Cowrywise, a Nigerian fintech company specializing in digital wealth management and financial planning, has secured $3 million in a pre-Series A funding round. Quona Capital spearheaded the investment, with participation from Tsadik Foundation, Gumroad’s Chief Executive Officer Sahil Lavingia, and a group of angel investors from Nigeria, both domestically and internationally. The company had previously obtained over $500,000 through a mix of equity funding and grants.

The concept for Cowrywise originated when CEO Razaq Ahmed served as an investment analyst at Meristem, focusing on equities and providing recommendations to individual and wealth management clients. He observed that current investment management companies in the nation primarily catered to the wealthiest 1 percent of the population. Scaling investment solutions to reach millions of Nigerians was challenging for these firms due to their limited capacity.

Traditional banks, however, have demonstrated greater success in expanding access to financial services. Throughout the mid and late 2000s, they significantly broadened their branch networks, now encompassing approximately 45 million unique accounts across Nigeria.

Over time, the standard of services offered by banks regarding savings and investments has declined. With interest rates generally ranging from 3-5% annually, many Nigerians primarily utilize their bank accounts for sending and receiving funds and making withdrawals with debit cards, leaving a gap in the market for robust investment products.

Consequently, Ahmed, together with Edward Popoola as Chief Technology Officer, established Cowrywise in 2017 to address this issue. Their goal with Cowrywise was to broaden access to savings and investment opportunities for Nigeria’s expanding millennial and middle-class demographics. 

“Existing financial institutions weren’t designed to serve the broader market, creating a significant challenge that we aimed to resolve,” Ahmed explained to TechCrunch.

Initially, the founders considered leveraging the extensive reach of the telecommunications industry to distribute their investment products to a large subscriber base. However, this approach proved costly, and telecom companies demanded substantial fees and commissions. 

Subsequently, they introduced mutual fund products. Currently, the platform features 19 distinct mutual funds, representing at least 20% of all mutual funds available in the country. Ahmed states that this constitutes the largest collection of mutual funds offered by a single entity within Nigeria.

These assets span across five investment partners, enabling users to begin saving and investing with as little as ₦100 ($0.25). These partners include United Capital Asset Management, Meristem Wealth Management, Afrinvest Wealth Management, ARM Investment Managers and Lotus Capital. Cowrywise earns revenue through fees charged to customers, which are then shared with the mutual fund partners, though the specific fee structure remains undisclosed by the CEO. 

Furthermore, the company, now four years old, considers the diverse needs and religious backgrounds of its users, a practice Ahmed attributes to collaborative understanding with their mutual fund partners. 

“Our mutual fund partners recognize the benefit of being part of a digital platform that is inclusive, allowing investors to participate regardless of their beliefs or financial situation,” he stated.

The company, which is an alumnus of Y Combinator and Catalyst Fund, also provides advisory services, recommending suitable funds to clients based on their risk tolerance and financial capacity.

For example, last September, the company faced a difficult situation when a customer publicly complained on Twitter about a lack of communication regarding stolen funds from her account. In response, Cowrywise issued an apology for the communication breakdown, promptly addressed the issue, and pledged to improve its processes.

“Our commitment to service delivery has significantly helped to build trust, which is reflected in our user growth and adoption. While trust was initially a major concern, we are now making substantial progress in overcoming that challenge,” the CEO said.

Currently, Cowrywise has over 220,000 users, a significant increase from the 2,000 users it had in its first year. Moreover, only approximately half a million Nigerians are actively investing in mutual funds, compared to the more than 40 million active bank accounts in the country, indicating considerable potential for growth in the $3 billion market.

Quona Capital’s decision to lead the funding round was influenced by Cowrywise’s innovative approach to wealth management, according to partner Johan Bosini. The VC firm, which has previously invested in fintech and retail enablers such as SA-based Lulalend and Yoco, and Kenya’s Sokowatch, is making its initial investment in the Nigerian market through Cowrywise.

“Razaq, Edward, and the Cowrywise team are empowering everyday Nigerians with accessible and versatile tools for wealth creation, tools that were traditionally reserved for affluent individuals,” Bosini told TechCrunch. “Given the market size of 200 million people, we anticipate this will have a significant impact, enabling individuals to gain greater control over their financial futures.”

The company intends to expand its customer base, and the new funding will be instrumental in achieving this goal. The investment will also be used to broaden Cowrywise’s product range, support additional fund managers in Nigeria, and enhance its investment management infrastructure.

Cowrywise is among a growing number of wealth tech startups on the continent. Other companies with similar business models include Nigeria’s Piggyvest, while platforms like Egypt’s Thndr and Nigeria’s Bamboo, Trove, Risevest and Chaka resemble Robinhood. Cowrywise’s funding round, the largest publicly announced at this stage, provides crucial validation for this segment of fintech startups.

Furthermore, despite a slower start to the year, with agritech and cleantech sectors receiving the majority of investments, we may see fintech startups regaining the momentum that has historically made them the dominant recipients of venture capital funding.