Revisiting The Demise Of South African Blockchain Startup Wala. Did Investors Miss A Great Opportunity?
If Tope Awotona, a Nigerian immigrant in the United States, had waited for some “ignorant and shortsighted” VCs to fund his startup Calendly around 2013, the startup’s space at the Atlanta Tech Village in the United States would have been rented out long ago, and Awotona would have returned to his worst fears. But intensive bootstrapping meant that Calendly had gone farther than expected, to the surprise of even the VCs themselves, who had no choice but to commit up to $350m in funding recently. However, while Awotona had been so lucky, Wala, the South African blockchain startup founded by the Chicago-born Tricia Martinez saw no luck. It has been almost two years since it was declared dead, and Martinez had moved on —now a White House innovation fellow in charge of creating, developing, and executing a strategy for AI and machine learning at the U.S. Department of Energy’s Artificial Intelligence and Technology Office.
Since then, Bitcoin, belonging to the same industry Martinez had attempted to disrupt, had surged rapidly like wildfire, not only in global acceptance, but also in value. To be precise, in terms of value, between July 2019 when Wala was shut down and February 2021, the price of Bitcoin has increased from around $9k to over $37k, representing an increase of over 290%. And in terms of acceptance, South Africa has become one of the biggest markets for cryptocurrencies in Africa — Martinez said in the first four months of the launch of the token its users rose to over 150,000. But these are now fond memories. Marching back into the dark past, it is increasingly beginning to look as though investors who refused to invest in Wala might have missed a Dragon startup. A closer look on why this is so or not would be necessary.
Read also:Which Investors Invest In African Blockchain And Crypto Startups? Here Is A List.
Investors And A Lost Opportunity?
At the time Wala was shutting down, the California-based Rohinhood, founded barely a year before Wala, and which launched Robinhood Crypto later than the South African startup, was raising a $323M Series E funding round at a $7.6 billion valuation. The round was later led by DST Global, with participation from investors including Ribbit Capital, NEA, Sequoia, and Thrive Capital. One would have quickly called out the VCs (if at all Martinez pitched them) for their deep-seated double standard or bias; but they might, nevertheless, still have taken solace in the fact that 2019 was a bad year for crypto-based startups, the world over — leading blockchain investors such Andreessen Horowitz, for example, which participated in 14 funding rounds with an aggregate value of nearly $850 million in 2018, had only backed five deals valued at a little over $75 million as at August, 2019, a month after Wala shut down. In fact, investors were so generally lethargic about investing in that space that year (following the crash of Initial Coin Offerings throughout the most of 2018) that the amount of capital invested in crypto-based startups in the first quarter fell sharply by 97%. The small volume of investments went mostly to crypto currency exchanges and not to startups doling out new coins or tokens, such as Wala.
Source: Crunchbase
Now, it is important to note that Martinez was wrong, to some extent, to have stated that “not many investors wanted to back a crypto… startup focused on African markets.” While it is true that there are not so many deals closed on blockchain startups in Africa, a majority of the deals had gone to crypto exchanges or startups that combined blockchain with other non-blockchain features, such as fintech etc. In January 2017, US-based Draper VC led a $2.5m round investment in digital currency payments platform BitPesa, now AZA Group. Other big names in the industry such as Digital Currency Group, Pantera Capital Management, Blockchain Capital, Zephyr Acorn, FuturePerfectVC, and BnkToTheFuture also joined in that round. BitPesa had earlier raised $1m in 2015 from Digital Currency Group and Panterra Capital. The table below shows, more aptly, these VC activities on the African cryptocurrency market since the start of the blockchain bubble on the continent.
