Into YC: North African eCom Startups Widen Their Path To Silicon Valley

Every year, it’s almost a customary development for African startups to attract funding from VCs. But while some companies raise to launch or expand, there are the ones who get accepted into accelerators like 500 Startups, Y Combinator and Techstars.

But for most of the time, it’s the firms getting into YC that often control the limelight because the platform often basks them in the attention of VCs. Through YC’s lenses, investors and stakeholders get a glimpse of the next big things in tech.

The last time (late March) startups were featured on the well-known American accelerator known as YC, the crop of African early-stage tech companies featuring in that cohort was dominated by fintech. As Y Combinator’s Winter 2021 batch had it, 6 of the 10 African startups partaking were financial technology firms, thus forming more than half of the entire batch.

While the number of African startups pitching at the YC demo day this Summer has increased (going from 10 to 15), fintech is no longer super-dominating. There are only 5 fintech startups (Nigeria’s Lemonade Finance, South Africa’s Payhippo, Zambia’s Union544, and Kenya’s Fingo).

Beyond the fintech frenzy—much of which lingers on the milestones of YC’s earliest portfolio companies Stripe-bought Paystack and USD 1 Bn+ Flutterwave—there’s a new breed of startups that appears to be furthering its way into a portfolio that will see them in the front of Silicon Valley’s most generous investors.

In YC S21, there are 3 tech companies from the same region, in the same industry and seemingly with the same ambitions. And it does seem well thought out that Y Combinator has taken all of them under its accelerator wing.

Who are these startups? First off, the tech firms have origins from North Africa, otherwise referred to as an important part of the MENA region. Secondly, these startups all hail from the eCommerce and logistics sectors, all looking to strike a much-needed balance between the demand and supply of goods and inventory.

First off the new convoy is Chari—a Moroccan B2B eCommerce startup. One of the first-ever startups from Morocco to join YC, the service is looking to disrupt the informal retail sector of Morocco by creating a platform through which traditional store managers or keepers can order for FCMGs and get them delivered to their outlets, for free. What’s more, Chari also provides its retailers with credit—if they so need it—to its retail customers.

Second is Freeterium, which is also based in Morocco. Supposedly the oldest startup in the new African batch (having been founded in 2018)—and definitely the second Moroccan startup to join the American accelerator—Freeterium is basically a cloud-based marketplace where businesses can arrange for and optimize their B2B or B2C shipments. On the platform, contractors, store owners, manufacturers, and retail distributors can interact and transact, saving them time and saving money.

In comes ShipBlu, an Egyptian B2B eCommerce startup that exists to help merchants oversee and manage their end-to-end delivery and fulfillment. Using artificial intelligence and machine learning tech, ShipBlu enables its customers to opt their choicest delivery window (which is usually within 3 hours) and see the real-time progression of incoming couriers. This July, the company raised an undisclosed amount of money in a Nama Ventures-led seed round.

Why are there three startups operating in the same market in YC’s portfolio? Not that it’s the first time the accelerator is backing multiple startups from the same sector, but that it seems this is the first time Y Combinator is throwing its weight behind a near-substantial amount of North African eCommerce startups at once.

In the last cohort, of the 3 Egyptian startups that took part, only one (Flextock) was operating in the merchant-cum-eCommerce market. Also, backing Chari, Freeterium, and ShipBlu at the same time does come off as a recipe for risk-spreading and potential acquisitions (think Paystack, think Stripe).

Interestingly, Flextock sits on what was once the largest ever pre-seed round (USD 3.25 Mn) for a MENA startup, before it was out-raised. In an earlier exclusive with WeeTracker, CRE VC, one of Flextock’s investors, admitted that backing the Egyptian company has much to do with all that is expected in the global eCom market from now to the next few years.

“Flextock helps businesses and consumers fulfill their eCommerce operations, down to delivery and collection of cash from buyers. With strong tech, the team offers end-to-end eCommerce logistics solutions, on-demand. Come 2023, eCommerce will double to over USD 6.5 Bn in worth. Coupled with the fact that this industry accounts for more than 14 percent of global retail sales, it’s hard to ignore the huge potential the markets are showing,” Pardon Makumbe explained at the time.

Even in the Middle East and North Africa, eCommerce has to be one of the busiest tech markets as opposed to Sub-Saharan Africa where fintech comes up ahead. Per MAGNiTT data, no less than USD 665 Mn has been invested in eCommerce startups in the MENA region between 2016 and 2019, making up about 20 percent of the entire cheques cut to startups from the said region over the said period.

What is the investor motivation behind this? Well, even before the coronavirus pandemic, the Middle East and North Africa’s eCommerce sector was one of the fastest-growing in the world. It doubled in size from USD 4.2 Bn in 2015 to USD 8.3 Bn in 2017. Then came Covid-19 in 2020, accelerating what was already a thriving digital sector by 52 percent to reach a yearly gross merchandise value of USD 22 Bn.

Another salient information is: North African startups are in the habit of expanding across the MENA region, as opposed to across Africa (or Sub-Saharan Africa). As such, Egypt, which is the most populous country and largest economy in North Africa, has somewhat become the testbed from which many companies export their tech to MENA—and Egypt is now joined by Morocco. Comparatively, a market like South Africa is known for creating “globally scalable solutions” while Nigeria is often the starting place of most startups with intentions to become pan-African.

Moreover, a huge part of the uptake in MENA eCommerce has taken place in three highly penetrated markets: UAE, Saudi Arabia, and of course, Egypt. Investors might very well be interested in solutions scalable from any of these markets into the entire Middle East.

Image Courtesy: Behance