Stripe Atlas in Africa – Building a Global Business from Africa
Last month, Stripe announced Atlas, a product designed to give entrepreneurs everywhere access to the basic building blocks for starting a global internet business, including an incorporated U.S. business entity and bank account, a Stripe account to receive payments from anywhere in the world and $15k in credits for Amazon Web Services.
While on paper this may seem like a simple set of services, anyone who has ever attempted to set up a foreign business entity or accept payments from around the world, will have an acute awareness of the expense and complexity involved.
Processing online payments in Africa has always been an area that startups have struggled with. I personally experienced this firsthand when I tried to launch the first Tanzanian travel e-commerce site in 2009 that targeted global tourists. As an investor today, I still see many startups in our portfolio struggle to accept payments online. In many cases, they decide to build their own payment tools which is a huge distraction from where they should be focusing their efforts: on growing their core business.Africa is going through an e-commerce revolution with both large and small players establishing themselves across the market from Nigeria, Kenya to South Africa. While each market will differ slightly in the levels of infrastructure, trust and general maturity, it’s fair to say the overall African market can be tough to navigate. On the infrastructure side, e-commerce or SaaS startups are often stifled by local payment solutions whether that be due to high fees, cash flow being held for weeks, ease of use or fraud. Companies also have to deal with uncontrollable macro events in Africa that make doing a business a big challenge; such as capital and exchange controls. This was recently apparent in Nigeria where, due to the demand management policy on foreign exchange, startups found themselves in a position where they couldn’t pay for Mailchimp credits or Facebook ads as they’d reached their dollar spend limit. While being dollar dominated on revenue can help African startups to hedge against currency fluctuation, in many countries in Africa it’s impractical (and in some cases, illegal) to bill in U.S. dollars. By having access to a U.S. Stripe account, African startups will be able to instantly accept payments in over 130 currencies and a number of alternative payment methods, including bitcoin, Apple Pay, Android Pay and China’s Alipay.
Payments, however, are only part of the equation. Setting up a global business is not a task to be taken lightly and Stripe has partnered with PwC and global law firm, Orrick, to help entrepreneurs navigate the legal and taxation complexities involved — something many companies in our portfolio struggle with, especially at the Series A level. It should also be highlighted that Stripe Atlas is not replacing the local African entity. In fact, the whole rationale behind Atlas is that entrepreneurs in markets without great banking and business infrastructure, shouldn’t have to relocate overseas to access a global market. It’s common practice for global companies to set up multiple entities as they grow to suit their needs and business environment — and, with Atlas, African startups can maintain their local entity while using their U.S. entity to extend their global reach. For example, maintaining a local entity will enable you to hire locally and satisfy local regulations and payment methods, such as mobile money or local bank transfers; whereas the USA has proven itself to be a leading jurisdiction to set up a global tech company. Many startups in our portfolio have opted to re-incorporate in the USA or were incorporated there to start with for a number of reasons, including:
- Better access to funding and a stronger positioning for exit
- Access to a large market beyond their home market
- Access to infrastructure including services like Stripe, a U.S. bank account, and merchant registration on the Google Play and Apple app stores in the U.S.
These factors combined enable an African startup to compete more effectively with their international peers at both a local and global scale. As the COO of Microsoft once said in a meeting I will never forget: “Don’t bring a butter knife to a gunfight”. Startups in Africa can make themselves more attractive to investors and grow the pie for everyone when they start to behave more like global players expanding from their home country. While that may start with funding and infrastructure, it can also extend to setting up an office and placing talent abroad. Has an African startup ever set up a Valley office? European, Latin American, Chinese and Indian ones certainly have!
The journey to build a global startup with a U.S. presence is often daunting when it doesn’t have to be. Startups often spend months and thousands of dollars on the task, including travel to the USA, expensive legal fees and a mountain of confusing paperwork; or they join accelerators for mentoring and fundraising as part of the process. While Savannah Fund often lends cash to startups in our portfolio (Cardplanet and Podozi so far in 2014 and 2015) to get them up and running; there are some things we can’t control: like battling with the U.S. visa process. If these startups were U.S. incorporated it wouldn’t matter where they were from. With Atlas, applying for a U.S entity is possible with just a few clicks and a $500 fee.
At Savannah Fund, we will only endorse startups that are in our portfolio or are members of our accelerator to join the Atlas program. However, other startups should follow this quick checklist to figure out if Atlas is the right option for them:
- Is reliable internet and payments infrastructure critical to your business? This starts with secure payments and reliable cloud services, but extends to equally important areas, like currency hedging, that can be limiting in your home country.
- Do you wish to address a global market from the very beginning?
- Do you have ambitions beyond Series A funding to have a U.S. presence in order to better compete?
If the answer to these simple questions is yes, you should consider the program. More information can be found at stripe.com/atlas.