Outliers #013

Entrepreneurs out of necessity

Introducing our first guest contributor to Outliers, Caleb Maru looks at the need for fintech in Africa, where entrepreneurs are born of necessity instead of opportunity.

Plus, what Virat Kohli's recent innings did to the Indian payments network and why 7% is the target growth rate for the world's least developed nations.  

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The most interesting global Seed to Series A deals from outside the US this week:

  1. Celestia - US$55m - Vaduz, Lithuania - Blockchain
    Led by Bain Capital Crypto, Celestia is developed the “modular” blockchain network, a more scalable iteration of the incumbent “monolithic” blockchain.
  2. Skuad - US$15m - Singapore - HR
    With 350 employers on their books globally, Skuad builds HR solutions for a multi-country workforce including international payroll and remote onboarding.
  3. Feel - £10m - London, UK - D2C Wellness
    Working in the wellness space, Feel has over 21,000 subscribers to its D2C vitamin brand.
  4. Velotix - US$10m - Tel Aviv, Israel - Cybersecurity
    Velotix automates permission to access secure corporate data allowing information to be approved and shared within minutes, not weeks.
  5. Qantev - €10m - Paris, France - Insurance
    Building an AI software for health insurers to help automate and add efficiency to operations like triaging and simple claims.

A VC's Insight

Entrepreneurship out of necessity

We invite our first guest contributor to Outliers, Caleb Maru. Caleb spends his days working at edtech EntryLevel, and his evenings contributing to the African startup scene. With a weekly newsletter of his own on African innovation (Sign up to Proximity Ventures here), and an angel portfolio filled with African startups, he has valuable thoughts to share on the way the continent is trending and developing. Here’s his piece on fintech’s role in serving Africa’s ‘necessity entrepreneurs’.

Last week I went out for brunch with my team at EntryLevel and realised something...

Source: CityGlobe Tour

Just about everyone on the team had a side hustle. And this isn’t just my team.

The data is from the US but Zapier found that almost 40% of people in the US have a side hustle. Chances are that you’ve also done freelance work, another job to earn some side income, or your own company. And that work is probably based on your interests, or a skillset that's unique to you - it’s probably opportunistic.

If that’s you, you are what is called an opportunity entrepreneur - someone who starts a business, or uses their skills because they see an opportunity to provide a service or create a product.

Opportunity or Necessity?

While there are many entrepreneurs, not all of them start their businesses out of opportunity. Some entrepreneurs start their businesses out of necessity.

And we see necessity entrepreneurs the most in Africa. Africa has the highest rate of entrepreneurship, with over 22% of Africa’s working age population starting a business. These entrepreneurs are the backbone of Africa’s economy - with over 100 million registered SMEs (and many more operating informally). These SMEs make up 90% of the private sector and 80% of jobs on the continent.

So, why are there so many entrepreneurs in Africa? It’s a long answer (and I go into it in detail here), but the TLDR: There are simply not enough jobs on the continent.

When half of the working population can’t find a job but need to put food on the table, they start a business. And this is why most of Africa’s businesses exist. We call these entrepreneurs necessity entrepreneurs. Necessity entrepreneurs can range from mothers selling fruit and vegetable at the local market to Masters’ graduates who can't land a job after their degree in university.

The World Bank Group finds that these entrepreneurs are strongly negatively correlated with the amount of GDP per capita. So, the poorer the country, the higher the likelihood that you will find necessity entrepreneurial activity. And for these guys and girls, it’s not a fun side hustle - it’s food on the table or not.

Necessity entrepreneurs need money

Now, when starting your opportunistic venture, there are a few common problems you run into.

Sometimes, you might find it hard to grow brand awareness and find your next set of customers. Other times, you need some capital to get started which you draw that out of your own salary. And times, its coming up with the right name for your side hustle. No joke - I still need to rename my newsletter 😂

But being a necessity entrepreneur in Africa, the biggest challenge to surviving is access to capital, which 64% of African business owners claim is their biggest issue. And these folk don't have a ‘main hustle’ to draw from.

To make things trickier, a large percentage of Africa’s population are unidentified and unbanked. This makes basic things (like owning a business account and getting documentation) very difficult - shutting most of these businesses out of banking, let alone capital.

Laughing (or crying?) at the bank

For an SME to get a bank loan, they need to:

This flow has a ‘narrow view’ of business and credit history, relies on human judgement and takes a up to three months to process. If the business needed that capital to survive, they’re probably not around by the time their application has been processed.

