FrontEdge raises $10M debt, equity from TLG, Flexport to facilitate trade for African exporters

In the dynamic landscape of international trade in Africa, a widespread challenge appears large: Only 30% of trade volumes find financial intermediaries in banks. This glaring financing gap disproportionately affects small and medium-sized enterprises (SMEs), as their larger counterparts absorb a large portion of the limited available capital.

The opportunity to renew trade in Africa becomes apparent when considering the annual value of international trade volumes – a a staggering $1.2 trillion. More importantly, this untapped market highlights the need for startups to capitalize on. One of them is FrontEdgeis a Lagos-based fintech that recently raised a $10 million debt and equity seed round (the former contributing over 70%) to enable the growth of African cross-border trade.

Established in 2021 by Moni Alli, FrontEdge provides SME exporters and importers with the working capital and software tools needed to facilitate their cross-border and international transactions. In the past decade, the former McKinsey consultant has come up with solutions to close the SME financing gap in Africa, drawing a career focused on digital transformations for tier-one banks, especially in Nigeria, South Africa and Morocco. FrontEdge is the culmination of his experience, the founder, who also works in private equity at Development Partners International (DPI), told TechCrunch in an interview.

“I spend a lot of time advising banks on SME financing, but I think the result I see is that the balance sheet is largely allocated to large corporations. The financing process of banks is no longer in time; you have collateral-based lending, which means that underwriting an SME can be considered useless,” said Alli, who founded the company after completing his MBA at Harvard Business School.

“So it makes sense to digitize these processes and adapt them to SMEs, and that was the push I tried to advise before that led to FrontEdge. Our focus is on SME exporters in Africa in particular. In that cross-border trade space, we see a big gap in terms of financing and an opportunity to underwrite transactions across countries.

The challenge identified by FrontEdge can be seen in the pre-funding model of, for example, agri-commodity traders. These entrepreneurs advance funds to small farmers, managing the entire process from warehouse to transportation, which takes 60 days. After this, there is an additional transit period of 40 to 60 days, depending on the jurisdiction, before payment is made for the goods to reach their destination. This results in a significant cash tie-up within a 120 to 180 day cycle for exporters.

Unlike banks, FrontEdge provides upfront capital to exporters based on transaction-based underwriting with no request for collateral. However, Alli said the timing of its intervention varies based on the risk it is willing to take. According to him, the start-up usually participates when the goods are on the actual ship or, sometimes, in the warehouse, with typical payment terms set between 60-90 days, allowing the fintech to finance the gap in working capital, thereby facilitating receivables and allowing exporters to engage in additional transactions.

While FrontEdge initially created a lending-first platform, it has evolved to become more robust. It is plugged into various databases to provide insight into cross-border trading dynamics between buyers and sellers and to underwrite buyers’ offshore credits. After completing several transactions last year, the startup observed that these entities received dollar flows and recognized an opportunity to solve the challenges related to capital controls and high fees. within the banking system. As a result, the fintech expands support by facilitating the setup of offshore accounts abroad, allowing the conversion of dollar earnings into naira, the local currency of the majority. these exporters.

After all, FrontEdge, which lists the likes of JP Morgan and Providus Bank as partners on its website, operates as a vertical bank (comprising financing, cross-border payments and offshore accounts) that tailored to the needs of African entrepreneurs. Meanwhile, it provides software tools, including logistics management, cargo insurance and document management, to exporters to complement its financial offerings. The company’s closest competitors in Africa include freight forwarders such as Jetstream and Send; those with similar business models, such as Mundi and Marco Financial, serving external markets such as Latin America.

“It’s a volume game, and we’re trying to do as many trades as you can, given how tight the margins are. And so what you’re seeing in Europe and other jurisdictions like these merchants are given this financial support, which means they can offer longer payment terms to their offshore buyers and be more competitive,” said the chief executive.

“And so we equip the African exporter with the funding and tools needed to compete with the South American, European or US exporter. For these big buyers, what matters is the quality of the goods and the price. And so we can provide they are in financing where they can offer the right terms and then have a level playing field with most of these buyers around the world.

FrontEdge claims that its customers, SME exporters – growing 20% ​​month-on-month since its launch – have managed to triple their sales on the platform. The company’s income comes from the spread of transactions it costs. Alli did not disclose FrontEdge’s revenue growth, repeating that the startup emphasizes avoiding losses and showing successful payments. Currently, FrontEdge claims to have recorded a zero default rate after doing the above 50 contracts, each containing multiple trades and invoices.

Looking ahead, FrontEdge plans to leverage the capital provided by the lead investor TLG Capital along with other backers, including digital freight forwarder Flexport, to hire more talent, scale its financing product across Nigeria, Ghana, Ivory Coast and Kenya, and launch more products as it aims to diversify revenue streams more than financing. “TLG is proud to support FrontEdge in its mission to help African SMEs thrive, serving as a key channel to provide access to capital for African exporters and financial empowerment. FrontEdge is strategically placed to solve is an important problem that needs to be solved for African entrepreneurs to effectively participate in global trade, and we believe that the leadership will implement the vision,” said Johnnie Puxley, an investment professional at TLG Capital .

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