Since 2009, Goodwell Investments, an impact investment firm based in the Netherlands, Nigeria, South Africa and Kenya, has been busy investing in African businesses. It hardly misses a year. And now, as a way of continuing with its mission in Africa, the firm has launched a new $60m fund called Goodwell V.
Tayo Oviosu, founder and CEO of Goodwell Investments’ portfolio company, Paga
Following in the footsteps of its predecessor funds, Goodwell V seeks to channel capital to fast-growing, scalable small and medium-sized businesses from private investors, family offices, and foundations.
“We are convinced that businesses led by local entrepreneurs are the key drivers of inclusive growth in Africa. Therefore, the path to inclusive growth in Africa is to support early-stage companies who are best positioned to solve critical challenges in their communities. Our portfolio companies are showing average revenue growth of over 50% per annum. They have been able to withstand the perils of the pandemic by doing what they do best: providing access to essential products and services like food, transport, healthcare, and financial services. We are excited to continue the journey,” said Goodwell Director of Communications Nico Blaauw.
Which Businesses Would The Latest Fund Target?
Although not surprising (since most of the fund’s previous investments have mostly gone to the preferred sectors), Goodwell’s latest fund will particularly focus on startups active in the following sectors:
Fintech:
Goodwell says at least a third (33%) of the new fund will be invested in businesses in the financial services industry, notably fintechs.
Agribusiness:
The firm also says about a quarter (25%) will be invested in agriculture.
Others
The remainder (25%) will be spread on mobility and other impact sectors such as education and healthcare.
Follow-on:
Goodwell further states that it will, most likey, be allocating follow-on funding to its existing portfolio companies such as Copia, MFS Africa, Good Nature Agro, Tomato Jos, and Nomanini.
Apart from investing generally in the sectors stated above, Goodwell’s general investment principles include but are not limited to the following:
The firm invests in multiple stages, including assisting promising startups move from zero to serious traction. Investing from zero to traction greatly assisted it to strategically gain grounds in leading Nigerian fintech startup, Paga, which as at the time of the investment barely had customers.
The investor also prefers to invest in markets where it maintains local presence. However, it can also co-invest in deals where a co-investor has local presence in the investee’s country.
The investor targets between 15–20% returns (IRR) in euros in businesses it invests in.
The fund can also invest in several rounds in a startup to give the investments a longer runway. The investments are kept for an average of 5–7 years, before the firm begins to consider an exit.
Each of its investments can come by way of equity, quasi-equity and mezzanine loans, and it always aims to take minority stakes (20–30%) in its portfolio companies.
Its preferred exit routes include secondary market sales, shareholding transfers or exchanges, distribution network realizations, or self-liquidating processes such as management buy-outs, etc.
How To Access Goodwell Investments’ Funds?
Interested companies may reach across to the firm’s team, available here; although the best way is to directly contact the firm’s key persons.
“When we met Goodwell, in 2011, we were still at a very early stage and had no formal institutional investors on board. The first investment by Goodwell enabled us to kick-start our journey, and the second one in 2015 further accelerated our growth. In 2020 we passed the mark for 17 million users, whom we serve through a network of over 35,000 agents. We see the opportunity to connect every adult in Nigeria to financial services, and we are delighted Goodwell see things the same way!” Tayo Oviosu, founder and CEO of Goodwell Investments’ portfolio company, Paga said.
Over the last five years, the firm’s local teams in Nigeria, Kenya, Ghana and South Africa have made more than 20 investments across Africa, including in Inclusivity Solutions; CopiaKenya; Sendy; Paga; WhereIsMyTransport, among others. Goodwell’s two strong local partners in West Africa are JCS Investments in Ghana and Alitheia Capital in Nigeria.
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions. He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance. He is also an award-winning writer
More than ten years after Nigeria’s fintech company Paga was registered in the small East African island of Mauritius, the company has poured out a stream of invective against the previously notorious tax haven as it moved its headquarters to its new found love — the UK.
Tayo Oviosu, founder and CEO of Paga
“I will NEVER register a business in Mauritius again,” Tayo Oviosu, founder and CEO of Paga declared last year, in a series of tweets. “You can take that to the bank. So painful — not worth it.”
Mr. Oviosu then went on to add that “the tax benefits of Mauritius can be gained onshore UK or offshore UK or Netherlands or Luxemburg.”
