We saw it coming; yes, “Sabi, a Lagos-based B2B e-commerce startup providing digital commerce infrastructure to Africa’s informal economy, has raised $38 million in Series B funding at a valuation of $300 million”. From local and international investors, one thing is clear: B2B ecommerce is part of the future. I have personally called B2C a hopeless business model until sub-Saharan Africa could fix its postal services.
(Note, Sabi’s market cap now is bigger than Jumia’s $283 million. Jumia runs a B2C ecommerce model which is very challenging due to logistical paralysis)
So, left and right, investors have concluded that the future is B2B ecommerce and that is what everyone is investing in. We expect two companies in this category to hit a valuation of $500 million by August of this year. The class is big with Wasoko, TradeDepot, Alerzo, MaxAB, Chari, Omnibiz, Chari, MarketForce and Jabu. Some are asset-light while some are asset-heavy with their warehouses and logistics infrastructure. Some run hybrid.
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Two companies within Tekedia Capital are growing rapidly using the B2B commerce model. TradeGrid, which is Nigeria’s largest oil & gas marketplace, is hitting huge numbers. Cinderbuild which focuses on construction and building material is also scaling rapidly. These companies work on great models which deliver solid unit economics, guaranteeing the capacity to scale in a sustainable way.
Yes, the investors have decided what they will invest in, and if you are paying attention, here is it: B2B ecommerce which can originate credit transactions and pick cuts on those transactions.
This was an email conversation which I think will deepen this post:
Question: I’m a bit intrigued by your take about Sabi’s fundraising on Tekedia.
Sabi has achieved less than 15 000 downloads of its only app, on. Google Play. It’s not even a micro drop in the water. It has less than 1,000 followers on Instagram (the informal digital
selling tool of choice in Africa). It runs no ads (digital or otherwise) and there isn’t even a signup button on their website, which is completely empty. So I would be keen to understand how SAbi can raise $38m on a $300m valuation…”
My Response: You may be measuring the wrong things for the informal sector. You ought to have seen the 244 employees on LinkedIn. They have hundreds of workers who manage regions in markets. Winning Africa is having a physical presence. Those online metrics mean not much for the informal sector.
Q Response: I had seen them, actually. But then it’s not a tech startup, it’s just a wholesaler with a granular network of representatives…
My Response: If you have that argument, Amazon is not a tech company with more than 1 million workers.
You can also make the same case for Google with thousands of workers in Africa.
Labour is cheap in Africa where you can pay someone $150 per month. You can have that person to coordinate a market for you, putting order to the central system, for all vendors in that market. You can also decide to outsource that to agent networks.
Having an app is great but more than 90% of transactions cannot come from the app. Most of those users do not have confidence in relating with apps when it comes to payments. It is a B2B ecommerce but the most critical part is offline. If you cannot manage the vendors, you have no mission. Investors like such businesses because they cannot be automated out.
Q response: Well, over 40% of Amazon’s profit comes from its AWS unit… and its customers actually use its digital platform.
I take your point about the importance of agent networks to organise informal markets, but that’s not a tech company, and it does not command a tech company valuation…
70% of Nigerians don’t have a bank account, but it’s mandatory to have a bank account in order to use Sabi… So I was a bit puzzled.
My Response: ” Well, over 40% of Amazon’s profit comes from its AWS unit… and its customers actually use its digital platform.”
Possibly, more than 90% of Sabi’s profit will come from its financing, and not from ecommerce margin. In other words, it can buy soap for $10 and asks customers to pay $10.01. But as that happens, it offers credit which will generate higher returns. In the Harvard Business Review, I called that a double play strategy. What makes Sabi great is not ecommerce but the banking credit operation which makes that possible.
“but that’s not a tech company, and it does not command a tech company valuation…” – the ecommerce business is not useful as I have written for Jumia. But the credit business (which remains hidden) is where the gold is. They will not discuss that but if you see their numbers, that is the deal. If you can facilitate $100m and take 5-10% monthly as fees, you have a great business. And you have no default since the goods are the collaterals. If they do not pay, you take what remains and give it to another vendor!
“70% of Nigerians don’t have a bank account, but it’s mandatory to have a bank account in order to use Sabi… So I was a bit puzzled.”
You may not understand what Sabi does. This is a B2B business, not B2C. It does not send to end users. Its vendors are fairly businessmen and women who run operations. In a market, you may have 300 of them even as that market serves 100,000 people. So, these 300 do have bank accounts. You cannot use the general Nigerian population because Sabi focuses on merchants and vendors and not consumers.
In TradeGrid which does a similar thing but for gas stations, it is the same model. We invested in the team and the numbers are doing great, no default or anything because you are financing inventory!
Q Response: Thanks for the very clear explanation!
Hope there’s a framework to use B2B e-commerce to incentivise local production? We have been trading for decades, but how and where the products are sourced received minimal or no attention, making so many things unaffordable.
Technology can help greatly in distribution of goods, but first, we have to manufacture those goods, our purchasing power is becoming utterly embarrassing.
We have to also innovate in the area of abundance, because scarcity cannot be considered a win.
Good point raised. So many businesses rendering services litter the Nigerian business terrain. What we mostly need now are plenty, plenty businesses manufacturing nearly everything from tooth picks to heavy equipment and capital machinery. I love what Dangote is doing. We need many more Dangote’s operating in various industrial sectors across the business landscape.
Deployment of conversational AI into these emerging economies with native language ( since llms are almost all in english) is something we can help with. We are particularly interested to help with health education and climate and so happy to colab with UN initiatives as well.
Sabi has achieved less than 15 000 downloads of its only app, on Google Play. It has less than 1000 followers on Instagram (the digital selling tool of choice in Africa). It runs no ads (digital or otherwise) and there isn’t even a signup button on their website, which is completely empty.
So please explain to me how SAbi can raise $38m on a $300m valuation