Chaka Secures $1.5M Pre-Seed Funding - Nigerian Investment Platform

Robinhood's Influence and the Rise of Digital Investment Platforms in Africa

In 2013, when Robinhood secured $3 million in seed funding, the company was newly established but possessed ambitious goals: to broaden access to securities for underserved populations.

Since then, Robinhood has experienced substantial growth, now serving over 30 million users with its commission-free trading services.

The Expansion to Nigeria and the Launch of Chaka

Historically, similar growth patterns have been observed in other regions, inspiring the creation of comparable businesses. Robinhood’s success is no exception to this trend.

Consequently, numerous platforms have emerged, aiming to provide stock trading opportunities within their respective markets. In Nigeria, at least four platforms currently facilitate both domestic and international stock investments for individuals.

Chaka is a prominent example of such a platform. The company is now announcing the completion of its $1.5 million pre-seed funding round, intended to empower digital investments for both individuals and businesses.

Details of the Pre-Seed Round

Breyer Capital spearheaded the pre-seed round, with participation from 4DX Ventures, Golden Palm Investments, Future Africa, Seedstars, and Musha Ventures. This marks the second collaborative investment for 4DX Ventures and Breyer Capital within a two-week period, following their investment in Egyptian social e-commerce platform Taager.

Stock Trading Participation: A Historical Perspective

Prior to Robinhood, active participation in stock trading was already prevalent among Americans. A Gallup survey indicated that approximately 60% of Americans held some form of stock in 2000, although this figure decreased to 55% by 2020.

This decline was partially attributable to the global financial crisis of 2008.

Challenges and Opportunities in the Nigerian Market

The 2008 crisis also impacted the Nigerian capital market, leading to significant financial losses for many Nigerians. As a result, stock trading is often viewed with skepticism by the general public.

However, for the average Nigerian investor, participating in local stock trading can be difficult, and accessing foreign stocks is often practically impossible.

Chaka's Founding and Mission

Recognizing this challenge during his time in the U.S., Tosin Osibodu returned to Nigeria and founded Chaka, officially launching the company in 2019.

Osibodu explained that Chaka aimed to create opportunities for Nigerians to invest in dollar-denominated assets while simultaneously enabling foreign investors to participate in the Nigerian market.

Vision for Growth and Market Accessibility

“Increased market demand will, over time, lead to greater supply,” he stated in an interview with TechCrunch. “Our long-term vision is to foster the growth of our local capital markets.”

He continued, “We are dedicated to providing borderless digital access to a variety of solutions, extending accessibility not only to Nigerians but also to investors globally.”

Chaka's Current Offerings and Impact

To date, Chaka has largely succeeded in this endeavor. The platform provides Nigerians with access to over 10,000 stocks and ETFs listed on both local and international capital markets.

The CEO asserts that Chaka has lowered the barriers to entry for borderless investments in Nigeria, offering customers compliant access to the capital market.

Lowering Barriers to Investment

“Markets operate on the principles of supply and demand, with inherent barriers to entry. We are committed to reducing these barriers in local markets, and by making investing more accessible to retail investors, we anticipate increased market participation,” the CEO added. “In fact, more individuals entered the Nigerian stock market through our platform last year than through any other broker.”

He likened this effect to a “demand-supply flywheel.”

Regulatory Compliance and Asset Registration

Chaka’s local assets are registered with the Nigerian Stock Exchange (NSE) and the Central Securities Clearing System (CSCS), and are regulated by the Securities Exchange Commission of Nigeria (SEC).

Dollar assets, conversely, are regulated by the U.S. FINRA and the U.S. SEC.

Navigating Regulatory Challenges in Nigeria

In April of this year, digital investment platforms faced scrutiny from Nigeria’s SEC. The regulator deemed their activities unlawful and cautioned capital market operators against providing brokerage services for foreign securities.

Unlike Robinhood, which provides online brokerages, Nigerian investment platforms operate through partnerships. Chaka, for example, collaborates with Citi Investment Capital in Nigeria and DriveWealth LLC in the U.S. to facilitate stock and securities transactions.

SEC's Concerns and Chaka's Response

According to Nigeria’s SEC, the primary objective was to bring these platforms under its regulatory oversight to protect investors.

While Osibodu maintains that Chaka had consistently engaged with the SEC since its inception in 2019, this was not apparent last December when the regulator specifically cited the company for “selling and advertising stocks.”

Securing the First Fintech License

This event prompted the regulator’s broader crackdown on other digital investment platforms, providing Chaka with the opportunity to engage in discussions and reach a resolution within approximately six months.

Last month, Chaka obtained the first fintech license issued by the SEC, establishing it as the sole investment platform operating as a digital sub-broker.

The Significance of the Fintech License

“We have consistently kept the SEC informed since our launch,” Osibodu stated. “Over the past six months, we have engaged with them, demonstrating our business models and their benefits to the markets.”

He added, “We are proud to have secured the SEC’s first fintech license. We believe that market clarity and regulatory understanding are paramount, and we are thrilled to have pioneered this process and clarified the requirements for offering services in the market.”

Future Plans and Expansion

With the new license in place, the company can now concentrate on its future objectives. Osibodu explained that the license broadens the scope of Chaka’s capabilities.

He emphasized that Chaka can now support multiple brokers and provide access to diverse digital investment offerings, in addition to functioning as a digital sub-broker.

Beyond its traditional stock trading app for retail investors, Chaka also offers Chaka SDK, which enables asset managers and financial institutions to provide digital investments, and Chaka for Business, designed for direct business onboarding and trading tools for institutional investors.

Investor Confidence and Future Outlook

Jim Breyer of Breyer Capital commented on the investment, stating, “We are proud to collaborate with a company that is leveling the investment playing field for Nigerians and Africans at large.”

He continued, “We are confident in the value Chaka delivers through its digital tools and look forward to supporting the team in their mission to drive borderless investments in Africa.”

Osibodu stated that the company will utilize the pre-seed investment to expand its presence to Ghana and other West African markets.

Improving its technology and services, and forging partnerships with major financial institutions, including central banks, are also key priorities.

“As we progress, our primary focus is on continually reducing barriers to access,” Osibodu concluded. “We are proud of the initiatives we have launched and have planned, and we anticipate further partnerships, even with apex institutions in our markets.”