Deal focus: Vision Fund throws its weight behind Opay

SoftBank’s first investment in an African start-up via the Vision Fund strategy is a sign that the world’s biggest technology investors are broadening their search for the next potential decacorn. It means more capital and more attention for the continent, according to J.P. Lee (pictured), CEO of SoftBank Ventures Asia (SBVA).

“There will be huge opportunities not just for investors, but also for change in people's lifestyles in Africa. The fact that many countries in Africa skipped landlines and went directly to mobile phones means a lot. There is much less legacy baggage. We can start everything new and people’s willingness to adopt these business models is very high,” he explains.

Lee is well-positioned to comment. As the venture capital arm of SoftBank, SBVA focuses on early-stage investments, typically Series A and B rounds with ticket sizes in the $10-20 million range. While operating independently of Vision Fund, SBVA does introduce its larger sister entity to interesting portfolio companies that are graduating to growth-stage funding.

Nigeria-based payments technology player Opay is a case in point. “We shared our knowledge about the African market, the payments industry, and the amazing growth story of OPay to help them better understand what really matters about the company,” says Lee.

Vision Fund 2 ended up leading a $400 million Series C round, making its African debut. It was joined by SBVA and a slew of Chinese investors, including Sequoia Capital China, DragonBall Capital – an investment arm of online-to-offline services platform Meituan – Redpoint China, Source Code Capital, and 3W Capital.

The round valued Opay at $2 billion – up from $420 million at the Series B – which places the company among Africa’s growing collection of unicorns. E-commerce platform Jumia, founded in 2012, was the first to cross the $1 billion threshold in 2016. Financial technology companies Flutterwave, Interswitch, and Fawry followed suit. Fawry went public in Egypt in 2019.

Several other start-ups have raised sizeable funding rounds, such as payments players Chipper Cash and Gona, logistics platforms MaxAB and Lori Systems, bus-hailing app Swvl, and Spotify clone Boomplay.

Although SBVA is on a learning curve in Africa, Lee claims the firm’s investments are not much different from those in other developing markets. “I thought Opay would be different in some sense, but it's actually not what we thought. A good proof point is that existing investors have returned to back the company, which means it's in the predictable range,” he says. “I think many investors do not see it as any different to when they first entered other less developed markets.”

Opay’s valuation improvement is linked to its business growth. When SBVA first invested in 2019, Opay’s monthly transaction value was around $300 million. It reached $2 billion last December and now exceeds $3 billion.

The company operates a mobile wallet – targeting Nigeria’s massive unbanked population – and facilitates bill payments, cash transfers, offline banking, and access to savings products. It takes an “agent-focused” approach whereby cash transactions are realized via a network of registered agents that numbered 340,000 last December, up from 140,000 a year earlier. These agents effectively serve as a live ATM, in the absence of bank branches and real ATMs.

“Financial infrastructure is crucial in developing the economy and Opay’s digital payment solution was born with the vision to help improve financial inclusiveness in Africa,” says Lee. “We have already seen how it helps people in their daily lives and business activities.”

The company has already expanded into Egypt. It is preparing to enter more African countries as well as the Middle East.

Opay stands out by virtue of its Chinese-heavy investor base, which is explained by the company’s roots. It was incubated in 2017 by Opera, a Norwegian internet services provider controlled by China's Kunlun Technology. Yahui Zhou, the billionaire entrepreneur behind Kunlun who serves as co-CEO of Opera, is also founder of Opay. In June, Opera sold nearly one-third of its 13.1% equity interest in Opay for $31.1 million.

The company’s Chinese heritage has led to it rolling out several successful Chinese technology business models in Africa. These include food delivery, ride-hailing, and bike-sharing services, although the latter two ended last year following a government ban in response to COVID-19.

“These are very important trials since the whole digital payment ecosystem will be more robust when there are more use cases,” Lee notes. However, he adds that Opay studies start-ups globally, not just in China. The SBVA team is contributing its knowledge of the Korea and Japan markets to help the company diversify its business.

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• Topics
• Greater China
• Expansion
• Financials
• Technology
• Africa
• China
• Asia
• SoftBank Ventures Asia
• Softbank
• Growth capital
• Fintech