View this email in your browser                                                                                            February 3, 2021
Good morning and happy Tuesday. ICYMI Backstage Capital raised its $1.07 million offering limit on Republic in just 9 hours yesterday. For those of you that were able to get in on it before it closed, congrats. For those that weren't, you can still place yourself on the waitlist to invest in the round. 

We've got a packed lineup today. Let's get to it.
Backstage Capital - Republic's record-setting raise
Backstage Capital is a venture capital firm focused on empowering underestimated founders. Founded in 2015, Backstage has very quickly received attention from the industry's most prominent investors as a leading voice advocating for entrepreneurs that have long been overlooked by early-stage investors.
  • The venture capital industry is an extremely one-sided business that provides a disproportionate percentage of capital to white men. According to Backstage, less than 10% of all VC deals go to women, people of color, and LGBTQ+ founders.
  • While many VCs claim this to be a pipeline problem (a lack of available investment opportunities in underrepresented founders), Backstage views it as "the biggest opportunity in investment". 
  • Investing in more than 160 underrepresented teams since 2015, Backstage has paved the way for a new approach to venture capital investing. 
With the launch of Backstage Crowd, Backstage Capital has again taken an unorthodox approach to venture capital by expanding its fundraising efforts to include both accredited and non-accredited investors. Backstage has made it a focus to provide access, education, and resources to a much larger community of individual investors that have historically been shunned.

The big picture: Just as it has led the venture industry toward a more diverse future, Backstage may again be at the forefront of change. Providing non-accredited retail investors with even further access to venture stage opportunities, this record-setting raise may be the first of many to feature a venture fundraising capital from a new era of investors.
Deep dive - Asaak
Creating the digital bank of Africa
Addressing the massive $360 billion credit gap in Africa, Asaak has created a proprietary end-to-end digital lending platform that allows individuals and small to medium-sized businesses (SMEs) to receive loans and build credit. Asaak believes its platform and use of mobile technology can significantly improve financial inclusion in Africa by introducing an entirely new way of lending.
  • Asaak is strategically first focusing on meeting the immediate need for capital today followed by providing insurance, saving, and investing tools as it incrementally helps its borrowers build their credit.

Tackling Africa’s largest unmet credit need
There are an estimated 350 million unbanked individuals in Africa that lack any access to lending products. Despite its $360 billion credit gap, Africa has the highest rate of self-employment in the world.
  • In 2018, the gig economy was responsible for ~90% of all new jobs created in East Africa. According to Asaak, gig economy workers (e.g. ride-hailing drivers) and independent taxi drivers represent the fastest growing demographic in Africa today and together present a $50 billion unmet need for capital.
In Africa, gig drivers operate motorcycle taxis (known locally as boda bodas) rather than cars. Despite having steady work, they lack access to capital that allows them to purchase a motorcycle and pay for everyday expenses.
  • Traditionally, drivers rent their motorcycles from a “boss”. In addition to being required to pick up and drop off the bike at the beginning and end of each workday, drivers are responsible for their own repairs. Between the cost of renting the motorcycle and the price of the never-ending repairs, drivers are often left with little to show for their work by the end of the day.
With Asaak, drivers no longer need to lease motorcycles. Rather than renting, Asaak empowers drivers to purchase their own motorcycle by providing them with a loan that in many cases would have otherwise been unattainable.
  • In Uganda, where Asaak has first begun its operations, there are estimated to be over 1 million drivers. With an average boda loan size of $1,500, Asaak estimates the total market for motorcycle lending in Uganda to be $1.5 billion.
Asaak’s business model
From beginning to end, the entire Asaak experience is digital. After completing their application through Asaak’s mobile app, potential borrowers receive their credit score immediately. Unlike traditional African commercial banks that take weeks for borrowers to receive their loans, Asaak’s loans are received in a matter of days. The entirely digital process allows Asaak to streamline the application process, onboard its borrowers with less friction, and reduce fraud.
  • When a borrower applies for a loan, Asaak captures hundreds of data points and uses its machine learning capabilities to formulate its proprietary Asaak Credit Score (ACS).
  • Where standardized credit scores don’t exist, the ACS acts as a replacement. As drivers enhance their ACS over time, they may be rewarded with more favorable terms. Scores can primarily be raised by completing more rides or earning more.
Asaak is focused on partnering directly with gig economy companies like Uber, Jumia, SafeBoda, etc. to finance their drivers’ purchases of motorcycles. In exchange, it receives data about its applicants. Equipped with information such as customer ratings, trips completed, and money earned, Asaak is able to better understand the creditworthiness of each applicant. This increased level of insight has yielded an industry-leading payment collection rate of 95%.
  • By sourcing its borrowers online from its partnerships rather than through the antiquated brick-and-mortar retail approach utilized by traditional African lenders, Asaak has been able to drastically lower its customer acquisition costs (CAC) to $25.
Based on the driver’s risk profile and their ability to make payments, Asaak offers different motorcycle models and varying loan terms. Depending on the applicant’s choice, loans range in length from 15 to 24 months.
  • Its most popular boda loan is spread out over two years, but borrowers are permitted to repay the full loan in as few as 3 months. As an incentive, borrowers who prepay their loans are rewarded with discounts on future loans.
Should the borrower pay off their motorcycle before required, Asaak does not charge interest for the month(s) that were lost. When drivers pay off their first loan, Asaak has seen a high number of repeat borrowers that immediately come back for a loan on a second bike. Having paid off the first motorcycle, drivers commonly look to rent it as a second source of income while they return to Asaak to take out another loan on a second bike that they will use for themselves.

