Top of mind: Happy Sunday!
Silicon Valley bank’s collapse continues to dominate the news cycle. With more attention on the impact of SVB’s demise on US startups, we’re still uncovering the impact on its client base in Africa.
Let’s get to it.
3 big things
– SVB’s Africa run
– Safaricom is in trouble
– Africa’s AI play
Silicon Valley Bank fails, Africa shakes
The short: Bank failures in the US cause disruptions to Africa’s tech ecosystem.
How SVB collapsed: Silicon Valley Bank’s (SVB) demise was brought on by many factors. But, the one that annoyed finance experts was poor risk management. For example, SVB made big bets on bonds and anticipated the interest rates remaining close to zero.
First domino: Invested about $21 billion through bonds–whose value sharply fell as interest rates rose.
Second domino: SVB’s sectoral client base, which services tech and venture capital firms, came asking for money. Withdrawals outgrew deposits forcing SVB to sell $21 billion worth of securities at a nearly $2 billion loss.
Third domino: News of the loss spooked the market, and word of mouth sent clients on a bank run – accelerating SVB’s collapse as the second largest in US history, with over $200 billion in assets.
Ripples in Africa: The crash devastated companies globally, with Africa feeling the brunt of it. Optimism came by way of US regulators taking over SVB and promising to give depositors access to their money immediately.
What we know: The impact left SVB’s African clients with crater-sized holes in their balance sheets. Former Africa’s most valuable startup Chipper Cash publicly disclosed a $1 million exposure, but we learnt the figure is much closer to $3 million from reliable sources.
Chipper’s relationship with SVB goes far beyond a banking partner. SVB Capital led its first Series C round, which closed at $100 million–then an extension round six months later, led by Sam Bankman-Fried’s pet project FTX, at $150 million – gaining Chipper the coveted unicorn status.
With the recent layoffs at Chipper, FTX blowout and SVB exposure – we’re learning from sources that Chipper is out of money and in the process of raising $20 million at a $600 million valuation, losing its status as a unicorn.
Finance startup, OnePipe, which recently rode headlines for layoffs and a $4.8 million funding deal, had an exposure of $829,000.
For other startups, the pain was operational. Payments startup Waza (YC 23) processes payments through Circle, which disclosed a $3.3 billion exposure at SVB. Waza did not have direct exposure at SVB, but through its affiliation with Circle, 10-20% of $2.3M payments processed by Waza were held in limbo.
Final thoughts: Multiple sources have disclosed that some startups haven’t gotten access to their funds, despite SVB’s takeover by US regulators. But, it’s in play.
It’s been a tough year for African startups. But, hopefully, there’s a light at the end of this very dark tunnel.
Safaricom’s $2.4 billion lawsuit
The short: Safaricom faces a $2.4 billion lawsuit in Kenya.
The suit: East Africa’s largest telecommunications company, Safaricom, is being sued for Ksh305 billion ($2.4 billion). The class-action lawsuit filed by three M-Pesa users states that while it is not recognised as a bank, Safaricom uses its clients’ money without permission to engage in profitable financial lending activities, breaking Kenya’s banking act.
A shadow epidemic: The prevalence of SIM swapping, SIM splitting, and SIM hijacking is skyrocketing. The fraudsters sweep the internet for personal details and then use that information to trick a service provider into giving them access to the SIM information.
The fraudsters gain access to user accounts and clear out funds. SIM swapping is a global problem, with several millions of dollars stolen every year. Jack Dorsey and other public figures have been victims.
Although SIM swapping is a global problem, Safaricom is under fire for not protecting M-Pesa users.
Final thoughts: Safaricom’s battles are far from over. This isn’t the first time their users have sued them. However, with Safaricom’s new attention on Ethiopia’s market, the company might opt for arbitration to escape a drawn-out class-action suit.
Africa’s AI play
The short: Africa’s AI revolution is on the way.
Why it’s important: While AI is the latest star of the show, arguably the most critical part of it is machine learning.
Use cases: Some African startups have adopted AI to drive parts of their businesses.
- Nigerian fintech Kuda Bank launched a chatbot feature that lets users transact via messaging platforms and offers real-time information on account balances and other services.
- South African fintech company Zande Africa uses AI to process business loans faster.
- South African company Aerobotics uses AI to help farmers improve their yield.
- Egypt-based AI startup Synapse builds algorithms for industries like finance and logistics.
- Kenyan startup Alfuence created AI-powered campaign management and influencer marketing platform.
Government support: For Africa’s AI dreams to become a reality, the government must get on board. The 2022 State of AI in Africa report says over 2,4000 companies on the continent list AI as a speciality.
Mauritius and Egypt are the only countries with official national AI strategies. In Nigeria, AI is still a pillar of emerging technology. South Africa, Kenya, Botswana, Tunisia, Morocco, Ghana, and Ethiopia are setting up policies for AI development and regulation.
Final thoughts: It is great to see African countries adopt AI and take the necessary steps to help fuel its boom on the continent.
Thanks for reading! We’d love to hear your thoughts about this week’s issue.
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See you next Sunday!