| S/N | Name of Investor | Location | Investee Companies | Business Model of Investee Companies | Year of Investment | Amount of Investment/Remarks |
|---|---|---|---|---|---|---|
| 1 | 100x Ventures (BitMEX) | India | VALR (South Africa) | Cryptocurrency trading | 2020 | $3.4 million (Co-investment) |
| 2 | 4Di Capital | South Africa | VALR (South Africa) | Cryptocurrency trading | 2020 | $3.4 million (Co-investment) |
| 3 | Bittex | USA | VALR (South Africa | Cryptocurrency trading | 2019 | $1.5 million (Co-investment) |
| 4 | Montegray Capital (Michael Jordaan) | South Africa | VALR (South Africa) | Cryptocurrency trading | 2019 | $1.5 million (Co-investment) |
| 5 | 500 Startups | USA | Pravica (Egypt) | Email communication backed by blockchain | 2020 | $500k (Co-investment) |
| 6 | Modus Capital | Dubai | Pravica (Egypt) | Email communication backed by blockchain | 2020 | $500k (Co-investment) |
| 7 | DYRE Ventures | Estonia | Pravica (Egypt) | Email communication backed by blockchain | 2020 | $500k (Co-investment) |
| 8 | Alphabit | USA | The Sun Exchange (South Africa) | Off-grid energy backed by cryptocurency | 2020 | $500k (Co-investment) |
| 9 | Kalon Venture Partners | South Africa | The Sun Exchange (South Africa) | Off-grid energy backed by cryptocurency | 2018 | $1.6 million (Co-investment) |
| 10 | Network Society Ventures | USA | The Sun Exchange (South Africa) | Off-grid energy backed by cryptocurency | 2018 | $1.6 million (Co-investment) |
| 11 | BoostVC | USA | The Sun Exchange (South Africa) | Off-grid energy backed by cryptocurency | 2018 | $1.6 million (Co-investment) |
| 12 | Techstars | USA | The Sun Exchange (South Africa) | Off-grid energy backed by cryptocurency | 2018 | $1.6 million (Co-invesment) |
| 13 | Powerhouse | Oakland, California (USA) | The Sun Exchange (South Africa) | Off-grid energy backed by cryptocurency | 2018 | $1.6 million (Co-investment) |
| 14 | Payitup Clearinghouse | London, UK | Bitfxt (Nigeria) | Cryptocurrency trading | 2020 | $15 million (Investment withdrawn over company-investor relations issues) |
| 15 | Andreessen Horowitz | USA | Yellow Card (Nigeria) | Cryptocurrency trading | 2020 | $1.5 million (Co-investment) |
| 16 | Celo Ecosystem Fund; Polychain VC | USA | Yellow Card (Nigeria) | Cryptocurrency trading | 2020 | $1.5 million (Co-investment) |
| 17 | Naspers Group | South Africa | Luno, formerly BitX (South Africa) | Cryptocurrency trading | 2015 | $3 million (Co-investment) |
| 18 | Barry Silbert (Digital Currency Group | USA | Luno (South Africa); BitPesa (Kenya) Custos (South Africa) | Cryptocurrency trading; currency trading | 2016; 2017; 2020 | $9m; $2.5 million (Co-investments); $265k |
| 19 | Venturra Capital | Indonesia | Luno (South Africa) | Cryptocurrency trading | 2015 | $4 million (Co-investment) |
| 20 | Balderton Capital | UK | Luno (South Africa) | Cryptocurrency trading | 2017 | $9 million (Co-investment) |
| 21 | AlphaCode | South Africa | Luno (South Africa) | Cryptocurrency trading | 2017 | $9 million (Co-investment) |
| 22 | Moses Onitilo; John Kamara; Olusegun George | Nigeria | Jamborow (Nigeria) | Fintech startup powered by blockchain | 2020 | $400,000 |
| 23 | Meta Change Capital Fund | London, UK | No history of investment | – | – | Newly launched $100 million fund for African blockchain startups |
| 24 | Havaic | South Africa | Custos (South Africa) | Content protected by blockchain against piracy | 2017 | $186,000 (Investment under litigation) |
| 25 | Technology Innovation Agency | South Africa | Custos (South Africa) | Content protected by blockchain against piracy | 2016 | $420,000 |
| 26 | Innovus Transfer Technology (Owned by Stellenbosch University) | South Africa | Custos (South Africa) | Content protected by blockchain against piracy | 2016 | $1.5 million (Co-investment) Custos founder was a staff at Stellenbosch university. |
| 27 | Microtraction | Nigeria | BitSika (Ghana) | Cryptocurrency trading | 2019 | $65,000 |
| 28 | Two Hop Ventures | Amsterdam, The Netherlands | Centbee (South Africa) | Payments powered by bitcoin | 2020 | $1.3 million |
| 29 | Paper Plane Ventures | Johannesburg, South Africa | Centbee (South Africa) | Payments powered by bitcoin | 2020 | Exited. |
| 30 | Calvin Ayre (Angel) | Canada | Centbee (South Africa) | Payments powered by bitcoin | 2019 | $1.3 million |
| 31 | DeepCore | Japan | UTU Tech (Kenya) | Tokenized trusted service and decentralized trust infrastructure | 2019 | $500,000 (Co-investment) |
| 32 | Kepple Africa Ventures | Kenya; Nigeria | UTU Tech (Kenya) | Tokenized trusted service and decentralized trust infrastructure | 2019 | $500,000 (Co-investment) |
| 33 | Artesian VC | Sydney, Australia | UTU Tech (Kenya) | Tokenized trusted service and decentralized trust infrastructure | 2018 | – |