If a driver defaults on their loan (30+ days late), Asaak’s recovery department uses the GPS tracking installed in each bike to find and repossess the motorcycle. In the event that the motorcycle is stolen, Asaak is compensated by insurance.
  • Below the industry average, less than 7% of Asaak’s portfolio is currently beyond 30 days late. Because of its mitigating strategies accounting for this risk, the company doesn’t expect to receive material losses on its defaulted payments.
Depending on the borrower’s ASC, the average motorcycle loan charges an interest rate of 34% per year. These rates are competitive with commercial banks and 50% cheaper than loan shark alternatives. While charging rates similar to its brick-and-mortar competition, Asaak’s fintech approach has allowed it to realize a higher margin on its loans by creating a streamlined lending process.
  • On its motorcycle loans, Asaak has maintained 39% gross margins and 17% profit margins that have resulted in four consecutive months of profitability. As the company scales its motorcycle lending operation, it expects to remain profitable and expand its margin as it accumulates a larger customer base.
Why motorcycle lending?
Asaak knew that it wanted to address the massive lack of credit solutions in Africa, but it didn’t always look at servicing the gig economy as the foundation it would need to do so. From 2016-2018, the company tested several loan solutions before developing its understanding of what was most effective, impactful, and scalable. Broadly trying to provide loans for numerous needs at various amounts, however, created several challenges.

Before settling on motorcycle lending, Asaak provided businesses with cash loans that were collateralized with an existing land title. As it turns out, cash was not always used as expected. Additionally, the legal process to sell a land title belonging to a borrower became lengthy and overly complicated, with some court cases taking years to resolve.

