Why We Invested in Pivo | Deep Sector Entrepreneurs Bring Neobanking to Supply Chain Logistics: Why we invested in Pivo

Written by Dan Block — Investment Principal, Mercy Corps Ventures

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Why are you the best entrepreneur to build this company? Does your solution fix an actual problem? Amidst the litany of questions raised in startup pitch sessions around product, market, scaling, unit economics, financials, growth strategy, and others, these due diligence questions often get lost.

Shortly after meeting Nkiru Amadi-Emina, CEO of Pivo, I knew I would not have to worry about these issues. It is hard to think of someone more perfect to ease the financial pain points of logistics sector small and medium sized enterprises (SMEs) in Africa than a serial supply chain focused entrepreneur who has plunged into the chaos of the ports in Lagos, and brings a computer science background to build the tech infrastructure by scratch relied on by many in the industry. Nkiru has a window into the challenges and tools needed by SMEs operating in Africa’s supply, logistics, distribution, and import/export sectors that are hard to match. What is more, as a woman operating in a male-dominated sector, her passion for reaching female-led SMEs with Pivo has been refreshing and eye-opening.

Just weeks after launching, Pivo already had dozens of paying customers and partnerships inked with some of the largest companies that require logistics and transport support in Africa. In our first full quarter with Pivo, we have seen their key metrics grow double — and even triple — digits and an impressively detailed articulation of their customers profiles, segments, and needs, a whopping 54% of whom are women. Not to mention being excellent managers of cash flow and magnets for capital, while staying laser focused on operational growth.

With this innate knowledge, we look forward to seeing where Pivo goes with the wind at their backs!

Pivo Co-Founders Nkiru Amadi-Emina on the left, and Ijeoma Akwiwu on the right. Photo courtesy of Pivo.

Market Need

SMEs in emerging markets have historically struggled to access the critical financing needed to operate, sustain, and grow their businesses. Sixty-five million enterprises, or 40% of formal micro, small and medium businesses in emerging markets, have an unmet financing need of $5.2 trillion every year. The credit gap persists for a number of reasons. This includes lack of financial education, limited physical banking infrastructure to geographies where SMEs tend to operate, low risk appetite from lending institutions, and slow or manual credit processes that are ill-adapted to the quick cadence with which SMEs transact.

In response to this credit gap, microfinance institutions (MFIs) have emerged over the last three decades and made huge strides to extend financial services to SMEs. They have leveraged branch offices and loan officers to reach rural businesses. Agro-focused lenders have leveraged purchase orders, land titles, and physical assets like processing facilities and machinery at cooperatives to locate their borrowers and secure collateral. And the wave of mobile-banking over the last 10+ years has leveraged the physical kiosks and micro-shops of merchants as a fixed anchor through which to unlock financial services and loans. However, due to their high degree of mobility and lack of hard collateral that can be easily located and liquidated, small businesses in the logistics and supply chain industry (e.g., import/export shops, distributors, transporters, clearing agents, forwarding agents, couriers, etc.) have not been served through these developments to the same degree as peer SMEs.

Lack of financial services solutions for the supply chain and logistics sector is not for lack of market size. In Nigeria, the sector generates $48 billion of revenue every year, and its 20 million SMEs power 40% of the industry. Access to financing in this sector is critical, as many of the SMEs serve anchor customers (e.g., large processing companies, corporations, etc.) that have notoriously slow invoice processing timelines of typically around four weeks. This puts additional levels of working capital pressure on already cash-constrained SMEs in the sector. Without access to financing, these SMEs are forced to turn down jobs or operate them inefficiently and with higher degree of risk. For example, transporters may not have the upfront financing to purchase the fuel, hire the drivers, cover the cost of meals and insurance necessary to take on trips; exporters may not have the working capital to completely fill orders; and clearing agents may not have the capacity to front the customs duty, customs assessment, agency fees, transport costs and applicable taxes required to move cargo across borders before their clients pay.

The Pivo Solution

Pivo is the first fintech solution specifically designed to cater to the diverse and particular needs of SMEs operating in the logistics and supply chain sector in Nigeria.

Through a digital interface and implementing the latest in African banking APIs, Pivo provides a one stop-hub for all of a SMEs financial needs, starting with rapid access to affordable loans. Pivo intends to offer a full range of financial services specific to the supply, logistics, distribution, and import/export sectors over time, including banking/deposits, invoice factoring, insurance products, tax/compliance support, and a marketplace to facilitate transactions (which Pivo can then finance) between customers along the value chain.

Access to short-term trade finance working capital loans will be Pivo’s primary product and “hook” to cross sell other products. Pivo digitizes the loan origination process and partners with companies that purchase from hundreds (or even thousands) of SMEs to effectively guarantee the loan repayments.

This approach derisks their loan book and solves for key challenges that have made serving this sector challenging to date:

• By using a digital interface to perform credit assessments, Pivo is able to efficiently receive and analyze each SME’s digital financial record, upload documents for the order that the SME is looking to finance, and a short questionnaire pertinent to each order. This digital process cuts down the onboarding and credit assessment process from weeks to hours.

• By redesigning the credit origination process to onboard a SME’s client so that the anchor customers verify that the transaction to be financed is valid, as well as securing anchor customer consent to pay Pivo directly once the SME fills the order, Pivo derisks the loans despite lack of physical collateral. Pivo then discounts their own fee from the payment before directing the remaining funds to the SME. While this adjustment to the credit origination flow is small (and not uncommon in larger trade finance facilities in more mature markets), it is an important innovation from traditional collateral-based SME lending practices that makes lending to logistics sector SMEs a profitable enterprise.

“At Pivo, our mission is to leverage the internet to build the preferred digital bank for supply chain SMEs across emerging markets. With our product, Pivo Africa, all the financial services SMEs need to grow and operate are provided via a suite of connected tools; credit, corporate accounts, payments, and insurance are built into an intuitive web dashboard and mobile app. With the audacious goal of slowly closing in the $556 billion supply chain finance gap in Africa, we will rollout a multi-product strategy that will run the entire finance lifecycle of our customers’ transactions through Pivo.”
Nkiru Amadi-Emina — Co-Founder & CEO

Investment Rationale

Led by an all-star female founding team with a strong track record of building/scaling startups in Africa, laser focus on execution, deep understanding of the issues in the sector, and focus on reaching more female-led logistics SMEs, Pivo has already demonstrated impressive traction, disbursing over $1,000,000 in loans in the logistics, distribution, export, and retail sectors. The team understands the complexities of informal supply chains inside and out, are detail-oriented, and are passionate about the problem they are solving. According to Microtraction, a leading micro-VC in Nigeria and our co-investor in the deal, “There are about 20 million SMEs in the supply chain or logistics industry and these businesses contribute about US$19.2 billion revenue generated in this sector annually. In the global market, Tradeshift, a supply chain financing group that has American Express and Goldman Sachs on its cap table, recently exceeded the US$1 trillion transaction value mark, doubling in only two years. We expect Pivo to replicate this success in the coming years as it builds out its multi-product strategy.”