FinTech & Blockchain: Commercial Viability to Economic Transformation

We’re happy to present our newsletter at the end of a busy first half of the year with significant developments that have impacted the venture capital (VC) landscape. These include the changing regulatory environment for blockchain / crypto, which has fueled more crypto hubs outside the US, the Generative AI boom, and the recent turbulence in the US banking sector impacting startup funding and resulting in JPMorgan’s acquisition of First Republic Bank, our primary bank. This is amidst a backdrop of a reset in the private markets and VC. Yet, the pace of innovation continues to accelerate and the technologies such as blockchain and AI that are transforming the future of finance have proven their commercial viability and demonstrate real world use cases.

In fact, we see a huge potential towards economic transformation, particularly in financially underserved markets. We are excited to discuss what underlies Unicorn Growth Capital’s fund thesis and why we are bullish about several themes in FinTech & Blockchain in these markets: (i) Africa is the fastest growing FinTech region in the world (ii) Tokenized Real-World Assets provide fresh liquidity, higher yield and increased transparency to credit investors (iii) Regulators are intentional about technology’s promise for economic transformation. Our portfolio companies and upcoming pipeline opportunities capitalize on these themes driving momentum with our fund such as our recent announcement of our investor, Ankh Impact Ventures.

We continue to share our insights on the FinTech & Blockchain opportunity at several conferences. Barbara Iyayi, our Founder & Managing Partner, participated in Milken Institute’s Future of Digital Asset Symposium, Africa FinTech Summit, and Mastercard Start Path in Solidarity showcase. Maria Pienaar, our Operating Partner, also participated in the Emerging Tech & Venture Summit. Given our thesis, Barbara Iyayi was also invited to be part of the selection committee to form the cohort of startups for the 2023 Techstars Web3 Accelerator and Techstars NYC powered by JPMorgan accelerator. We also supported AWS’s first FinTech Africa Accelerator cohort of 25 startups. Lastly, Barbara Iyayi attended the Milken Institute Global Conference, where the Milken–Motsepe Prize in AgriTech announced its $1million grand prize to NovFeed, a biotech company in Tanzania.

We would be happy to engage with you. Feel free to reach out directly.

INDUSTRY INSIGHTS

Africa is the Fastest Growing FinTech Region in the World

BCG & QED’s Reimaging the Future of Finance report projects a $1.5tn global FinTech revenue opportunity by 2030 and Africa as the fastest growing region in the world for FinTech revenue (13x from 2021–2030). Even though funding levels have dropped compared to last year, the fundamentals for FinTech in Africa remain strong — the largest young, mobile and unbanked population, mostly cash-driven transactions and 44m or more underserved MSMEs. There’s white space for founders to solve foundational problems or digitize functional processes in big sectors that aren’t considered sexy e.g., mass transportation, construction, manufacturing, etc. We foresaw this next phase of FinTech growth and established a resilient portfolio of scalable B2B & B2B2X platforms, that have enterprise partnerships, use emerging technologies (AI/Blockchain) and deliver the critical open finance, embedded finance, and decentralized finance infrastructure across verticals. By the way, this resiliency is typical of startups operating in Africa, as in this HBR article. LATAM is another fast-growing region with similar fundamentals and we expect to see more collaborations such as EBANX expanding its operations across Africa.

Tokenized Real-World Assets provide fresh liquidity, higher yield and increased transparency to credit investors

The future of financial services is on the blockchain. By bringing real-world assets (RWAs) such as equity, funds, real estate, debt, invoices, royalties, etc. on the blockchain or converting ownership or fractional shares in these assets into digital tokens (tokenization), it is estimated to be a $16 trillion market or ~10% of global GDP by 2030, according to a recent report by BCG and ADDX. With 1-yr US treasury yields currently up to 5%+, decentralized finance (DeFi) platforms are leveraging tokenized treasuries to offer more attractive and sustainable yields given dwindling crypto prices, resulting in tokenized money market funds market capitalization getting up to $500m this year, according to Coindesk article. In emerging markets, DeFi platforms that provide loans to small businesses to address the large $5 trillion credit gap offer higher yields, while their smart contracts make underwriting, compliance and risk management more efficient and transparent and their use of stablecoins reduce FX risk and lower transaction costs. This blockchain powered approach can be even more transformative for Africa’s economy and private credit as it can make previously illiquid assets (e.g. invoices, inventory or real estate) more tradeable as collateral and unlock global capital in a de-risked manner. RWA-based DeFi appears to be the ideal solution to bridge the gap between traditional finance (TradFi) and DeFi and may be the next killer use case to drive blockchain’s breakthrough. We’ll be sharing more about our investments in this space.

