Risevest + Chaka fall in love
What's behind the latest TechBromance?
These day I spend most of my conversations thinking about how I can plug one of my articles and get two new subscribers in the week. It’s not easy writing so I will do everything I can to build followers and enjoy this vanity metric. And just when things are looking hard, see what God has done for me. Risevest acquires Chaka in a friendly deal but do it hush hush like in terms of deal disclosure. Now, I promise you, this is not a way for me to plug this brilliant essay where I write about the lack of transparency in African exits. So you don’t necessarily have to read it despite its brilliant arguments; today’s article stands on its own two strong legs.
I will however use this to emphasize the insightful points on the 5th September 2023 artistically titled “A story about African exits; and why we should not be ashamed to cry.”
Wow - makes you almost want to just click this link to make sure you get full value for the price to read this article. Any way….initial reporting of the latest merger in town has left me frustrated. I know this is a hot (and I hope developing story) but let’s talk about why we need more.
The Transaction
For those in the Nigerian system that are living under a bus, there was a friendly acquisition last night in the fintech space between two players in the brokerage space. Risevest, a B2C company that provides retail consumer access to foreign stocks and alternative investments swooped in quickly to acquire Chaka, a company that provided both B2C services but predominantly infrastructure for businesses to invest in local & foreign stocks.
I would have said this was a ninja-like stealth move except that where ninjas operate, death and destruction abound. Per the Techcabal article, however, this was a beautiful meeting of the minds that just worked seamlessly.
“Informal talks began in March 2023; Tosin and Eke shared that they got along quickly and joked about how they could have been cofounders in a different life.”
You can almost imagine Tosin & Eke tickling themselves and promising to be best friends for life! Maybe the deal was a match made in heaven but I need more from this story and I don’t believe I am alone.
Let me stress this is not throwing shade on the authors; the news is still hot off the press and I believe more will be published 🤞🏾🤞🏾🤞🏾and I know one of the authors is brilliant. Her name, Ngozi Chukwu, shows she is one of God’s favored and every Ngozi I have met is sharp (ht to Ngozi Okonjo Iweala). Did you know that in Igbo Chukwu means God and Ngozi means blessing? When you meet an Ngozi you know you are standing before greatness.
But my dear sister Ngozi, you and your co-author (Olumuyiwa Olowogboyega who was probably getting pissed at me until I just mentioned his name) need to sharpen your pencils and resubmit your homework; there are just too many unanswered questions that will help so many stakeholders.
Questions
Prima facie (impressed? I told you Ngozis are brilliant) this is a transaction between two companies in the fintech space who democratized access to foreign stocks. There will be synergies from overlapping roles, marketing to the same customer and and in an economic downturn a merger makes sense. So kudos to both companies right?
I reject this analysis or narrative. It's not me being prickly that nobody sent me an sms with the valuation or terms of the deal. (I do want that so slide into my DMs) Rather I suspect that there's probably a lot more going on that has not been reported. It is important that we learn as much now because it can help drive a wide array of decisions in the next few month.
My hypothesis is that this wasn’t an apples to apples acquisition but a merger of companies with different strategies. Risevest had a Business to Consumer (B2C) strategy whilst Chaka was increasingly Business to Business (B2B). Risevest had alternative assets like Real Estate whilst Chaka had plain vanilla stocks.
That is my primary starting position but I could be wrong. Shoot me. But either way there are a few obvious questions that I would like answered:
Was this merger done because both parties were crying for weeks at the Naira devaluation that caused reduced demand for foreign stocks? Or was only one company crying for help and a deal was struck?
Did Risevest have a better strategy than Chaka - are fixed income and alternative assets the way to go? Or was it because Risevest had direct exposure to dollar assets and is not printing money like Nigerian banks?
Did Risevest just acquire Chaka because of its beautiful name (so soulful) and simple domain chaka.com? The name almost belongs in a Lion King movie
Has the rapid devaluation of Naira and decrease in purchasing power made one strategy more effective or caused a deterioration in some key fundamentals?
I believe like many others, Chaka uses Drivewealth to access foreign markets; do Risevest use the same service or where they able to cut out the middlewoman. Or do they use Drivewealth as well but negotiated better rates?
What are the differences in operational cost structure or process efficiencies between the two?