Pivoting to its current model, Asaak now directly disburses productive assets that can only be used to generate income. Now, each loan is backed by the motorcycle itself, a highly liquid asset in Africa with slow depreciation. Each motorcycle is GPS tracked and comprehensively insured, making it much easier to repossess than an immovable piece of land, for example.
  • Previously, borrowers paid Asaak a small application fee of 3% to access a credit facility. Now, they make down payments of 17-54% of the motorcycle cost, which better aligns interests by forcing them to put more of their skin in the game.
Tackling the broader unmet credit needs of the African population
By first becoming the dominant asset lender in Africa and obtaining the business of one of the continent’s largest professions, Asaak is positioning itself to ultimately grow into “Africa’s premier digital bank”. The company has set its sights on building on its foundation to create a consumer banking juggernaut that will eventually be capable of servicing all financial services needs.
  • From lending solutions to insurance and savings, Asaak is working toward a future where it can be the one-stop-shop for the enormous population of Africans that remain without even a bank account yet still face many of the same financial needs as those with one.
So how do they make that happen?
They do it by creating a sticky business model that offers unmatched solutions for a massive audience that has failed to receive the attention of Africa’s commercial banks.
  • African banks have long ignored SMEs, those unable to read and write, and those who don’t own developed land. This restriction has limited them to serving only the wealthiest 5-10% of the population. Asaak has made it its mission to meet this critically unmet need of the “middle and bottom of the pyramid”.
Asaak has initially focused its efforts on serving the population of Uganda. Using the proceeds from the current equity crowdfunding offering, the company aims to launch its lending pilot in Kenya tentatively this year. It expects to first expand throughout East Africa (Rwanda &Tanzania) and then launch in West Africa (Nigeria and other countries where motorcycles are common).
  • With its gig economy partners operating in markets across all of Africa, Asaak believes it will be able to scale its operations cost-effectively across the entire continent as it expands its business with its existing partners.
Strategically first offering credit solutions, Asaak is beginning with the largest unmet financial need and most efficient way to collect data on its clients. As borrowers pay down their loan and build equity in their motorcycle, they will be able to improve their ACS and prove their creditworthiness over time.
  • Asaak will leverage this data and appropriately offer additional lending, insurance, and savings products. In a 2020 study run by Mastercard, it was found that loans, instant payments, and insurance are the top three perks desired by gig workers in East Africa.
Asaak is working toward building a personal financing ecosystem that goes far beyond what is available today by presenting borrowers with the ability to purchase fuel on credit, finance smartphones, and take out personal loans.
  • Asaak recognized that ride-hailing drivers want to join a ride-hailing app, so it created smartphone financing. It saw paying for fuel as a pain point, so it created its fuel financing product. It experienced that drivers of cars, minibusses, and trucks (both ride-hailing drivers and not) were in need of similar credit solutions, so it is planning to offer loans that meet this largely unmet demand.
The goal, however, is not only to serve ride-hailing drivers. It noticed ride-hailing positions are commonly held by men, so it’s working on targeting the female population by offering financing solutions for agricultural assets such as irrigation equipment, which would be focused primarily on a female audience. Through its smartphone financing solution, Asaak also expects to reach a more diverse audience than the ride-hailing gig economy that it has focused its initial efforts on.
Using its advanced fintech approach and digital capability, Asaak has been able to automate its lending services and provide loans on smaller ticket products like the smartphone and fuel financing solutions referenced above.
  • Because the administrative costs would be too great for a brick-and-mortar lender, they are unable to afford lower-costing loans. Despite these highly sought-after credit solutions being entirely nonexistent for much of the population, the demand for them is real.
Asaak believes its ability to introduce such credit solutions will solve real problems in the lives of its customers and greatly increase the lifetime value (LTV) of each borrower. Specifically, it believes addressing the other credit needs of its audience will result in a 38.5% higher customer LTV ($1,680) than traditional commercial lenders.
  • This $1,680 LTV is based on a customer that takes a motorcycle loan, fuel loan, personal loan, and smartphone loan over the course of 24 months. Despite the newness of these additional lending solutions, Asaak noted that ~25% of its borrowers have taken out a loan on more than one product.
With an estimated one million boda drivers In Uganda and an average boda loan size of $1,500, Asaak believes the immediate motorcycle lending total addressable market (TAM) to be approximately $1.5 billion just in Uganda. Adding car, matatu (minibus), and truck financing solutions, as well as smartphone financing, fuel credit, and personal loans, Asaak is looking to serve a much larger market that it believes to be valued at approximately $7-$10 billion in Uganda alone.

Asaak’s Competitive Advantage
Asaak primarily competes with traditional commercial banks in providing loans to borrowers. These lenders typically have a network of brick-and-mortar branches, but they lack a material technology component. Asaak’s key differentiators include:

1. Speed: Asaak’s proprietary software provides instant feedback to the borrower and enables it to provide a loan in less than four days. Its AI and machine learning technology paired with its simple user interface has created the cheapest and fastest solutions for its customers. Due to their antiquated and manual processes, traditional commercial banks require an average of 40 days to provide a loan.
2. Collateral: All of Asaak’s loans are backed by liquid assets, ensuring its ability to recover in case of a default scenario.

