Discipline and Networking
Yoco’s founders (Katlego Maphai, Bradley Wattrus, Carl Wazen, and Lungisa Matshoba) are ex-management consultants with different backgrounds. They noticed that small and micro-businesses couldn’t accept card payments because banks didn’t consider them to be a viable market.
The founders decided to research the technology to enable such merchants to accept card payments and enable Yoco to sign up, vet, and onboard merchants digitally within minutes. They aimed to aggregate merchants so that a partner bank would treat Yoco as a super-merchant with sub-merchants. They also wanted a scalable business model.
The Yoco team lived on their savings in Cape Town while working on their idea. At some point, they had to live with their parents in Johannesburg while looking for a partner bank. For credibility, they built an advisory board that offered an equity stake in the business, using their networks on LinkedIn to find the right people. A banking expert coached and advised them on the payment space while using his strong networks to convince banks that Yoco was worth meeting.
To be licensed by a bank, Yoco needed to prove that they were capitalized, but to access capital, they had to show their bank license. They solved this by talking to potential venture capital (VC) investors and getting firm commitments on the condition that they got the license. Using these commitments, they managed to secure an agreement with their partner bank. The license then helped investors to release money.
Throughout the process, Yoco’s founders learned to de-risk every stage of their journey by thinking in terms of milestones. Getting the license was one such stage.
By the end of 2014, the founders were certified by Mastercard and Visa and back in Cape Town. They then launched their first beta testing with 20 merchants.
Yoco’s founders tried to get VC in early 2015, but the investors then were not interested in a business that had been running for only two months. This setback forced them to think long term while relying on angel investors and family offices to invest in the business.
By the end of 2015, Yoco had 500 merchants. However, the team had to make the process of receiving payments simpler, efficient, and affordable for small businesses, enabling merchants to onboard themselves without hand-holding. In other words, they needed a product/market fit before talking to venture capitalists (VCs). They had to find ways to market and distribute the products efficiently and cheaply, to manage merchants at scale, and to achieve growth.
They achieved all these goals by the end of 2016. Within 12 months, they had grown from 500 merchants to 5,000 merchants and had traction, unit economies, and efficient infrastructure. They were ready for growth and the requisite VC. Yoco's road to this achievement is important for all startups to consider.
In mid-2016, Yoco held its first Series A roadshow and failed to get investors at a time when they were running out of funds. This setback forced the team to do some introspection and determine objectives to achieve and their own terms for funding. They had realized that the wrong terms and conditions had crippled their sense of self-belief and achievements; they didn’t want that anymore.
From then on, the team confidently went to meetings knowing what they wanted and had productive discussions with investors. Their second Series A funding was where they had to convince investors that there was a market for their product — which gave them $3 million in new capital and another $1 million in secondary buyouts. This act helped some angel investors to exit.
In its Series B funding drive in 2018, Yoco raised $16 million. By then, they had grown their customer base from 500 to 5,000 and were pitching for growth capital to build an entire ERP for micro and small enterprises. They wanted the mass market to join them for their card reader and stay for a wider service offering.
A Good Idea, Determination, and Persistence
Yoco’s story shows that anyone with a good idea can succeed if they are determined and persistent. Good governance also pays. From the beginning, Yoco has had formal structures, governance, and managers to run a pristine ship. This practice gave their investors comfort.
Yoco’s founding team advises any startup that requires capital injection to run the business clean from the first day, and be able to produce any requested report.
About the Author
Luigi Wewege is the Senior Vice President, and Head of Private Banking at Caye International Bank. Outside of the bank, he serves as an Instructor at the FinTech School which provides online training courses on the latest technological and innovation developments within the financial services industry. Luigi is also the published author of: The Digital Banking Revolution.