As startups in Africa continue to grow and raise money at a ridiculous pace, so too will their cap tables expand. Most African startups’ bulk of VC money is from foreign investors, making it imperative for African startups to incorporate abroad, especially in the U.S.
The processes for incorporation are quite complicated, and even though most founders still get the hang of it, they risk the chance of messing up their cap tables. For instance, some Nigerian startups are guilty of issuing preferred shares in naira and then canceling to issue dollar-denominated SAFEs when they get incorporated in the U.S.
Raise, a startup building Africa’s Carta is tackling these challenges and has received backing from 500 Startups to scale its technology.
In 2019, Marvin Coleby, Tina Nyamache and Eugene Mutai set out to create a blockchain solution that would make it easier for people to buy and sell shares in pre-IPO companies in Africa. After running several iterations, they found out that most companies still struggled with the concept of equity and liquidity. They spent money managing corporate structures for holding companies in Delaware, Canada, and Europe but maintained paper-based subsidiaries across Africa.
According to Coleby, most of the equity across Africa is still stored, tracked and updated using paper certificates, manual processes and fragmented government databases. This raises transaction costs to manage subsidiaries and issue employee stock options. It also inflates costs to enter and exit positions in private and public companies.
So they started Raise to help startups, investors, employees, and law firms manage deals, cap tables and corporate compliance.
On the platform, Raise customers can also automate due diligence, set valuations, track employee stock vesting and make routine documentation for licenses and government documents in Nigeria and Kenya.
When Raise launched in 2019, it was in private beta and was backed by Binance Labs, the sole investor in its pre-seed round. Since proceeding to a public beta in 2020, Raise has onboarded customers like Anjarwalla & Khanna, Africa’s largest law firm; startups Bamboo, Workpay and Mono; and VC firms like Microtraction and Chrysalis Capital.
But the long-term problem Raise is trying to solve is liquidity, Coleby tells TC on a call.
“Everything we do is to find a way to make it easier for founders, customers, employees, investors to get liquidity from investing in companies,” he said. “Companies are raising money, people are investing, and employees are getting stock options. However, there are only one or two exits now and then. That’s because we build with the Silicon Valley model where we have to grow, scale until we get some big exit. From our perspective, liquidity doesn’t have to be that way. It can be small little pieces of liquidity that employees and investors get over time.”
By that measure, Africa’s capital markets for private and public companies are painfully illiquid. It takes several months or years to buy or sell equity, and, according to Raise, over $1 trillion of stock in Africa is “illiquid, paper-based and priced in inflationary currencies.”
Nigerian stock trading platforms like Chaka, Bamboo and Trove help Nigerians create liquidity for assets locally and internationally. However, Raise aims to build the platform behind them to streamline more asset classes and investment opportunities.
While that’s still in the works, Raise organizes ownership data for African companies and makes them accessible. It’s a similar play to what Carta, a $3 billion company offering cap table software, does for U.S. companies.
Over time, onboarding cap tables and equity data will also open up use cases for Carta to become a blockchain-based digital asset platform. The plan is to become more like Africa’s Nasdaq for private companies as it hopes to sell indexes, ETFs, futures, and assets for them. Coleby says in that way, Raise will become an equity engine for processing Africa’s hundreds of billion dollars of trade and securities volume.
Coleby says the number of companies going live is increasing 60% month-on-month. The platform manages about 200 cap tables with assets worth more than $400 million. The next phase of growth, according to Coleby, will be onboarding Series A and growth-stage companies onto the platform.
The company is active in Nigeria and Kenya. Coleby says a seed round is in the works to continue growing deeper into those markets and experiment with funding and liquidity operations across the African VC space.
Next, Raise is building a marketplace that continues connecting and educating investors, employees, and founders in one platform with their law firms to use trusted and verified data to do deals and issue stock options to employees.