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Stay gold, ‘Plaid for X’ startups

A failed acquisition usually triggers the same series of questions: What does this mean for early-stage startups in the sector? Will a chilling effect occur and hurt valuations? Will VCs stop funding this category? How will the exit environment look going forward?
This week gave that narrative a bullish twist. Visa and Plaid announced that they have reached a mutual agreement to no longer pursue a merger. The $5.3 billion deal had been under antitrust scrutiny from the DOJ, and eventually ended amid these regulatory challenges.
Fintech VCs and startups alike reacted to the fallen deal with aggressive optimism about Plaid’ …

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The end of Plaid-Visa, and Palantir’s growing startup mafia

Hello and welcome back to Equity, TechCrunch’s venture-capital-focused podcast, where we unpack the numbers behind the headlines.
This week we — Natasha and Danny and Alex and Grace — had a lot to get through, as the news volume in early 2021 has been rapid and serious. Sadly this means that some early-stage rounds missed the cut, though we did make sure to have some Series A material in the show.
So, what did the assembled crew get to? Here’s your cheat sheet:

As is Talkspace, the tele-therapy startup that you’ve heard of.
Then there was SoftBank, of course, which …

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African fintech startup Chipper Cash raises $30M backed by Jeff Bezos

African cross-border fintech startup Chipper Cash has raised a $30 million Series B funding round led by Ribbit Capital with participation of Bezos Expeditions — the personal VC fund of Amazon CEO Jeff Bezos.

Chipper Cash was founded in San Francisco in 2018 by Ugandan Ham Serunjogi and Ghanaian Maijid Moujaled. The company offers mobile-based, no fee, P2P payment services in seven countries: Ghana, Uganda, Nigeria, Tanzania, Rwanda, South Africa and Kenya.

Parallel to its P2P app, the startup also runs Chipper Checkout — a merchant-focused, fee-based payment product that generates the revenue to support Chipper Cash’s free mobile-money business. The company has scaled to 3 million users on its platform and processes an average of 80,000 transactions daily. In June 2020, Chipper Cash reached a monthly payments value of $100 million, according to CEO Ham Serunjogi .

As part of the Series B raise, the startup plans to expand its products and geographic scope. On the product side, that entails offering more business payment solutions, crypto-currency trading options, and investment services.

“We’ll always be a P2P financial transfer platform at our core. But we’ve had demand from our users to offer other value services…like purchasing cryptocurrency assets and making investments in stocks,” Serunjogi told TechCrunch on a call.

Image Credits: Chipper Cash

Chipper Cash has added beta dropdowns on its website and app to buy and sell Bitcoin and invest in U.S. stocks from Africa — the latter through a partnership with U.S. financial services company DriveWealth.

“We’ll launch [the stock product] in Nigeria first so Nigerians have the option to buy fractional stocks — Tesla shares, Apple shares or Amazon shares and others — through our app. We’ll expand into other countries thereafter,” said Serunjogi.

On the business financial services side, the startup plans to offer more API payments solutions. “We’ve been getting a lot of requests from people on our P2P platform, who also have business enterprises, to be able to collect payments for sale of goods,” explained Serunjogi.

Chipper Cash also plans to use its Series B financing for additional country expansion, which the company will announce by the end of 2021.

Jeff Bezos’s backing of Chipper Cash follows a recent string of events that has elevated the visibility of Africa’s startup scene. Over the past decade, the continent’s tech ecosystem has been one of the fastest growing in the world by year year-over-year expansion in venture capital and startup formation, concentrated in countries such as Nigeria, Kenya, and South Africa.

Image Credits: TechCrunch/Bryce Durbin

Bringing Africa’s large unbanked population and underbanked consumers and SMEs online has factored prominently. Roughly 66% of Sub-Saharan Africa’s 1 billion people don’t have a bank account, according to World Bank data.

As such, fintech has become Africa’s highest-funded tech sector, receiving the bulk of an estimated $2 billion in VC that went to startups in 2019. Even with the rapid venture funding growth over the last decade, Africa’s tech scene had been performance light, with only one known unicorn (e-commerce venture Jumia) a handful of exits, and no major public share offerings. That changed last year.

In April 2019, Jumia — backed by investors including Goldman Sachs and Mastercard — went public in an NYSE IPO. Later in the year, Nigerian fintech company Interswitch achieved unicorn status after a $200 million investment by Visa.

This year, Network International purchased East African payments startup DPO for $288 million and in August WorldRemit acquired Africa focused remittance company Sendwave for $500 million.

One of the more significant liquidity events in African tech occurred last month, when Stripe acquired Nigerian payment gateway startup Paystack for a reported $200 million.

In an email to TechCrunch, a spokesperson for Bezos Expeditions confirmed the fund’s investment in Chipper Cash, but declined to comment on further plans to back African startups. Per Crunchbase data, the investment would be the first in Africa for the fund. It’s worth noting Bezos Expeditions is not connected to Jeff Bezo’s hallmark business venture, Amazon.

For Chipper Cash, the $30 million Series B raise caps an event-filled two years for the San Francisco-based payments company and founders Ham Serunjogi and Maijid Moujaled. The two came to America for academics, met in Iowa while studying at Grinnell College and ventured out to Silicon Valley for stints in big tech: Facebook for Serunjogi and Flickr and Yahoo! for Moujaled.

Chipper Cash founders Ham Serunjogi (R) and Maijid Moujaled; Image Credits: Chipper Cash

The startup call beckoned and after launching Chipper Cash in 2018, the duo convinced 500 Startups and Liquid 2 Ventures — co-founded by American football legend Joe Montana — to back their company with seed funds. The startup expanded into Nigeria and Southern Africa in 2019, entered a payments partnership with Visa in April and raised a $13.8 million Series A in June.