The CEO, whose company has raised more than $34.7 million in funding from investors since inception said he was very excited about the UK move, as he looked forward to working with its government to promote trade in the country.
“The Paga Group has redomiciled to the UK!” Oviosu said. “The Paga Group is the holding company for our operations in all countries — Nigeria, México, Ethiopia, and the United Kingdom. Very excited about this move and look forward to working with @tradegovuk to promote trade with the UK!”
The following is an extensive discussion about why Paga is courting the UK now and what lessons African startups desirous of domiciling their startups in the small East African country can glean from these events.
Mauritius Tax Rules Have Changed For International Companies Using The Country As Their Headquarters In Order To Benefit From Low Tax
Under the former regimes operational in Mauritius, the Global Business Licence Category 1 (GBL 1), for instance, granted Holding Companies (majority of which were foreign companies with their headquarters in Mauritius) certain tax benefits, including an 80% foreign tax credit, which reduced the effective tax rate of such companies from 15% to 3%. This was also the case with Global Business Licence Category 2 (GBL 2) which granted tax exemption to companies.
By that structure, foreign companies as well as businesses operational in Mauritius profited simply by setting up Mauritian Holding Companies with little or no economic substance in Mauritius. By doing so, such companies effectively reduced their effective tax rates to a large extent.
To take care of that, Mauritius discarded the GBL Regimes in 2018, introducing a Partial Exemption Regime forGlobal Business Corporations (GBCs) operating in the country. This new regime provided for an 80% tax exemption on specified passive income of the GBC companies in Mauritius. To put it differently, since companies in Mauritius are generally taxed at 15%, the 80% tax exemption means that GBC companies have a tax liability of only 20% of the original 15%, meaning that they’re suffering a maximum effective tax rate of 3%.
Mauritius has changed its tax rules for international companies, which has partly influenced Paga ‘s choice of the UK over the country.Image for: Paga ‘s re-domiciling from Mauritius to the UK
Another key feature in the new partial exemption regime is the requirement of substance.
Under the substance feature, companies in Mauritius must meet certain requirements to enjoy the 80% tax exemption.
Some of these requirements include that a GBC company must prove that it is centrally managed and controlled in Mauritius.
In determining what operations of a company are centrally managed and controlled, the Financial Services Commission in Mauritius usually considers whether the company meets at least one of the following criteria:
a) The company has or shall have office premises in Mauritius.
b) The company employs or shall employ on a full-time basis, at the administrative/technical level, at least one person who shall be resident in Mauritius.
c) The company’s constitution contains a clause whereby all disputes arising out of the constitution shall be resolved by way of arbitration in Mauritius.
d) The company holds, or is expected to hold, within the next 12 months, assets (excluding cash held in a bank account or shares/interests in another corporation holding a Global Business Licence) that are worth at least 100,000 United States dollars (USD) in Mauritius.
e) The company’s shares are listed on a securities exchange licensed by the Commission.
f) The company has, or is expected to have, a yearly expenditure in Mauritius that can be reasonably expected from any similar corporation that is controlled and managed from Mauritius.
In practice therefore, a South African company, for instance, may have its board of directors in Mauritius while it is managed from South Africa. In this case, the authorities could say the company is not eligible for tax residency. They will now look at the substance on the ground in Mauritius.
These countries have mutual tax agreements with Mauritius through which several foreign companies could previously claim enormous tax benefits. This, in part, helps to explain Paga ‘s latest choice of the UK over Mauritius
Paga Has Outgrown All The Tax Incentives Available To Early Stage Startups In Mauritius
After spending more than 10 years domiciling on the island, Paga is no longer qualified to benefit from tax exemptions available to early stage innovative startup companies in the country.
In sweeping reforms introduced in Mauritius in 2017, income generated by any company set up in Mauritius on or after 1 July 2017 which are involved in innovation-driven activities and where the IP assets are developed in Mauritius are exempt from tax. This exemption applies for eight tax years, starting from the tax year in which the company starts its innovation-driven activities. For existing startups or companies, the eight-year tax holiday would be on income derived from intellectual property assets developed in Mauritius after June 10, 2019. In practical terms, all startups that are internet-driven in Mauritius will pay zero tax for eight years notwithstanding the size of their income.
