Chaka Secures $1.5 Million In Pre-seed Funding To Accelerate The Growth Of Its Investment Platform In West Africa
Chaka secures $1.5 million in pre-seed funding to accelerate the growth of its investment platform in West Africa
Robinhood was a couple of months old when it raised its $3 million seed round in 2013, with lofty ambitions of democratizing securities access for the underserved and unserved. Since then, Robinhood has taken the world by storm, growing to over 30 million users through its zero-commission trading.
We've seen similar growth in the past trickle down to other regions of the world, inspiring similar businesses. Robinhood is no different. Numerous platforms have emerged to facilitate stock trading in their respective markets. At least four platforms in Nigeria allow individuals to trade both local and foreign stocks. Chaka is an example of such a platform. Today, it announced the completion of its $1.5 million pre-seed round, which will be used to power digital investments for individuals and businesses.
Breyer Capital led the pre-seed round, which also included participation from 4DX Ventures, Golden Palm Investments, Future Africa, Seedstars, and Musha Ventures. This is 4DX Ventures and Breyer Capital's second joint venture in less than two weeks; the first was in Egyptian social e-commerce platform Taager.
It is a well-known fact that the average American actively traded stocks prior to Robinhood. According to Gallup, approximately 60% of Americans owned some form of stock in 2000; that figure fell to 55% in 2020. This was partly due to the 2008 global financial crisis.
Impact of the Crash on Nigeria's Capital Market
The crash also had an effect on Nigeria's capital market, and because many Nigerians lost money during that time period, stock trading is generally frowned upon by the majority of the populace. Yet for the average Nigerian, trading local stocks is difficult — and nearly impossible for foreign ones.
Tosin Osibodu recognized this issue while in the United States and returned to Nigeria to found Chaka, which was officially launched in 2019. According to Osibodu, Chaka desired to provide Nigerians with opportunities to invest in dollar assets while also allowing foreigners to invest in Nigerian assets.
“If there is increased demand in the market, we anticipate that there will be increased supply over time. In the long run, we anticipate that our local capital markets will continue to grow,” he told TechCrunch in an interview. “We will enable borderless digital access to a variety of solutions, and thus it is not just about Nigerians investing in the market; it is also about making markets accessible to people locally and globally.”
Chaka has largely operated on a single front. Nigerians now have access to over 10,000 stocks and exchange-traded funds (ETFs) trading on domestic and international capital markets. The CEO asserts that by providing customers with compliant access to the capital market, the platform has lowered entry barriers for borderless investments in Nigeria.
“The thing about markets is that they are comprised of demand and supply, as well as entry barriers. We're committed to lowering those barriers in local markets, and by doing so, we'll attract more retail investors. Indeed, we brought more people into the Nigerian stock market last year than any other broker. It's comparable to a demand-supply flywheel," the CEO continued.
Chaka's domestic assets are listed on the Nigerian Stock Exchange (NSE), cleared through the Central Securities Clearing System (CSCS), and are regulated by the Nigerian Securities and Exchange Commission (SEC) (SEC). Dollar assets, on the other hand, are regulated by the US FINRA and the US Securities and Exchange Commission.
Nigerian Securities and Exchange Commission targeted digital investment platforms
In April of this year, the Nigerian Securities and Exchange Commission targeted digital investment platforms. The regulator declared their activities illegal and warned capital market participants who collaborated with them not to provide foreign securities brokerage services. Unlike Robinhood, Nigerian investment platforms do not offer online brokerage services. Chaka, for example, issues stocks and securities in collaboration with Citi Investment Capital in Nigeria and DriveWealth LLC in the United States.
According to the Nigerian Securities and Exchange Commission, the objective was to bring the activities of these platforms under its jurisdiction as part of its efforts to protect the investing public. Although Osibodu claims Chaka has been in contact with the SEC since the company's formation in 2019, that did not appear to be the case last December, when the regulator singled out the two-year-old company for "selling and advertising stocks."
The event established the precedent for the regulator's all-out assault on other digital investment platforms, allowing Chaka enough time to engage and conclude negotiations in approximately half a year. And, just last month, Chaka received the SEC's first fintech license, establishing it as the only investment platform that operates as a digital sub-broker.
“When we launched, we kept the Securities and Exchange Commission informed. However, over the last six months, we've engaged with them, demonstrating our business models, benefits, and market opportunities. We're now honored to hold the SEC's first fintech license. We believe that the most critical factor is that the market is clear and understands the regulations that must be followed in order to register. And we're overjoyed to have pioneered new territory and clarified what it takes to offer services in the market," Osibodu said.
With the new license, the company can quickly shift its focus to the future. According to Osibodu, the license broadens the scope of what Chaka can accomplish. He asserts that Chaka, in addition to being a digital sub-broker, can power multiple brokers and provide access to a variety of digital investment offerings.
Apart from its traditional stock trading app for retail investors, Chaka also offers Chaka SDK, which enables asset managers and financial institutions to offer digital investments, and Chaka for Business, which provides institutional investors with direct business onboarding and trading tools.
Breyer Capital's Jim Breyer stated, "We are proud to partner with a company that is leveling the investment playing field for Nigerians [and Africans in general]." We believe in the value Chaka provides through its digital tools and look forward to assisting Chaka's team in their mission to accelerate borderless investment in Africa.”
According to Osibodu, the pre-seed investment will be used to expand the company's footprint in Ghana and other West African markets. Improving its technology and services is also a priority, as is establishing partnerships with major financial institutions, including apex ones.
“As we progress, I believe one of the things we're most focused on is how to continue lowering access barriers, and we're proud of the initiatives we've already implemented and those that will follow. Keep an eye out for additional partnerships, including with apex institutions in our markets.”