Chipper Cash founder Ham Serunjogi believes the backing of his company by a notable tech figure, such as Jeff Bezos (the world’s richest person), has benefits beyond his venture.

“It’s a big deal when a world class investor like Bezos or Ribbit goes out of their sweet spot to a new area where they previously haven’t done investments,” he said. “Ultimately, the winner of those things happening is the African tech ecosystem overall, as it will bring more investment from firms of that caliber to African startups.”

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The DOJ has approved Mastercard’s acquisition of Finicity

Federal regulators have approved Mastercard’s acquisition of Salt Lake City-based startup Finicity, which provides open-banking APIs. The deal is expected to go for $825 million.

“We were notified that the Department of Justice completed its review of our planned acquisition of Finicity and has cleared it to move forward,” Mastercard wrote in a statement. “We are pleased to have reached this milestone.”

Finicity allows users to be able to decide how their financial information is shared and who can make money decisions on their behalf through open APIs. The buy will allow Mastercard to offer consumers and businesses more choice in these transactions, without requiring them to do heavy lifting themselves.

Finicity, according to Crunchbase, has raised nearly $80 million in known venture capital as a private company. When closed, it will be one of the largest fintech acquisitions at nearly $1 billion in 2020.

The DOJ approval comes just two weeks after the body filed an antitrust lawsuit challenging Visa’s proposed $5.3 billion buy of Plaid. Plaid, which empowers a large chunk of financial services through its data network, including Venmo and Acorns, is being accused of making Visa a monopoly in online debt services.

Plaid has denied these claims, saying that “Visa intends to defend the transaction vigorously.” The feds are also looking into Intuit’s $7 billion proposed buy of Credit Karma, which was first announced in February 2020.

The approval of the Mastercard-Finicity transaction could be a shot in the arm for fintech startup valuations. After both the Plaid and Credit Karma deals came under increasing regulatory scrutiny, it was an open questions whether big-dollar M&A was going to be an option for fintech unicorns.

If the path was closed due to regulatory concerns, fintech startups would have to either pursue earlier, smaller sales themselves, or wait for an eventual IPO. If that was the case, venture capitalists might shun putting as much capital to work in the sector. However, the Finicity approval makes it clear that not all fintech M&A worth $500 million or more is going to encounter oversight headaches. That should be welcome news for late-stage fintech valuations.

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DOJ files antitrust lawsuit challenging Visa’s $5.3 billion acquisition of Plaid

The Department of Justice has filed an antitrust lawsuit challenging Visa’s proposed $5.3 billion acquisition of Plaid .

News of the DOJ’s investigation first broke last month.

“By acquiring Plaid, Visa would eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers,” the DOJ wrote in its lawsuit.

The deal would violate Section 2 of the Sherman Act “and must be stopped,” the DOJ wrote in its filing, published by Bloomberg Law.

In a statement, Visa said it “strongly disagrees” with the DOJ’s “legally flawed” arguments.

“This action reflects a lack of understanding of Plaid’s business and the highly competitive payments landscape in which Visa operates,” the statement read. “The combination of Visa and Plaid will deliver substantial benefits for consumers seeking access to a broader range of financial-related services, and Visa intends to defend the transaction vigorously.”

“As we explained to the DOJ, Plaid is not a payments company. Visa’s business faces intense competition from a variety of players – but Plaid is not one of them. Plaid is a data network that enables individuals to connect their financial accounts to the apps and services they use to manage their financial lives, and its capabilities complement Visa’s. Together, Visa and Plaid will deliver better digital experiences and more choice for consumers in managing their money and financial data. Visa is confident that this transaction is good for consumers and good for competition,” the statement added.

Plaid co-founders William Hockey and Zach Perret. Image Credit: Plaid

As the Justice Department argues, Visa’s monopoly power in online debit is protected by barriers to entry and expansion. New challengers to Visa need connections with millions of consumers to attract merchants and need connections to thousands of merchants to attract new consumers, the DOJ said.

DOJ lawyers pointed to Mastercard’s inability to seize more than a quarter of the online debit market as a sign of Visa’s continued dominance. “Mastercard has neither gained significant share from Visa nor restrained Visa’s monopoly,” the lawyers wrote.

Visa also set up technical barriers by entering into restrictive agreements with merchants and banks to prevent competitors from growing their share of the online debit market.

“These entry barriers, coupled with Visa’s long-term restrictive contracts with banks, are nearly insurmountable, meaning Visa rarely faces any significant threats to its online debit monopoly. Plaid is such a threat,” according to the DOJ.

Companies like Venmo, Acorns, and Betterment are just some of the big startups and fintech services that use Plaid to build their services.

“While Plaid’s existing technology does not compete directly with Visa today, Plaid is planning to leverage that technology, combined with its existing relationships with banks and consumers, to facilitate transactions between consumers and merchants in competition with Visa,” according to the DOJ.

And Visa was well aware of Plaid’s potential to disrupt its business. As early as March 2019, nearly nine months before the acquisition was announced, the vice president of corporate development and head of strategic opportunities expressed concerns about Plaid’s business.

“I don’t want to be IBM to their Microsoft,” the executive said, according to the lawsuit filed by DOJ. Visa’s chief executive also clearly acknowledged that Plaid was a threat.

The company estimated that Plaid could cost Visa’s debit business between $300 million and $500 million by 2024 if it were to continue operating as an independent company. It was, in the words of Visa’s executives an “[e]xistential risk” to its U.S. debit business and it could have forced Visa to accept lower margins — something that would be a boon to businesses and consumers.

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