Payment start-up lights the way to venture capital

Three years ago, when an unknown company called Yoco started offering a pointof-sale payments platform to small South African businesses, it was just one of numerous payment technology start-ups hoping to make a difference.

This week, it secured R230m in funding from a consortium of investors that spans Silicon Valley, Europe and Africa. That brought its total venture capital injection to R322m. This followed a Series A funding round last year from Quona Capital, a US-Indian firm focused on emerging markets, and Velocity Capital, a Netherlandsbased financial technology investor.

The Series B round brought in Partech, headquartered in Silicon Valley with operations in Europe and Africa, as well as Dutch development bank FMO, France’s Orange Digital Ventures, and SA’s Futuregrowth.

The vast geographical range of investors in itself sent a clear message to South African tech start-ups looking for funding: Silicon Valley and Stellenbosch are not the only games in town.

But there was another clear message that CEO and co-founder Katlego Maphai sent to other start-ups when he announced the funding at Yoco’s store in Parkhurst this week: prove yourself before you go looking for venture capital.

“We knew if we could build real capacity, the capital would come. If we tried to get ahead of ourselves, and raise the funding before we had proved ourselves, we would have been in trouble.”

Not that capital wouldn’t have come in handy. Angel investors allowed it to build a mobile payment terminal for tablets and a small terminal that plugged into a smartphone, allowing sales staff to process payments on a shop floor or flea-market table. An online platform allowed merchants to analyse sales data.

Mercantile Bank gave

Yoco “supermerchant” status, allowing it to act as the payment processor on behalf of any number of small merchants that could not qualify for or afford their own merchant accounts.

Yoco spent two years developing the system, and then trialled it for a year with a few hundred merchants in Cape Town. The groundwork paid off. Now 27,000 businesses use the system, and every month 1,500 new ones sign up — most of which had never been able to accept credit cards before. Total card transaction value has reached R3.5bn a year.

Yoco may also turn out to be a model for disrupting existing financial services: it has lowered the cost of owning a card machine by a factor of seven. The devices can be bought off the shelf, and sign-up takes 10 minutes, turning a lengthy business process into a “consumer-like product purchase”.

Maphai says he believes there is no limit to demand, and suggests that “over

1-million small businesses in SA are ripe for card acceptance”. That scale will only be possible with massive funding. It helps, though, that Yoco knows exactly what it wants to do with the money, from product development to improved user experience to value-added tools.

The ultimate key to its success, however, will be how well it lives up to its philosophy that “commerce should be open to all who wish to contribute and participate”.

Arthur Goldstuck

The message to SA start-ups: Silicon Valley, Stellenbosch are not the only games in town