Regulators are intentional about technology’s promise for economic transformation

In the US, a key challenge for the blockchain has been regulatory clarity and thanks to bad actors in the crypto space, most people can’t distinguish between blockchain technology as a utility versus speculation or scams. Andreessen Horowitz’s 2023 State of Crypto report shows that the US is losing its lead in web3 even though there’s increased developer activity. While clear regulations can change this, blockchain investors and corporates are increasingly looking internationally at new crypto hubs being formed such as in Africa. For example, Jack Dorsey’s Block launched TBD to facilitate global payments in Africa with bitcoin and stablecoin rails, through its partnership with Yellow Card, a leading crypto payment platform in Africa. These stablecoin powered rails are the norm for cross-border payments and settlements into Africa.

The Nigerian government poorly implemented its recent cashless policy, which created a cash crunch in the country and saw many failed transactions, demonstrating how existing centralized switches and incumbent apps were not prepared to handle the volume of digital transactions and more innovation is still needed in payments. One of the companies that Barbara Iyayi supported back in 2018 is Zone, the first regulated Layer-1 blockchain network in Nigeria that solves this underlying payment problem for banks and FinTechs with a decentralized payment switch. Nigeria has been intentional about harnessing technology for economic development and recently released a National Blockchain Policy aimed at integrating blockchain technology across the economy, providing regulatory clarity, promoting blockchain education and skill development, and driving more collaboration with Web3 startups. Nigeria’s newly inaugurated President, Bola Tinubu stated “We will reform the policy to encourage the prudent use of blockchain technology in banking and finance, identity management, revenue collection and use of crypto assets. We will establish an advisory committee to review SEC regulation on digital assets creating a more efficient and business-friendly regulatory framework”. Other African governments are adopting blockchain to boost their economy such as Zimbabwe introducing a gold-backed digital currency to be used as legal tender and stabilize its currency.

Generative AI is now the next hot topic for regulators, as we’ve seen with Sam Altman’s U.S. congressional hearing. Sam also visited Nigeria and stated that Nigeria has been the biggest adopter of AI / ChatGPT among all the countries in Africa. We expect to see progressive policies from these markets that our startups can benefit from.

PORTFOLIO UPDATES

Tap’s contactless payment platform is now available on the first railway line in Lagos providing the only digital payment option to its 500,000 expected daily users.

Verto launched “safeguarded” USD accounts following the Silicon Valley Bank debacle, and reported that 25% of Silicon Valley Bank customers operating in Africa opened accounts on its platform.

FonBnk has launched a free and easy-to-use payment link for merchants to get paid in USDC by accepting prepaid airtime from their customers. This helps micro businesses and creators to collect micro payments cost-effectively and on-ramp.

Fonbnk has also partnered with Tanda to launch a first-of-its-kind airtime trading marketplace across Tanda’s network of 40,000 agents.

FonBnk also announced that it raised capital from Adaverse.

Churpy became part of the NYC Founder Fellowship program, and showcased its accounts receivable automation platform to US-based investors.

ThankUCash has launched Access Rewards, in partnership with Access Bank.

Credrails launched its new reconciliation product to help businesses streamline complex transactions.

EVENT HIGHLIGHTS

Barbara Iyayi shared her insights and moderated discussions on the blockchain opportunity in Africa at the following conferences:

• Milken Institute’s Future of Digital Asset Symposium: Venture Capital and Investing in Digital Assets.Moderator: Saif Ishoof (Founder, Lab 22c). Panelists: Adam Mastrelli (Partner, Woodstock US), Colin Jones (Head of Strategic Investments, Horizen Labs) and Alex Simpson (Founder, Get Open Stock)
• Africa FinTech Summit: Blockchain’s World Changing Use Cases Born in Africa. Panelists: Chris Maurice (Co-Founder, Yellow Card), Jalak Jobanputra (Managing Partner, Future Perfect Ventures), Kirill Gertman (Co-Founder, Conduit), Emily C. Chiu (COO, TBD at Block) and Christian Duffus (Co-Founder, Fonbnk)

Barbara Iyayi also shared her insights on being a women-led fund and the FinTech opportunity in underserved markets at the following conferences:

• Mastercard Start Path in Solidarity: State of FinTech. Moderator: Salah Goss (Head of Social Impact, North America Center for Inclusive Growth). Panelists: Abdul Abdirahman (Investor, F-Prime Capital) and Simeon Iheagwam (Managing Partner, Noemis Ventures)
• NASP Women’s Forum: The Business Case for Investing in Women Globally. Moderator: Yeabsira Zewdie (MiDA Advisors). Panelists: Jesmane Boggenpoel (Partner, AIH Capital), Shaina Silva (Founder, SheBuilds Global) and Angela Miller May (CIO, Illinois Municipal Retirement Fund)