Union54, the first Zambian startup backed by Y Combinator, has gotten another major venture capital firm on its term sheet: Tiger Global.
The company confirmed to TechCrunch that the VC juggernaut led its just-completed $3 million seed round, coming only two months after graduating from Y Combinator’s summer batch.
San Francisco-based venture capital firm Runa Capital, Ace & Company, Todd & Rahul Angel Fund and Vibe VC participated.
The Zambian fintech also received checks from angel investors such as Babs Ogundeyi, the CEO of Nigerian neobank Kuda; Risana Zitha, managing director of Renaissance Capital; and Gbenga Ajayi, former director of SMB Growth at Wise.
Union54 is an API that allows African software companies to issue and manage their debit cards without needing a bank or third-party processor.
Card issuing is a space that is increasingly becoming regionalized, owing to different regulations per geography. And at Zazu, the founders found it difficult and time-consuming to issue cards to its customers. While working on the problem, they identified the skewed incentives when interacting with card issuers. And they launched Union54 not only to solve that problem for themselves but other fintechs.
Since joining Y Combinator, Zazu has been in stealth mode and only went live this month, CEO Mlambo told TechCrunch.
He added that over 50 companies are currently in Union54’s API sandbox environment. They range from digital banks to post-Series A fintechs and “companies founded on the basis of Union54’s availability.”
Four companies are currently live in production and have begun issuing virtual cards to their customers. Mlambo says 30 more could join before the end of the year. For these companies, the average time it takes to start production and begin issuance takes three to nine days, said the CEO.
Its partners include African unicorn Flutterwave and newer companies such as Payday and Plumter (cross-border fintechs) and crypto exchange platform Bitmama.
So what else has changed since the company spoke to TechCrunch in August? “We’ve realized that there’s such a huge potential for companies who want to monetize their existing customer bases. But we didn’t have a firm idea of how we would do that. Now, we do and we are the only company in Africa to would give you [fintechs] the interchange.”
Essentially, here’s how the interchange works — Union54 onboards a fintech company and it uses Union54’s API to issue a single card to an employee. When the employee uses the card to pay for stuff online, perhaps a Netflix subscription or AWS invoice of $30, the fintech earns 1% of that transaction, in this case, $0.30.
While that might look minute, imagine a fintech that uses Union54’s API to issue cards to more than 20,000 customers who use it frequently. That’s where the Zambian startup hopes to create value: to help fintechs earn significant revenue from interchange without doing a lot of the heavy lifting linked with card management.
“Not only are we allowing fintechs to go to market faster than any bank or card issuer could ever dream of doing, but we’re also really showing that our incentives are very much aligned,” said Mlambo. “We only make money when they do and that’s why we’re happy to give a guarantee with that interchange.”
Speaking about the investment for Runa Capital, general partner Andre Bliznyuk said the company is excited to support Union54’s efforts to “supercharge the African fintech ecosystem by enabling their customers to easily launch new card-based products and deliver tangible value to the consumers.”
Tiger Global declined to comment on the investment. Nevertheless, it’s rather interesting that the investment firm is writing its fourth investment in an African fintech startup this year after Flutterwave in March, FairMoney in July and Mono, this month.
But a more impressive fact: Union54 seems to be its first bet outside Nigeria or South Africa, two of Africa’s four most dominant tech ecosystems, including Kenya and Egypt. Tiger Global had invested in Nigerian startups Jobberman, Cheki and Wakanow, and South African e-commerce company Takealot this past decade.
A far cry from Nigeria and South Africa’s bubbling tech ecosystem, Zambia has a relatively quiet startup and venture capital scene; therefore, Tiger Global’s participation in Union54’s seed round is a massive win for the southern African nation.
In retrospect, though, Mlambo and Martini’s experience as founders of Zazu, where they raised over $2 million as one of Zambia’s most funded startups, cannot be written off as a contributor to Union54’s seeming success.
Mlambo stated that when the company was raising this round, it prioritized speed and looked for a global partner due to the limitations imposed by its primary location in Zambia. And Tiger Global wasted no time proving it was the investor Union54 wanted.
“The discussion with Tiger was pretty straightforward; they committed pretty quickly and the process was pretty smooth,” the CEO remarked.
With Union54, the founders are taking on a pan-African problem, not a Zambian one. Consequently, the task ahead is in multiples, but so is the reward. For instance, Mlambo claims that Union54, in less than a month of operation, currently transacts more than Zazu’s volume after its first 10 months.
Mlambo touts Zambia as a solid place to carry out business. However, he says it’s been challenging to convince people to move to Zambia for work, so Union54 has had to rely on remote work (which is the norm now) for most of its startup life. It currently has a lean team of 10 located in Nigeria, Malawi, South Africa, Zambia, and Europe.
Union54 plans to use this investment to ramp up recruitment across engineering, product, marketing, and sales teams. The Zambian company will also use the funds to expand its regional customer base.
“The purpose of this funding is to help us find the best of African talent, people who want to work on big problems. The investment helps us to be able to go to them and say, ‘hey, we’re a well-funded company, we’ve got customers using us, we’re earning revenue and this is going to be one of the most important companies to come out of Africa.’”
But conclusively, the goal, Mlambo said, is to place the company in a stronger position to raise an attractive Series A within the next few months.
Source: New feed