Nigerian fintech, Brass now has new owners after a group of investors led by Paystack completed an acquisition that had reportedly been in the works for months.
An acquisition is often a chance to celebrate, but in this case, there's a sense that all isn't well.
Barely two months ago, the startup was in the news for failing to provide customers with access to their deposits.
Its business banking product was designed to ease the stress faced by small business owners in Nigeria, but it ultimately did the exact opposite, leaving employers unable to pay salaries and small businesses struggling to purchase supplies.
Disrupting traditional banking
Small businesses are the lifeblood of the Nigerian economy, but accessing financial services is an arduous for many of them. In 2020, Sola Akindolu, teamed up with Emmanuel Okeke to provide small businesses in Nigeria with a current account.
That year, it raised an undisclosed sum from investors before raising $1.7 million in a seed round a year later. Things seemed to be going well — it onboarded roughly 5,000 businesses including other startups — until October 2023, when customers began reporting difficulties accessing deposits.
CEO Sola Akindolu blamed the delays on the startup's inability to raise funding, adding that only 80 of the 5,000 businesses it served were affected.
"You can say you want to disrupt banks; if you raise $1-2 million, you must raise $5-10 million in a few years. If it is overdue and you have not, things will get tricky. You need access to ridiculous capital," he shared in an interview.
Akindolu's explanation is not uncommon, with a lack of funding being the favoured explanation for struggling startups in the last two years, but it does not fly given its business model.
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As a deposit taking institution, Brass had more wiggle room than most startups as customer deposits provided it with operating capital similar to the structure used by commercial banks.
That it failed to provide customer deposits when required leaves a huge question mark on its operations.
An acquisition to celebrate or not?
News of the acquisition has largely been met with a positive reception in most parts, but as the dust settles, it's only right that we explore whether this was a ploy to save investor funds or a strategic acquisition.
For Paystack and PiggyVest, acquiring a business banking startup may be a great move that complements existing services.
While Paystack's payment tools are used by more than 200,000 businesses across Africa, PiggyVest offers payment services through Patronize and Pocket App. A natural move post-acquisition would be to funnel users on all three platforms into Brass in the same way PiggyVest tried to get its users on Abeg.
But this ignores an important detail, namely an alleged ₦2 billion debt unaccounted for at Brass. So its new owners are starting life with a massive debt. That's surely going to be a concern for any business, regardless of how successful you are.
But moving on to other members of the consortium. Ventures Platform, Olumide Soyombo and Oo Nwoye are either investors or advisors in Paystack, PiggyVest or Brass. P1 Ventures is the odd one out although it has co-invested with Ventures Platform.
Why would investors elect to save a struggling startup?
One reason would be the current funding climate. Raising money is harder not just for startups but also for venture capitalists. VCs are now getting more scrutiny from LPs as other asset classes become more attractive hence it's only natural that investors try to save a portfolio company.
Furthermore, Ventures Platform has some experience in this having played a key role in keeping Thrive Agric afloat in 2020. Back then, the agritech startup failed to meet user repayments (sounds familiar?) and its investors stepped in to save the day.
Ventures Platform led the charge, hiring Adia Sowho as interim CEO with support from Thrive Agric's founders. But another detail from that episode stands out; in Thrive Agric's case, investors opted for fresh leadership to steady the ship while the founders remained in the company. In Brass' case, both co-founders will leave the startup. It's unclear whether they were sacked or asked to leave, but that's worth noting.
While the acquisition ensures that Brass continues to operate, thereby maintaining service continuity for its customers, it also brings challenges. Trust needs to be rebuilt. Hopefully, that's an easy task given the size of its operations and the reputations of its new owners. More importantly, it's another cautionary tale about the importance of financial diligence and ethical leadership in Nigeria's startup scene.
