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Real Life Case: StartUp Acquisition Strategy

Hello ,

I currently co-run a fintech start-up in the DRC*, which aims to bridge the financial inclusion gap through offline payments. Our platform allows users to make payments, transfer money, etc., entirely offline. Think of us as the 'Square' for offline payments in DRC, plus more.

We've received acquisition offers from 3 heavyweights in the African banking/payments sector, and are deciding whether or not to accept an offer.

Stats:

Offer 1 is from the #1 payments processor on the continent. We believe their offer is driven by their desire to expand their portfolio, as the online payments space is becoming saturated.

Offer 2 is from a bulge bracket bank seeking to reach the unbanked in the rural areas

Offer 3 is from one of the continent's top fintech innovation labs. They develop technology solutions for financial institutions.

Our stats:

Launched in Jan. 2017 as a banking solution for the 70% of the nation who are currently unbanked.

Team comprises of very experienced technologists

$ 13 k revenue (not bad by DRC standards)

5500 users, 40% active at least once a week

$130 k processed in transactions

Clients include one of the nation's top universities, government parastatals, microfinance banks, a major waste disposal company, etc.

In advanced talks with the nation's (and one of the continent’s) largest telecommunications company. If all goes well, all their users will be able to process transactions on our platform. This deal will expand our user base by 20 million.

We got applied to join 500 StartUps and got to the very final round- that's a good sign, right?

Business model: We make a % on every transaction processed.

PS- This is a very real life case; please help!

Thank you.

Hello ,

I currently co-run a fintech start-up in the DRC*, which aims to bridge the financial inclusion gap through offline payments. Our platform allows users to make payments, transfer money, etc., entirely offline. Think of us as the 'Square' for offline payments in DRC, plus more.

We've received acquisition offers from 3 heavyweights in the African banking/payments sector, and are deciding whether or not to accept an offer.

Stats:

Offer 1 is from the #1 payments processor on the continent. We believe their offer is driven by their desire to expand their portfolio, as the online payments space is becoming saturated.

Offer 2 is from a bulge bracket bank seeking to reach the unbanked in the rural areas

Offer 3 is from one of the continent's top fintech innovation labs. They develop technology solutions for financial institutions.

Our stats:

Launched in Jan. 2017 as a banking solution for the 70% of the nation who are currently unbanked.

Team comprises of very experienced technologists

$ 13 k revenue (not bad by DRC standards)

5500 users, 40% active at least once a week

$130 k processed in transactions

Clients include one of the nation's top universities, government parastatals, microfinance banks, a major waste disposal company, etc.

In advanced talks with the nation's (and one of the continent’s) largest telecommunications company. If all goes well, all their users will be able to process transactions on our platform. This deal will expand our user base by 20 million.

We got applied to join 500 StartUps and got to the very final round- that's a good sign, right?

Business model: We make a % on every transaction processed.

PS- This is a very real life case; please help!

Thank you.

(edited)

2 answers

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Hi Anonymous,

I would suggest considering the following points:

  1. What is the goal of the founders/investors? Get rich, create a billion-company, reach 1 million clients worldwide, etc? As Vlad said, without such information it’s not feasible to give any recommendation
  2. Once defined the goal, I would consider how each potential acquirer and the option of continuing on your own is going to help to reach your goal. Thus, if the mere goal is to make money, the proposed price would be a major component. If the goal is to reach as many people as possible, future growth in terms of that variable will be the key denominator. This could lead to a more detailed analysis related to the key variable of that metric, using specific frameworks (eg let’s say your goal is to reach a certain level of revenues: you have to estimate what is the expected target if you continue on your own maybe raising funding vs an immediate acquisition now. To do that, you would have to estimate the expected number of transactions, amount per transaction and your commission in the future in the two scenarios). Synergies/cannibalization would be a key variable for such assessment.
  3. Once identified the acquirer that could potentially help you more achieving the target, I would move to analyse any risks related to the closing of the merge and/or the fact that after closing the goal won’t be reached (eg if your goal is to become rich and you are paid in stock option of a volatile company, your actual net worth could not be the one initially forecasted in the long run).

Hope this helps,

Francesco

Hi Anonymous,

I would suggest considering the following points:

  1. What is the goal of the founders/investors? Get rich, create a billion-company, reach 1 million clients worldwide, etc? As Vlad said, without such information it’s not feasible to give any recommendation
  2. Once defined the goal, I would consider how each potential acquirer and the option of continuing on your own is going to help to reach your goal. Thus, if the mere goal is to make money, the proposed price would be a major component. If the goal is to reach as many people as possible, future growth in terms of that variable will be the key denominator. This could lead to a more detailed analysis related to the key variable of that metric, using specific frameworks (eg let’s say your goal is to reach a certain level of revenues: you have to estimate what is the expected target if you continue on your own maybe raising funding vs an immediate acquisition now. To do that, you would have to estimate the expected number of transactions, amount per transaction and your commission in the future in the two scenarios). Synergies/cannibalization would be a key variable for such assessment.
  3. Once identified the acquirer that could potentially help you more achieving the target, I would move to analyse any risks related to the closing of the merge and/or the fact that after closing the goal won’t be reached (eg if your goal is to become rich and you are paid in stock option of a volatile company, your actual net worth could not be the one initially forecasted in the long run).

Hope this helps,

Francesco

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Hi,

Without the details of the acquisition ($, vesting, KPIs to achieve for the team in the next years, other terms), it's really hard to provide the recommendations to that case. Also, it's important to understand what the founders personally want.

Best

Hi,

Without the details of the acquisition ($, vesting, KPIs to achieve for the team in the next years, other terms), it's really hard to provide the recommendations to that case. Also, it's important to understand what the founders personally want.

Best

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