Episode 36 of BigFive Digital’s BIG5D Podcast features another speaker from the recent BigFive Digital Summit in Cape Town (aka “Africa’s Leading Small-business Technology Event”).
Our guest, Caitlin Craig, is head of private capital markets for Untapped Global, which she describes as a “Global investment company focused on emerging markets, specifically Africa. We're trying to reshape how profitable investing is done.”
Untapped follows a revenue-based financing model. What does this mean, exactly?
Caitlin says that revenue-based financing “allows us to track the health of the assets and the health of the businesses we finance through data. So a bit of a unique model that's different than traditional venture capital or, or financing in general.”
Craig is a native of Canada who joined Untapped in 2021.
Revenue-based financing involves extending capital to companies that generate revenue through assets like delivery motorbikes or point-of-sale devices.
The common denominator for these kinds of companies is their ability to capture data on the revenue each device generates and share it with Untapped so that it can monitor results and capture its share as repayment. So IoT runs through the heart of Untapped’s model. Untapped has coined the phrase “Smart Asset Financing” to describe its unique spin on revenue-based financing.
In order to qualify for an Untapped investment, a business needs to be asset heavy with productive assets (e.g., motorbikes). And these assets need to be “tech-enabled” which means they can produce data on the revenue each asset generates. This is where IoT becomes central to the Untapped model.
We asked Caitlin to explain the model by describing some of the companies Untapped has invested in.
One of these is I-Drop, a company based in Cape Town, which is also Untapped’s home base in Africa.
“I-Drop is one of our operating partners, which is what we call our portfolio companies. And they operate something called a water pod, which is a pay-per-use water filtration device,” Caitlin explains on the podcast.
“And they take their water pods and put them in mom-and-pop shops around South Africa, and in some larger grocery retail stores. And, they have run a model where they service those machines. And people can come in, and they can buy clean water at a low cost. So it is one rand per liter, which is much less expensive than buying the big three-liter bottles that you often see people have to purchase when they don't have access to fresh and clean water.”
I-Drop checks a lot of boxes for any investor in Africa. First and foremost it is using technology and innovation to address a real problem in Africa (access to clean drinking water). It’s well suited to Untapped because I-Drop’s pods are connected devices that provide the data stream Untapped needs to track its investment. The impact angle does matter to Untapped. But for Untapped, it’s about more than clean water.
“Impact is always part of the conversation when investing in Africa,” Caitlin said on the episode. “One lens we always look through and what we measure around impact is revenue generated in the local economy.”
With I-Drop, Untapped is drawn to the benefits the water pod business delivers to small entrepreneurs.
“The end user of the assets we finance are almost always small entrepreneurs and the assets we finance should help them do their jobs or help them earn revenue,” Caitlin explains.
“In the case of I-Drop, the end user is that mom-and-pop shop that is providing a service for its customers to have access to fresh water. So we're able to measure how much revenue is extra revenue that this mom-and-pop shop is making because they have access to the machine which goes in their store, and the money goes directly into their pockets,” Caitlin explains. “We're looking at how can we enable these small entrepreneurs to do their jobs or provide jobs through access to this asset that they might not have access to without financing.”
Motorbikes are another asset type that is commonly associated with asset-based funding programs like Untapped offers. As Caitlin puts it in our interview, “we've hit the sweet spot in mobility.”
One company that Untapped backs is Afridelivery in Zambia, which Craig featured, along with I-Drop, in her presentation at the BigFive Summit in Cape Town.
After all, motorbikes, like water pods and POS terminals, are well suited to Untapped’s model, as long as they are enabled to track their performance and share the data with Untapped, which many if not most logistics platforms are set up to do.
Another interesting thing about Untapped is the company takes an equity stake in very few of its portfolio companies.
“We don't traditionally take equity in the businesses, because we're doing revenue-based financing, and we're paid back through the revenue they produce,” Caitlin explains. “It's more of a debt model than anything else.”
She did say Untapped takes an equity stake in some of its investments, usually for strategic reasons. For example, if the business is scaling to multiple markets.
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Interview Excerpts
The following are a few edited excerpts from our conversation with Caitlin Craig. These excerpts represent but a fraction of our full conversation. Please listen to the podcast or watch the video to experience the entire interview.
Q: What is Untapped Global and how do you invest in African companies?
A: Untapped is a global investment company. We are focused on emerging markets, and really specifically Africa. And what we're trying to do is really reshape how profitable investing is done. Within the markets that we operate in. We really focus on high-growth companies that are asset heavy. And we offer them a revenue-based financing investment model that allows us to track the health of the assets and the health of the businesses we finance through data.
Q: How does Untapped approach equity in your operating partners?
A: We don't traditionally take equity in the businesses, because we're doing this revenue-based financing, and we're paid back through the revenue they produce. It's more of a debt model than anything else. Some of our businesses we have an equity share in. But that's much more strategic on our side because, for example, they might be scaling to multiple markets.
Q: Is there a common hardware component to the assets that you invest in?
A: The categories of assets that we finance are quite broad, but where we've really realized we've hit the sweet spot is actually in mobility. I-Drop doesn't fit into that category, but it's still a great asset class for us in clean water and filtration. But we've financed a lot of motorbikes, so two-wheelers, three-wheelers, or Tuk Tuks in different countries.
And in order for us to monitor the data, each of the businesses we work with operates those assets. So they operate the fleets of motorbikes or in I-Drop’s case, operating the water pods, they all have to be tech-enabled, meaning that they often have their own platform that they use to monitor their assets. So that commonality could be the tech element in the fact that they have their own platform. But most of these devices have IoT devices that track them. So the water pods have an IoT device that measures the usage and how much revenue is produced. The motorbikes often have trackers on them.
Q: What is Untapped doing in other emerging markets?
A: At the moment, we're also in Mexico, we have two partners in Mexico. And that's a market that we think we can grow a lot in, in Latin America, there's a lot of need in mobility. And then looking at Southeast Asia as well. Indonesia would be a great market for us. We think there's a lot of opportunity there. But we aren't specialists in those markets. And so our goal is to find the partners and potentially funds who are specialists in those markets.
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