Nigeria's Prospa Raises $3.8M Pre-Seed for SMB Banking & Software

Nigeria's Prospa Secures $3.8M to Empower Small Businesses

In Nigeria, over 40 million micro-businesses remain inadequately served by traditional banking institutions. While many possess registered bank accounts, a significant deficiency lies in how banks utilize available data to effectively address the unique requirements of each enterprise.

The Gap in Service

Currently, banks primarily offer businesses transaction statements. They generally do not prioritize delivering valuable insights or fostering growth opportunities related to customer behavior and product performance.

Prospa's Innovative Approach

Fintech startup Prospa is aiming to disrupt this landscape and is actively targeting this underserved market. The company was selected as one of ten African startups to participate in Y Combinator’s winter program in March.

Following its graduation, Prospa has successfully closed a $3.8 million pre-seed funding round, combining banking functionalities with essential business management tools tailored for micro and small businesses.

Founding and Inspiration

Prospa was established by Frederik Obasi, Chioma Ugo, and Rodney Jackson-Cole. Obasi, a seasoned entrepreneur with experience in both technology and media, personally encountered the challenges of simultaneously managing business operations and banking in Nigeria.

He observed that banks focused solely on providing financial services, necessitating the use of separate software or dedicated personnel to handle operational aspects.

Addressing a Critical Need

While larger businesses can readily afford staff or software to delegate tasks, this presents a significant burden for smaller enterprises, often hindering their progress. Recognizing this opportunity, Obasi and his team launched Prospa with the goal of providing affordable solutions for small business owners’ banking and software needs.

“I wanted to tackle a substantial problem, one I thoroughly understood, after concluding my previous venture. This led to the creation of Prospa,” Obasi explained in an interview with TechCrunch.

Organic Growth and Product Development

The founders developed the initial product between June and September 2019, launching it in October. The company strategically acquired customers discreetly, even during its Y Combinator participation.

Obasi emphasized his desire for Prospa to achieve organic traction, independent of hype or media attention. “We are focused on a long-term strategy, rigorously testing our assumptions, building a revenue-generating business, and gaining a clear understanding of our operations. The COVID-19 pandemic then provided sufficient evidence of our traction,” he stated.

Beyond a Neobank

As the company gained recognition, it was often described as a “neobank for small businesses.” However, CEO Obasi quickly clarifies this perception. Prospa offers a comprehensive suite of tools, including invoicing, inventory management, employee and vendor management, an e-commerce store, and payroll features, in addition to banking services.

“Banking constitutes only a small portion of our offerings. While we are categorized as a neobank, we view our product as 10% banking and 90% software. This results in a significantly different user experience compared to traditional neobanks, and the use case for Prospa users is distinct,” he added.

An Operating System for Businesses

Prospa caters to freelancers and entrepreneurs, functioning as an “operating system” for their businesses. Registered businesses gain access to an account number and Prospa’s full range of features.

For unregistered businesses, Prospa guides them through the process of formalization and provides access to banking services. This segment serves as an entry point for upselling additional services.

Impressive Traction

Obasi reports that the company currently serves tens of thousands of businesses and is experiencing a 35% month-over-month growth rate. Beyond banking, Prospa has facilitated the management of over 150,000 product catalogs and processed 360,000 invoices on its platform.

Transparent Pricing

Pricing is determined by the business’s turnover. Businesses with a turnover of ₦100,000 (~$200) are exempt from subscription fees. Those exceeding ₦100,000 pay monthly fees ranging from ₦3,000 (~$6) to ₦5,000 (~$10).

A Leading Investment

The African VC landscape has witnessed substantial investment activity across the continent. Prospa’s pre-seed round represents the largest of its kind in Nigeria and sub-Saharan Africa. Only Egyptian fintech Telda has secured a larger round in Africa.

Obasi attributes the company’s success in securing funding to its deep understanding of the market and its vision. He notes that the round was almost four times oversubscribed.

Strategic Investors

The investment round included participation from venture capital firms such as Global Founders Capital and Liquid 2 Ventures. Founders of prominent fintech companies, including Mercury’s Immad Akhund and Ramp’s Karim Atiyeh, as well as executives from Teachable, Square, Facebook, and Nubank, also contributed to the round.

Focus on the Core Economy

The involvement of Akhund and Atiyeh might lead some to believe that Prospa is replicating these businesses in Nigeria. However, Obasi clarifies that while there are similarities, Prospa is not focused on serving startups.

“The U.S. has a thriving startup ecosystem where companies can achieve billion-dollar valuations by solely serving YC companies. This is not the case in Nigeria. We are building for the foundation of the economy – small and micro-businesses. We have consistently communicated to investors that we are not simply a copy of an American model,” he explained.

Future Plans

Prospa intends to utilize the new capital to accelerate growth through customer acquisition strategies and expand its team, particularly in product and engineering roles.