Are Tosin & Eke two founders with companies doing well who have reached the rare but mature conclusion that 1+1 = 3 and so they merged to maximise value?
Per a Premium Times article, Risevest had a turnoverof N1.97billion in the first 4 months of 2019 whilst Chaka recorded N9.26billion between January 2019 and April 2021. Is this data accurate? Is it relevant in analyzing the merger?
Where there any sticky points in the 6 months of merger discussions that might provide insights to negotiations between other startups? Fam, believe that serious talks and prayers are taking place in this market.
So many questions and we the people demand answers.
If you are are Trove, Hisa or Bamboo you want to know whether your strategy is on point.
If you are interviewing at Trove & Bamboo you want to know whether they are executing towards a land of milk & honey or a place where there is weeping and gnashing of teeth.
If you are an investor that has based an investment on a particular strategy, you want to know whether you have unwittingly set fire to your capital and need to start applying for jobs in your old banking firm.
Let’s see whether Chaka investors like Microtraction, GoldenPalm and Future Africa start buying Teslas for their partners. Of if you see the Lords & Ladies of the Houses of Techstars and Ventures Platform grinning maniacally you will know Risevest has maybe executed a wonderful deal.
Where the Risevest team / investors better negotiators or brilliant at playing chicken?
An invitation to our journalists/analysts
I think this would be a great case study for any business school, a fascinating read. Let's get investors on tape, let’s do some back of the envelope calculations to dimension the market; let’s bribe motivate current employees at these companies to give us soft clues.
Let us elevate the analysis and consequently the discussion.
In all this I should stress that neither Tosin & Eke should be compelled to reveal the structure of the deal; it is not by force. But I hope that those who inhabit the 4th Estate will dig deeper. We don’t want this narrative of two founders met and they liked each other. One said, “Will you be my best friend?”. “Yes I will,” the other replied. “Will you be my best friend?” “Yes.”
And then they lived happily ever after
Ngozi, my brilliant sister (and of course Olumuyiwa) I pass the baton on to you. Don't fall our hand.
Good luck.
Following your newsletters from Sept 5th on exits and the reasons why they're not disclosed, then associating with your latest. I
might be reductive and my conclusion would be based on deduction and available public data but here's my premise, if the deal was good enough considering the performance of Chaka and a possible valuation that could stand around $5m(they raised $1.5m pre-seed, during the global funding mania in 2021, especially for fintechs in Nigeria). A range of $5m to $7m was typically the post money valuation you saw with that sort of amount raised(so we are choosing the minimum for ease of my explanation). If we are to use app downloads to measure market share, risevest and Chaka sit approximately the same and data out there suggests Chaka has raised far much more than Risevest (still positing on available public data, risevest raised approximately $300k in funding so far). So finally we get to my take on this, I believe Chaka was struggling, business slowed down because they got caught up with the CBN over licensing issues, Chaka, bamboo, trove, risevest were victims and had their accounts frozen for 2 years since 2021 3rd quarter. Bamboo and Risevest still conducted business as usual but I believe trove and Chaka took a hit. The merger is likely cash and stock ( a possible 20 to 80% in that regard), I doubt risevest has the financial power to acquire 100% and if they did then Chaka must have heavily discounted it's valuation and perhaps wasn't even bought at a premium like normal acquisitions tend to be. Overall acquisitions and mergers on the continent are mostly lifelines being thrown to safeguard assets, and the overall trickle down effect of one business or the other closing. I believe this is the rise of Micro Mergers and Acquisitions (integrating companies together to save their value and validate the acquirers own value too for investors but also founder friends bailing each other out too for one reason or the other). We likely would never truly get public data because if the deal is good, investors would push founders to announce or even do so themselves so it's likely shame above anything else, the underreported news on exits by founders. When you talk with founders their path to exits tend to be acquisitions by foreign tech companies or an IPO, I doubt a large number of them envisioned merging with their peers, and as for value in the wealth investment space. The margins are small and bamboo and piggyvest are behemoths, everyone else is just playing catch up, so what's the likelihood risevest has cash lying around to make a purchase just because of chaka's license and users here in Nigerja and not as a means to expand cross-border to other regions of Africa (as some media outlets are implying). It's too bullish a reason to acquire or merge, and it's fishy in my opinion.