage your platform and solve their problems for them.

NFA: Opportunity in micro and small B2B e-commerce is said to be all about data – that collecting data on merchants’ spending and selling patterns is key to creating profitable and impactful products and services for this segment. of activity often overlooked. Tell us how this applies to the evolution of TradeDepot’s business.

In the past, access to financing for retailers was very expensive. A structured credit bureau that could help with credit scoring was non-existent.

We generated transactions for all of these retailers, which we were able to feed into a credit scoring algorithm, and from there we started funding because we had a track record that we could use to find out if the retailer was creditworthy. Being able to scientifically determine who should get credit and at what limits is a game changer here.

Gender is a big part of credit scoring, as we try to give as many women access to finance as possible. Eighty percent of the retailers on our platform are women.

Traditional financing methods do not naturally favor women, and this has been a disadvantage for them in growing their businesses. But we find that they are the least defaulted on the platform, and they have been since we started offering inventory financing. This encouraged us to channel more programs and more in-person “town halls” into women’s education. We also sometimes do incentives aimed at women on the platform.

In our last funding cycle, we were funded by the Women’s Entrepreneurship Funding Initiative of the World Bank. It also allowed us to focus more on women.

NFA: TradeDepot just raised $110 million in debt and equity. You said the plan is to accelerate your inventory financing business, which you offer in the form of “buy now, pay later” financing. Retailers pay after selling their merchandise. Why did you choose this model?

We spent a lot of time trying to figure out Southeast Asia, where to buy now, pay later a [accelerated] over the past two years, and others buy now, pay later consumer services. Some of these learnings have helped us push buy now, pay later in African markets. You don’t give cash loans to retailers, what you offer them is products on credit. You guarantee their stock.

We’ve seen retailers triple their purchase frequency and 2-3 times the value of their purchase orders. Going from a $200 trading business to a $600 trading business is important to them. This also contributed to the growth of our overall gross merchandise value [the amount of merchandise sold].

There is a ripple effect as retailers can buy more. The digitization of retailers means that consumers will have access to more products. This is also the promise made to the manufacturers we work with: that they will put their products on the shelves of retailers and that their customers will be able to buy more of them.

NFA: And are your customers generally reliable in repaying their lines of credit? As you mentioned, these are often customers who are receiving credit and loans for the first time.

Our default rate is low. Bad credit was as low as 0.25%. Efforts to recover loans are not difficult as you need to have traded on the platform for some time and completed a minimum number of trades before you can qualify for credit. This gives us the assurance that you are not going to run away or miss a payment. Most of the time we have some defect, it is for some reason that customers can’t control.

Even if we were able to digitize, you can’t completely remove human interaction. You need it to build lasting business relationships. For example, with our technology, we know when [owners] are in their store and when they are not. We know when someone has been away a lot. Then we have check-ins with those stores every two weeks where we have someone physically visiting the stores and getting regular updates.

Also, with our first iteration of buy now, pay later, we had instances where people didn’t know when it was time to pay back. [The customer interactions] helped us improve the technology a bit so they know when it’s time to pay back.

NFA: What interesting innovations have you seen from your peers and competitors in other markets?

The most mature emerging markets for B2B e-commerce are in Southeast Asia. One takeaway from them is social commerce: leveraging the power of community to provide access to products and buy paid services now and later. We’re keen to replicate this, because once you move from tier 1 cities to tier 2 and 3 areas, the logistics cost is significantly higher; you probably can’t make point-to-point deliveries every day. You have to leverage the power of the communities in those places to get the products to people.

NFA: What are your plans for 2022 with the capital you have raised, and what excites you about the opportunities ahead?

We have operations in Nigeria, South Africa and Ghana. In 2022 there will be expansion into more markets, but we also want to build our capabilities in the markets we are in and expand significantly in South Africa and Ghana.

[In terms of what’s exciting]: knowing that retailers will be better served in the future. The fact that we’re doing it and other players are doing it has got manufacturers thinking about how to take advantage of digital distribution. Many manufacturers are now setting up entire divisions within their companies to determine how products can be made available digitally. As manufacturers begin to take the [small retailer] distribution space more seriously, supply will start to catch up with demand, instead of the supply shortfall we have today.

The fact that retailers will have easy access to products and be able to grow their business is what we are passionate about at TradeDepot. The more parties there are, the more seriously manufacturers will take them and the better the daily life of the average African retailer will be.

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