According to PwC, less than 5% of businesses in Africa have ever been able to access loans from registered financial institutions. Common alternatives are friends and family (if you’re lucky), or loansharks (if you’re not so lucky). So it’s no surprise that Africa has the highest proportion of SMEs that fail from lack of financing.

The International Finance Corporation finds that 28% of SMEs are fully constrained, and a further 25% are partially constrained by lack of financing.

This funding gap for SMEs in Africa is estimate to be a whopping $331 billion. Ripe for disruption.

In come the fintechs

Over the last few years, we have seen the wave of fintechs coming through to solve financial inclusion problems for African consumers.

Business lending is no exception. One company that the TEN13 family is familiar with is Payhippo. I chatted to Zach, CEO of Payhippo, about their approach to SME financing.

Instead of the bank’s ‘narrow view’ of business lending, fintechs like Payhippo build a credit score for companies themselves. Payhippo builds its users a credit score from scratch by using bank statement data. They use this to size a business, and create an internal score that lets them determine how likely a businesses is to repay - essentially creating their own credit score.

And by creating their own credit score, they turn the average three month wait time for a loan into three hours - drastically changing outcomes for SMEs.

Payhippo finds that most of their loans are going to people under the age of 35, most of whom are selling on mobile commerce.

Mobile commerce is a massively growing space in Africa, but financing to buy inventory is hard to come by and risky for first time business owners.

That’s why rapid loan approval can be a case of life and death for business owners’ companies. When you replace human judgement with technology, you can do this at scale and make accurate judgements while financing many SMEs who don’t have access to capital.

Chioma Ruby Okotcha, co-founder and COO of Payhippo recounts how her mother and grandmother’s business struggled to grow because lack of financing. Realising this was a problem for most small businesses, she set out to solve the problem and help SMEs in Nigeria thrive.

From Necessity to Thriving

Helping SMEs in Africa access capital is crucial for Africa’s economy to grow. That’s why fintechs solving the capital access problem are exciting for the longterm growth on the continent. In African tech there’s a saying ‘there are no dog walking apps in Africa.’

Startups that thrive on the continent don't serve conveniences, they solve Africa’s hardest problems and provide core needs and services.

Do you know any other startups using tech to make an impact in Africa? Let me know on Twitter.

If you liked this, check out Prox Weekly for your 5 minute rundown on Africa’s tech scene each week in your inbox.


It’s not the most rigorous piece of economic research but I had to include this graph doing the rounds on Twitter. Sometimes you have to stop and let your jaw drop.

Indian online shopping was surging during Diwali…until the cricket started. United Payments Interface (UPI) is India’s instant payment system. During Pakistan’s innings volumes dropped ~7.5% from their usual rate. As Virat Kohli scored 82* to guide India to a last over victory, UPI volume plummeted to 22% below the average before the country started spending again.

Now, bringing it back to the themes of this newsletter. UPI was introduced in 2016 by the Reserve Bank of India. Just last September, the network completed 6.8 trillion transactions. For reference, in 2021 Visa averaged 13.6 trillion transactions globally per month (Mastercard at ~2.5 trillion per month). Early estimates indicate UPI boosted Indian GDP by ~0.5% (which seems low but is ~$16b of added production).

Macro lens

As central banks receive the most attention they have in a decade, the 2-3% GDP growth target has been reiterated time and time again. This is a reasonable figure for the developed world, the goldilocks of progress without overheating the economy.

Well, the UN has found that the ‘least developed nations’ need to grow at 7% to break out and develop into sustainable economies. In fact, it’s one of their Sustainable Development Goals. 46 countries fit into the LDC list. Unfortunately, since the pandemic, no country has been able to exceed the 7% target.

Why 7%? Historically, this has been a magic number of sorts. Countries like China and Vietnam experienced long periods of growth above 7% as they developed; the UN estimates similar levels of growth need to be met. You can read more on the 7% target here.

Your authors this week

Caleb Maru - Our first guest contributor, Caleb runs his own African-focussed venture fund, Proximity Ventures, while acting as Head of Programs at EntryLevel.

Alex Barrat - New to the VC world, joining the TEN13 deal team, Alex spent his early career at VC-funded scale up Stake. As one of the first ten hires, he left the team of 130 almost 5 years later. All pitches welcome. Submit your deck here.