There is also tax incentive on research and development (R&D) to the effect that during a period from 1 July 2017 to 30 June 2022, if a person has incurred any qualifying expenditure on R&D that is directly related to one’s existing trade or business, one may, in the tax year in which the qualifying expenditure was incurred, deduct twice the amount of the expenditure, provided that the R&D is carried out in Mauritius and no annual allowances have been claimed on the same. The term ‘qualifying expenditure’ means any expenditure relating to R&D, including expenditure on innovation, improvement, or development of a process, product, or service as well as staff costs, consumable items, computer software directly used in R&D, and development and subcontracted R&D.
There is also a five-year tax holiday for a startup or company setting up an e-commerce platform provided the company is incorporated in Mauritius before June 30, 2025. Also within the five-year bracket are peer-to-peer lending operators, provided the company starts its operation prior to December 31, 2020.
The newly introduced regulatory sandbox licensing regime, whereby any person who has an innovative project for which there exists either no regulatory framework at all or the existing supervisory infrastructure is inadequate for the implementation of the project, may apply for a regulatory sandbox license, also aids innovative early stage companies to obtain certain regulatory relaxations for the limited purpose of the license.
In this regard, Paga is apparently relocating to the UK because there is nothing more exceptional again, in terms of tax benefits, to gain in order to continue to reside in Mauritius, having passed the age of tax exemptions discussed above.
Paga ‘s move from Mauritius to the UK was also inspired by the latter’s increasing influence within the European startup ecosystem. Image for: Paga ‘s re-domiciling from Mauritius to the UK
None Of Paga’s Investors Is Domiciled In Mauritius, And So This Could Have Influenced The Decision To Relocate
Currently, Paga has more than 8 investors, some of which are located in the United States, the Netherlands, the United Kingdom and Nigeria. For instance, while Unreasonable Capital, Capricorn Investment Group and Omidyar Network are located in the United States, Global Innovation Fund is domiciled in the UK, while Goodwell Investments is headquartered in the Netherlands. Adlevo Capital, Acumen Fund are also both based in Nigeria. Even individual investor Jeremy Stoppelman, co-Founder and CEO of Yelp, is based in the United States.
This is perhaps one of the strongest reasons why the decision to move out of Mauritius came so easily.
“The tax benefits of Mauritius can be gained onshore UK or offshore UK or Netherlands or Luxembourg,” Oviosu noted in his tweet.“Depends on how your business operates and where your investors are domiciled.”
It makes sense therefore that Paga is now moving to London, in the United Kingdom. About 30% of European venture capitalists are based there. Startups in the UK, alone, raised between €4.5 and €5 billion in venture capital in 2017. And although companies pay a 19% corporate tax in the country, there are intentions and talks to decrease that to 17% in 2020, as a way to discourage companies benefiting from EU’s single market from moving out in the wakes of Brexit.
Additionally, UK companies with less than £85,000 taxable turnover do not have to register for VAT (value-added tax). In any case, tax rate is lower in Germany compared to the UK with corporation tax pegged at 15%. Germany also exempts businesses with taxable turnover of less than €50,000 from registering for and paying VAT. Perhaps the most convincing reason why Paga preferred the UK over other possibilities like Germany, the Netherlands, Luxembourg, or even Estonia, Sweden and Finland is because of language barrier. A majority of Paga’s investors are English-speaking; therefore, the decision to settle for the UK, which is an English-speaking country, must have been quickly reached. This is also aided by the country’s fast-paced legal system, as highlighted by Oviosu.
“The laws and courts of Mauritius are not very fast moving and the rules are difficult,” he said. “I’ve had one court case that was eventually thrown out after a year. In the UK it would have been thrown out immediately and the person would have had to pay us for our lawyer fees.”
Growth And Ease Of Doing Business
Again, eleven years down the line, Paga appears to have grown so big that it has become increasingly more difficult to continue to have its tail in Mauritius and its heads in Nigeria, and other countries. It takes approximately 6 hours to travel from Nigeria to London, but takes more than 8 hours to do so from Lagos to Port Louis, Mauritius’ capital.
“I have been burned twice now on things I was told were done but it turned out were not,” Paga CEO Oviosu said. “…To verify I may need to go to Mauritius myself or as I’ve done so far pay a lawyer to go verify.”
Therefore, given the size and growth the company has recorded in recent times, continuing to stay in Mauritius even when none of its core businesses or its investors is resident there rather appears untenable. It would have been a lot easier if the company has run most of its business activities from Mauritius all those years.
