Vella: Why we invested

Carbon & Vella sitting in a tree, K-I-S-S-I-N-G.

Yesterday, the fourteenth day of February and Valentine’s Day no less, we at Carbon announced our undying love for a fine young startup called Vella.  We went down on bended knee - and they said yes. 🥰 🥳 🎉

Over the last 12 hours, I have been asked many questions about our romance: Who romanced whom? Who paid for dinner? How much did they pay? Did you sign a pre-nuptial agreement? Who is managing the finances? Will you have children?

You know how friends, family & everybody can be so nosy.  

So, I have taken it upon myself to share more about why we invested, the transaction details, the investment hypothesis, and perhaps some third-order consequences that will ricochet throughout the fintech space. Here goes.

Fundamentally, our decision to invest in any company is driven by three core factors: the market, the team, and the team’s unique insight. Using this three-pronged investment framework, the investment rationale unfolded as follows. Our relationship with Vella started in 2021 when I met the CEO, Mark Afolabi, in an amala joint in Akure.  What was supposed to be a 30min discussion about using their platform stretched into a 2+hour long discussion on the future of fintech that was only brought to a close by Mark insisting on having the last amala.

The rationa….

Sorry guys, I can’t do this.

I have always wanted to write one of these “Why we Invested” pieces that I see the Silicon Valley crowd pushing out every now and then.  And whilst  I am writing this from Palo Alto but metaphorically, I am a long way spiritually and mentally.  Any doubt was removed when I looked around my desk; I saw a finished bowl of 2 packs of ramen noodles, a pair of ashy legs below my desk, and my reflection in my tattered iPad asking, “Who are you kidding?” Ok let’s be real 😀

It is true that the majority of the questions have been less about the rationale behind the deal and more about the structure of the deal.  “Was there cash involved? What were the valuation of the two companies.   (share swap) and the valuation.  Especially valuation.  No questions on what we think the Fantastic Four - Gabriel, Mark, Segun & Tolu - bring to the table, why the timing for the deal makes sense, and why we are so confident of gaining customer traction with SMEs given the competing services.

It really struck me how, nowadays, there is so much focus on valuation and less on value provided to customers.  Hence the proliferation of free this, free that. It felt like the main goal of the questions was a desire to confirm if the Vella founders would be ordering new Toyota Landcruisers post the deal, and moving to Canada.

I can categorically tell you that the Vella founders, like myself and Chijioke, will continue to eat ramen noodles with no salt because of the magic we have seen in this economy. The increase in power costs, food prices, fuel, and $$$$$ mean that this is a period of belt-tightening.  I am a big advocate of data but I can’t even put the stats down because I don’t have money for my therapist.  

So why Vella

What if I told you that we saw in Vella a pain reliever. Is it a coincidence that the letters of Vella also make up Aleve, one of the top pain killers in the world? Me I believe in signs o!!!    Who doesn’t need relief in these markets?

But en serio as we say in Imo State, Startup Nigeria has had it bad but not as bad as SME Nigeria.  Business is in a state of shock and in need of support.  Chijioke and I started Carbon because we spotted an opportunity in the consumer space where banks completely ignored the financial needs of individuals.  We're pleased to say that whilst there is still a long way to go, there has been significant progress. The credit bureaus have much better records of consumers' history; the majority of loans are mobile and quickly disbursed, and the legacy banks are lending unsecured. When we started, all bankers we met would tsk-tsk and judge these financially irresponsible customers who needed credit (and apply a few minutes after meeting us), but now they're even referring to their products as payday loans ( unbelievable - pls don’t tell their marketing teams 🤭🤭🤭).  The cost of lending is high, but we are a long way from 2016 when Carbon pioneered digital lending.

It is hard to say the same for SME financing.  Consumers are relatively heterogeneous - they all like indomie noodles, claim higher salaries than they really earn, and will sell their second cousin for a Canadian work permit.  As unique as we like to think we are, it is fairly easy to model consumer behaviour.  SMEs, however, all look very different.  As Leo Tolstoy said last century, “All financed SMEs are alike; each loan-hungry  SME is loan-hungry in its own way.” 

The man had such foresight.

Not surprisingly, SMEs are not getting much love from banks because the risk underwriting required is on another level, which is why most SME lenders do 1 month loans (ahem, not Carbon).  With the risk in the economy much higher, our hypothesis is that it will be even more challenging to get an SME loan as banks do what they do best, which is to reserve all their money for hungry corporations who are looking for billions in financing.  SMEs, however, are the lifeblood of any economy and their success is in everyone’s best interest. 

Cue Carbon & Vella founders dancing skelewu together to meet the challenge.

In Vella, we saw a team that was excellent at execution and product innovation, and their eyes, like ours, were red with hunger and ambition. This is an exciting time for SMEs. At Carbon we are doing some amazing things with artificial intelligence to optimise our operations and reduce costs. Carbon business account holders will benefit from an AI-powered platform as well as an inside view of how we are leveraging AI.  We will help the SMEs reduce their cost of operations by sharing what we are doing - whether it's using AI to improve marketing, reconcile transactions, analyze financial statements, or negotiate with customers using chatbots. AI is a superpower that we are going to share in abundance with all customers that do their banking at Carbon Business.

It promises to be an exciting journey, and we hope you will join our ministry.  We are all excited about the mission of empowering customers and building products that customers love.

We hope you join us.

And finally, to my fellow founders who are wondering whose adulation for Jeff Bezos diminishes each day as they view their AWS bill, now is the time to make new permanent friends.  If you want to go fast, go alone.  If you want to go far go together.  The days of going fast are over.

So turn to your founder neighbor and say, how far?