Asaak competes with two direct competitors: Watu and Tugende. Both of these lenders use a brick-and-mortar DTC approach. Asaak’s advanced process has yielded it with lower overhead, higher efficiency, and the ability to scale faster. Using the traditional brick-and-mortar DTC model, underwriting a motorcycle loan includes visiting the boda driver’s house, the houses of two guarantors, and finally the “boda stage”.
  • A boda stage can be thought of as the driver’s normal area of operation where he reports for work in the morning and waits for passengers. Boda stages are licensed and regulated by the government.
  • These four field visits result in the industry average turnaround time of roughly 30 days. Despite conducting only one field visit compared to the industry average of four visits, Asaak’s collection rate (95%+) is above the industry average.
  • Through its partnerships with ride-hailing apps, Asaak’s turnaround time has been lowered to roughly four days due to its ability to quickly, cheaply, and more accurately make a credit decision.
If Asaak’s streamlined approach and ability to offer first-of-its-kind loans on a diverse suite of products wasn’t enough, the price differentiation should play a convincing role. The standard industry practice included locking drivers into a fixed 2-year term loan in which they ultimately were responsible for paying over 2x the motorcycle cash price by the time the loan had been paid off. Asaak felt this was unfair to the driver, so it introduced the option to prepay a loan and earn a discount rather than a penalty.
  • By charging interest based on the time that the borrower had the bike, the driver is motivated to pay off the loan early. Rather than viewing this as leaving profits on the table, Asaak views this as an opportunity to grow its lending.
  • Drivers that pay off their loan early often return almost immediately to take out a new loan on a second motorcycle. This driver-friendly approach allows borrowers to accumulate a fleet of motorcycles that they will subsequently rent out to a new group of borrowers, which allows them to collect revenue on their paid-off bikes while they continue to drive their own personal bike that they are renting with the help of Asaak.
Enabling first-of-its-kind loans
To finance its loans, Asaak partners directly with institutional investors. The investors are mostly based in the U.S. and are investing on USD terms. As of January 31, 2019, it had taken 109 loans from investors, which ranged in value from $500 to $75,000. On the loans it had taken, interest rates ranged from 10% to 40%.
  • The terms of each loan have ranged from 6 months to 36 months. The balance of all outstanding loans was $639,825, with maturity dates varying. The average rate on its outstanding debt is 12.7%, with 11% being agreed upon in the most recent transaction.
Asaak has raised approximately $2.2 million to date to fund its loan book. It recently received a $10 million term sheet from a private credit fund for a draw-down debt facility, ensuring it has the capital necessary to scale its lending operation. Asaak also partnered with Untapped in Q4 ‘20 to de-risk its lending activity and diversify its capital base. Untapped is an institutional lender focused on Africa that purchases whole loans from Asaak, paying Asaak with servicing and origination fees.
  • Asaak splits the upside of the borrower’s repayment with Untapped and is paid an origination fee at the time of loan origination by its new partner. Untapped currently holds 25% of Asaak’s active portfolio. Asaak, however, is in the process of finalizing a term sheet with Untapped for a larger facility.
  • When asked about its expected split with Untapped in the future, Asaak suggested it would ideally like to have the majority of its loans held off its balance sheet (meaning Untapped or another buyer would purchase the loans) in order to de-risk its balance sheet and maintain a healthy debt/equity ratio.
Finally, Asaak is in the process of building a retail platform that will enable individuals to invest in Asaak’s loans. Though detail on this initiative has been limited, the company has indicated that it expects to launch the platform in the next 12 months.

Mapping out Asaak’s trajectory
From April through August, Asaak helplessly watched its monthly revenue plummet as strict Covid lockdowns banned all public transportation. As a result of the Covid-19 pandemic, many lost their jobs and were left without a source of income.
  • As a result, the boda business took off as unemployed workers poured into the ride-hailing space looking for a new stream of income. Just as quickly as the demand for motorcycle loans plummeted, they recovered and soared to new heights.
Building on its post-pandemic successes of growing its loan originations 35% month over month, Asaak’s 2021 initiatives include:

1. Open 2-4 new branches in Uganda. Asaak currently has two in the country – one in Kampala and the other in Soroti.
2. Leverage existing relationships with ride-hailing partners to launch and scale business efficiently in Kenya. Additionally, Asaak is actively working toward establishing a partnership with Uber. Though Asaak has established partnerships with other ride-hailing companies, it has not yet entered into an agreement with Uber.
  • According to Asaak, Uber has recently originated a partnership agreement document, which it expects to sign soon. A partnership with Uber will help Asaak achieve its goals in 2021 and beyond by further aligning itself to better serve the gig economy.
With a total loan origination goal of about $5 million, Asaak plans on deploying 3,400 motorcycle loans in 2021. Making an average of $38 in monthly revenue per bike, Asaak is expecting $1.6 million in 2021 revenue. With $29,942 in January revenue and $50,636 in February, it presumably expects to significantly ramp up its operations each month this year.
Asaak’s long-term revenue projections:
  • 2021 – $1.6M
  • 2022 – $8.5M
  • 2023 – $28.8M
  • 2024 – $92.5M
  • 2025 – $290M
CEO, Kaivan Sattar, first developed his mission to redefine finance in emerging markets during his time spent at University. While conducting field research in Ghana, Bangladesh, and India, Sattar spent time learning how the poor save and borrow money without access to banks. It was this research that directed him toward building Asaak.
  • Sattar holds a master's in Operations Research from Columbia University and a bachelor’s in mathematics-Economics from New York University.
  • He most recently worked as a data scientist at LendingHome and previously as a quant at the Federal Reserve Bank of New York for three and a half years where he evaluated loans in the Discount Window’s $2 trillion portfolio. At the Federal Reserve Bank of New York, he was also the lead developer of two risk models for the Fed’s annual stress test of “Too Big to Fail” banks.
Funding history and future financing requirements
Asaak has received funding from notable investors such as Resolute Ventures, 500 Startups, The Catalyst Fund, HOF Capital, and Social Capital. To date, it has raised a total of $4.4 million in equity, debt, and grant financing. Rounds have been raised as follows:
  • 2018: $1.5M priced seed round at $6 million post-money valuation.
  • 2020: $750K convertible note seed extension round at $8 million post-money valuation.
  • 2021: $2-3M Pre-Series A (Republic Reg CF offering is part of this). $10M post-money valuation. Asaak is in discussions with several VCs and impact funds to join this round.
  • 2016-2021: $2.2M debt financing to fund the loan portfolio. All of this debt financing has not yet been deployed.
Asaak has asserted its confidence in closing its pre-series A in the coming months. At this point, the SAFE that is being offered on Republic would convert to shares of stock in Asaak. Asaak has also expressed its intention to raise a $4-6 million Series A later this year. Immediate funds will primarily be spread across three initiatives:

1. Geographic expansion – With two branches currently in Uganda, Asaak is aiming to have six by the end of the year. It also plans to launch a lending pilot later this year in Kenya.
2. Tech and data investments – Funds will be used to further the company’s digital advantage by automating more of the lending process.
3. Diversifying assets – With a steadily growing supply of drivers, Asaak plans to finance cars, matatus, and trucks in the future. Additional financing will help it turn this goal into a reality.

Valuation and closing thoughts
Asaak is raising capital through a crowd safe with a 10,000,000-valuation cap and a 20% discount. As noted above, the Asaak team has made mention of an institutional round that they anticipate closing later this year. At that point, investors in this Reg CF offering can expect their shares to convert.

Though Asaak has found success in raising previous rounds of capital from some well-established investors, its growth thus far has remained somewhat unexcitable. Its sluggish start, however, has been almost entirely due to two factors, both of which Asaak has mitigated.

1. Beginning initially with a wide variety of loans that were backed by land titles, Asaak was burned by its inefficient lending, which amounted to notable bad debt expenses of 291,661 in 2018 and 176,364 in 2019. Reviewed in detail above, the Asaak team used this critical learning experience to pivot into boda-specific asset-backed loans.
2. Just as Asaak began to hit its stride with boda loans, Covid hit. Asaak’s business was erased overnight. The Asaak team believes it has emerged from the Covid-19 pandemic stronger and better-positioned to tackle its target market. Still, this resulted in months of poor performance that have seemingly been factored into this valuation. All of this to say that this round may be priced somewhat at a discount due to Asaak’s stumbling out of the gate. The company has seen little appreciation in its valuation and I expect that is largely due to these two factors.
  • Having put these roadblocks in the rear-view mirror, the Asaak team may be poised for robust growth. This growth, of course, depends entirely on its ability to execute its strategy and efficiently utilize the financing it receives from this round and ones to follow.
As a first-mover to offer an innovative lending solution in a market and location that has largely failed to work in favor of the borrower, Asaak’s use of technology and data presents a potentially unfair advantage.
  • Its entirely digital approach and lowered CAC will enable it to diversify its lending solutions across lower ticket borrowing needs that existing lenders in Africa are unable to match.
  • Its unique flywheel that includes ride-hailing companies, individual borrowers, and recurring loan disbursements is an innovative way to efficiently build a sticky business with tremendous potential.
Like any other startup, an investment in Asaak comes with substantial risk. There’s no denying Asaak’s enormous addressable market, but its ability to successfully execute on its mission and scale its business across multiple markets remains in question and is primarily what a bet on Asaak hinders on.
Want me to take a deep dive look into a particular offering, ask any questions, or just reach out and introduce yourself? Shoot me an email at Otherwise, I'll see you next week.
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