Mauritius is still a tax haven compared to most countries. To Paga, it however, didn’t make any more sense to continue to prefer the country over other jurisdictions that operate similar tax regimes, especially as those other jurisdictions also appear to have better language advantage or court system.
“They (Mauritians) speak English but…the accent is extremely hard to understand,” Oviosu said.
All these, therefore, do not mean that Mauritius no longer continues to hold the best business environment and tax regime in Africa. In terms of ease of doing business, Mauritius ranks first in Africa, and 13th in the world, ahead of countries like Australia, Germany, Canada, China, Netherlands, Belgium or Hungary.
The country also ranks first as the most innovative country in Africa and 52nd in the world according to the World Innovation Index. Globally, the Mauritian capital, Port Louis, is the 9th economy in terms of the quality of institutions and the dynamism of the markets.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions. He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance. He is also an award-winning writer
Visa’s quest for a more organic foothold in Africa for payments and technology within the continent and abroad clicked big with a new partnership deal with Nigeria based startup Paga. The deal has been described as very important for Paga’s ongoing expansion across Africa and even Mexico in North America. Paga has been on expanding its operations across West Africa and the rest of Africa with a recent foothold in Ethiopia which has helped the startup which has created a multi-channel network for over 14 million customers in Nigeria to transfer money, pay-bills and buy things digitally through its mobile-app or 24,840 agents.
Otto Williams, Visa’s Head of Strategic Partnerships
With the new arrangement, Paga account holders can transact on Visa’s global network. It will also see both companies work together on tech.The collaboration reflects a strategy of the American financial services giant to expand in Africa working with the continent’s top startups. Visa’s partnership with Paga doesn’t include investment in the startup, but it is expected to drive larger payment volumes for both companies — and Visa’s priorities in Africa.
“We want to digitize cash, that’s a strategic priority for us. We want to expand merchant access to payment acceptance and we want to drive financial inclusion,” said Otto Williams, Visa’s Head of Strategic Partnerships, Fintech and Ventures for Africa. The Paga-Visa arrangement will bring new merchant options to Paga’s network. “Based on the partnership we’re going to launch QR codes and NFC [payments] into the market in Nigeria — alternative ways of receiving payments than bringing out a physical card,” said Oviosu.
Visa and Paga’s engineering teams have already started working together, according to Oviosu, and Paga expects to roll-out these new options in Nigeria sometime in second-quarter 2020. The startup is pivoting toward becoming less of a Nigeria-centered company and more an emerging markets fintech platform. In January, Paga acquired Ethiopian software development company Apposit, on plans to launch in the East African country. After Nigeria, Ethiopia has Africa’s second-largest population of 114 million. Paga has also opened an office in Mexico and will launch its payments products there this year.
“There are several very large countries around the world in Africa, Latin America, Asia where these [financial inclusion] problems still exist. So our strategy is not an African strategy…We want to go where these problems exist in a large way and build a global payments business,” Oviosu was quoted as saying. The Visa-Paga partnership comes as fintech has become Africa’s best funded startup sector — according to latest VC reporting — with thousands of ventures vying to scale digital-finance products to the continent’s unbanked and underbanked consumers and SMEs.
As a company, Visa maintains multiple partnerships with Africa’s largest banks, but collaborating with the continent’s VC backed fintech ventures has taken center-stage. This was confirmed in Visa’s recent 2020 Investor Day presentation, which dedicated several slides to its strategy of “partnering with leading African players” in the startup ecosystem.
The global financial services company has entered into collaborations with several African fintech ventures, such as B2B payments company Flutterwave and South African startup Yoco, which is focused on enterprise payments services and hardware for SMEs. Visa has also jumped into the venture funding realm in African fintech. In 2019 Nigerian financial services company Interswitch reached a $1 billion valuation and unicorn status after Visa acquired a minority equity stake.
Visa’s Otto Williams, who has taken a lead on the company’s Africa strategy, noted non-equity collaborations will remain the primary focus — though those could lead to VC down the road. “If we have a commercial partnership in place that creates the right investment thesis…you know those strategic partnerships inform venture investments,” Williams said. Of course, Visa’s isn’t the only American financial services firm backing African tech companies. In 2019, its rival Mastercard invested $50 million in Pan-African e-commerce venture Jumia. The two are working together on developing fintech services across Jumia’s customer network.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry
