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African Neobank Kuda raised $20 million at a flat value last year and missed its user milestone forecast by 3 million.

Kuda co-founder and CEO Babs Ogundeyi said earlier this month that the Nigerian internet challenger bank had hit about N₦56 trillion (~$60 billion) in transaction value since its 2019 inception.

Ogundeyi further said that Kuda now has 7 million retail and commercial clients. However, the sum falls well short of the fintech’s predictions after new investment last year.

Kuda pitched investors for further funding in February 2023. It had 5 million subscribers as of 2023, and Eltrys was able to view an investor pitch presentation that stated this. People with knowledge of the fundraising activities said Kuda raised $20 million in mid-2023, although the bridge deal closed at the same $500 million valuation as its $55 million Series B financing in 2021.

The 2021 venture capital boom saw Kuda receive one of Africa’s biggest Series B rounds after providing banking services to 1.4 million Nigerians with promises to expand throughout the continent.

Five-fold rise
After two years, Kuda still needs licenses to operate in Ghana, Uganda, and Tanzania. It has grown its user base fivefold since 2021 by serving Nigerians at home and abroad, expanding to the U.K. in late 2022.

Since consumers want reduced prices and quicker account access, this expansion has presented issues. U.K. neobanks like Monzo, Revolut, and Starling have run on sticky systems for years, incurring substantial losses from increasing client numbers. They’re profitable today thanks to their loan products, but they raised billions of dollars to get there. Monzo attained profitability in the first two months of 2023, but its net losses increased from £20 million in 2017 to £116 million last year.

According to TechCabal, Kuda’s losses climbed from $2 million in 2020 to $14 million in 2021, following the worldwide neobank trend. Kuda spent most of 2021 on operating expenditures, including brand recognition, marketing, and personnel acquisition. Kuda, unlike global neobanks, hemorrhaged money via an ill-thought-out lending product with a 69% non-performing loan (NPL) percentage, well above the industry average of 5% for the same year, the research claimed.

Kuda adjusted his strategy in response. According to its investor letter, the fintech halved its marketing budget in June 2022 and attracted 1.5 million members in nine months. In his latest letter, Ogundeyi said Kuda has “lined up new credit features, including loans for salary earners and an improved version of Kuda Overdraft.”

Kuda also launched a POS terminal for corporate clients to increase transaction volumes and income in the capital-intensive agency banking industry.

Kuda’s main sources of revenue are airtime, bill payments, and fixed deposit fees and commissions. With $100 million in monthly contributions, the corporation earned approximately $20 million in 2022.

Kuda and African growth-stage enterprise outlook
Kuda’s 2022 revenue multiple was 25x at $500 million. Fintech predicted $40 million in 2023 revenue, a 12.5x multiple. We asked Kuda whether its sales goal and other expectations were fulfilled, but the fintech said, “Being a regulated entity, we are not permitted to share those numbers until an audit has been done and approval given by the regulator.”

During the venture capital downturn, companies, especially growth phases, are emphasized for valuation growth. These firms need revenue objectives to obtain follow-on investments. If not, flat- and down-rounds may result from an inability to achieve appraisals within their parameters.

At its present value, Kuda needs $100 million in annual sales to achieve a 5x multiple (standard investment conditions for public growth-stage fintech). This will take Kuda a few more years, and like many African growth-stage firms whose funding during the venture capital boom inflated prices, it will confront huge difficulties. Currency devaluations and inflation are partially to blame.

Despite earning profits in native currencies, African VC-backed firms report revenues in dollars owing to international funding. Kuda’s main income source, the Nigerian Naira, has depreciated more than 40% versus the dollar in the previous 18 months. African firms may need to double their income in local currency to report the same amount in USD due to currency depreciation.

Currency depreciation reduces customers’ spending and buying power, making it harder for these enterprises to grow local sales. The average revenue per user (ARPU) for Kuda in 2022 was $1.92 and finished at $1.67, whereas Monzo, with the same number of U.K. users, reported £112 in February 2023, a 70% year-over-year rise.

However, getting these consumers is expensive. Based on marketing investment and user growth, Kuda’s projected CAC in Q1 2021 was $4–$5, or 2-3x its ARPU. How much the fintech spent on marketing over the last two years is unknown, but hitting a $3 ARPU goal by 2023, as the business told investors, would require significant investment per subscriber. This was always going to challenge Kuda’s unit economics.

Kuda’s objective for the next five years is to become profitable, although major digital banks targeting wealthy consumers took 8–10 years to do so. The fintech’s objective of serving 50 million people across four continents and earning over $1 billion adds to the difficulty.

However, finding a wedge, such as via its revised overdraft or microlending product, to boost stickiness and revenue growth and secure more venture money to expand may be key to achieving these goals.

In the short term, Kuda must convince investors that its unit economics match its growth goals. As the “money app for Africans,” Kuda must prove that a VC-backed neobank can succeed in Africa as Brazil’s Nubank did in Latin America before expanding.

Eltrys Team
Author: Eltrys Team

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