FrontEdge raises $10M in debt, equity through TLG and Flexport to boost trade for African exporters | TechCrunch

In the dynamic pattern of international trade in Africa, a common challenge looms: only 30% of trade volume uses banks as financial intermediaries. This glaring financing gap disproportionately affects small and medium-sized enterprises (SMEs), as larger businesses are absorbing more funding. The largest share of limited available capital.

When the annual value of international trade volumes is considered, the opportunity to reshape African trade becomes clear – A staggering $1.2 trillionWhat’s more, this untapped market highlights the need for new startups that can capitalize on it, one of which is frontThe Lagos-based fintech recently raised $10 million in a seed round of debt and equity (with the former contributing over 70%) to facilitate the growth of cross-border trade in Africa.

Established in 2021 Moni AliFrontEdge provides SME exporters and importers with the working capital and software tools they need to facilitate cross-border and international transactions. Over the past decade, the former McKinsey consultant has spent his career proposing solutions to close the financing gap for small and medium-sized enterprises in Africa. Focused on digital transformation of Tier 1 banks, particularly in Nigeria, South Africa and Morocco. FrontEdge is the culmination of his experience, the founder, who previously worked 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 what I see as a result is that balance sheets are largely allocated to large corporates. The bank’s financing process is outdated; you have collateral-based lending, which means As a result, underwriting SMEs may be seen as unprofitable,” Ali said. He founded the company after earning his MBA from Harvard Business School.

“So it makes sense to digitize these processes and customize them for SMEs, and that was the impetus for what I was trying to suggest before FrontEdge was born. Our focus is on African SME exporters. In the area of ​​cross-border trade, We see a huge gap in financing and essentially the opportunity to underwrite cross-border transactions.”

The challenges identified by FrontEdge can be seen in the pre-financing model of agricultural traders. These traders advance funds to small farmers and oversee the entire process from warehousing to transportation, which lasts 60 days. After this, there is an additional 40 to 60 days in transit, depending on the jurisdiction, before payment is made at the destination. This has resulted in large cash backlogs for exporters during the 120 to 180 day cargo cycle.

Unlike banks, FrontEdge provides upfront funding to these exporters Based on transaction underwriting, no collateral requirementsHowever, Alli said the timing of its intervention depends on the risk it is willing to take. According to him, the startup usually intervenes when the goods arrive on the actual ship or sometimes at the warehouse, with average payment terms set between 60 and 90 days, allowing the fintech to bridge working capital gaps, accelerate accounts receivable and allow Exporters participate in more transactions.

While FrontEdge initially developed a lending-first platform, it has become much more powerful. It plugs into different repositories to provide insights into cross-border trade dynamics between buyers and sellers, and underwrites buyers’ offshore credit. After completing several transactions last year, the startup observed that these entities were receiving U.S. dollar flows and recognized an opportunity to solve challenges related to capital controls and high fees within the banking system. Therefore, fintech provides support by facilitating the establishment of offshore accounts overseas to convert dollars into naira, which is the local currency for many exporters.

FrontEdge subsequently listed banks such as JPMorgan Chase and Providence Bank as partners on its website, acting as vertical banks for the needs of African traders (including financing, cross-border payments and offshore accounts). Provides exporters with software tools including logistics management, cargo insurance and document management to complement their financial services. The company’s adjacent competitors in Africa include freight forwarding companies such as Jetstream and sending; those with similar business models, e.g. mondy and Marco Finance, Serving external markets, e.g. Latin America.

“It’s a volume game and we’re essentially trying to get as many trades in as possible given that margins are so tight. So what you’re seeing in Europe and other jurisdictions is like these traders are getting this Financial support means they can offer longer payment terms to overseas buyers and thus be more competitive,” the CEO said.

“So we provide African exporters with the capital and tools they need to compete with exporters from South America, Europe or the United States. For these large buyers, the most important thing is the quality of the goods and the price. So we can provide them with financing. You can give the right terms and then level the playing field with many buyers around the world.”

FrontEdge claims its clients, SME exporters, have experienced 20% month-on-month growth since launch Ability to triple sales on the platform. The company generates revenue from a diversification of its financing transactions. Alli did not disclose FrontEdge’s revenue growth and reiterated the startup’s emphasis on avoiding losses and demonstrating successful repayments.So far, FrontEdge claims zero post-performance default rate 50 contracts, each containing multiple transactions and invoices.

Going forward, FrontEdge plans to use funding from major investors TLG Capital joins other backers including digital freight forwarder Flexport, Hire more talent, expand its financing offerings in Nigeria, Ghana, Côte d’Ivoire and Kenya, and launch additional products to diversify Sources of income other than financing. “TLG is proud to support FrontEdge in its mission to help African SMEs prosper, becoming a vital conduit for capital access and financial empowerment for African exporters. FrontEdge is strategically positioned to solve the important issues that African traders must address TLG Capital’s Investment professional Johnnie Puxley said: “To effectively participate in global trade, we are confident that leadership will execute on this vision. “

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