| 34 | Animoca Brands | Cyberport, Hong Kong | UTU Tech (Kenya) | Tokenized trusted service and decentralized trust infrastructure | 2018 | – |
| 35 | Zeroth.AI | Hong Kong | UTU Tech (Kenya) | Tokenized trusted service and decentralized trust infrastructure | 2017; 2018 | – |
| 36 | Binance Labs | Hong Kong | Xend Finance (Nigeria) | Fintech for credit unions and co-operatives powered by blockchain | 2019 | Undisclosed |
| 37 | Google Launchpad | San Francisco, USA | Xend Finance (Nigeria) | Fintech for credit unions and co-operatives powered by blockchain | 2019 | Undisclosed |
| 38 | AU21 Capital | San Francisco, USA | Xend Finance (Nigeria) | Fintech for credit unions and co-operatives powered by blockchain | 2020 | $1.5 million (Co-investment) |
| 39 | TRG Capital | Amsterdam, The Netherlands | Xend Finance (Nigeria) | Fintech for credit unions and co-operatives powered by blockchain | 2020 | $1.5 million (Co-investment) |
| 40 | JUN Capital | China | Xend Finance (Nigeria) | Fintech for credit unions and co-operatives powered by blockchain | 2020 | $1.5 million (Co-investment) |
| 41 | Amplifi | info@amplifi.vc | Xend Finance (Nigeria) | Fintech for credit unions and co-operatives powered by blockchain | 2020 | $1.5 million (Co-investment) |
| 42 | ARCH Emerging Market Partners | London, UK | The Sun Exchange (South Africa) | Off-grid energy backed by cryptocurency | 2020 | $3 million |
| 43 | MEST Africa | Ghana | MEST Africa Challenge (Around May each year) | – | – | $50,000 |
| 44 | Newton Partners | South Africa | Block.one (USA); BitGo (USA) | Black.one: Blockchain protocol based on the cryptocurrency EOS. The smart contract platform conducts millions of transactions per second; BitGo: digital asset trust and security. | – | Varies. |
| 45 | HQ Financial Group | Singapore | Aella –CreditCoin (Nigeria) | Blockchain-based lending marketplace | 2020 | $10 million debt |
| 46 | nChain | London, UK | Centbee (South Africa) | Payments powered by bitcoin | 2018; 2019 | $1.3 million |
| 47 | GMC coLABS | USA | FarmShine (Kenya) | Blockchain-based agritech | 2019 | $250,000 |
| 48 | Development Bank of Southern Africa | Johannesburg, South Africa | BitPesa (Kenya), now AZA Group | Blockchain payments startup and digital foreign exchange | 2019 | $15 million debt. |
| 49 | Pantera Capital | San Francisco, USA | BitPesa (Kenya) | Blockchain payments startup and digital foreign exchange | 2015 | $1.1 million, $2.5 million (Co-investments) |
| 50 | Bitcoin Opportunity Fund. | New York, USA | BitPesa (Kenya) | Blockchain payments startup and digital foreign exchange | 2015 | $1.1 million (Co-investment) |
| 51 | Crypto Currency Partners (Blockchain Capital) | California, USA | BitPesa (Kenya) | Blockchain payments startup and digital foreign exchange | 2015 | $1.1 million (Co-investment) |
| 52 | Future Perfect Venture | New York, USA | BitPesa (Kenya) | Blockchain payments startup and digital foreign exchange | 2017; 2015 | $1.1 million, $2.5 million (Co-investments) |
| 53 | Stephens Investment Management | Houston, Texas, USA | BitPesa (Kenya) | Blockchain payments startup and digital foreign exchange | 2015 | $1.1 million (Co-investment) |
| 54 | Draper VC | USA | BitPesa (Kenya) | Blockchain payments startup and digital foreign exchange | 2017 | $2.5 million (Co-investment) |
| 55 | GreyCroft Partners | USA | BitPesa (Kenya) | Blockchain payments startup and digital foreign exchange | 2017 | $2.5 million (Co-investment) |
| 56 | Blockchain Capital | San Francisco, USA | BitPesa (Kenya) | Blockchain payments startup and digital foreign exchange | 2017 | $2.5 million (Co-investment) |
| 57 | BnkToTheFuture | Cayman Islands (Western Carribean) | BitPesa (Kenya) | Blockchain payments startup and digital foreign exchange | 2017 | $2.5 million (Co-investment) |
| 58 | Zephyr Acorn | Nairobi, Kenya | BitPesa (Kenya) | Blockchain payments startup and digital foreign exchange | 2017 | $2.5 million (Co-investment) |
| 59 | The BitFury Group | EU/USA | BitPesa (Kenya) | Blockchain payments startup and digital foreign exchange | 2016 | Undisclosed |
| 60 | Plug and Play | USA | BitPesa (Kenya) | Blockchain payments startup and digital foreign exchange | 2017 | Undisclosed |
| 61 | Citigroup | Kenya | 4G Capital (Kenya) | Blockchain fund raising platform for microfinance | 2020 | $2 million, equity & debt. (Co-investment) |
| 62 | Lateral Capital | USA | 4G Capital (Kenya) | Blockchain fund raising platform for microfinance | 2019 | – |
| 63 | Ceniarth LLC | London, UK; USA | 4G Capital (Kenya) | Blockchain fund raising platform for microfinance | 2019 | – |
| 64 | Starfleet Incubator | Sofia, Bulgaria | UTU Tech (Kenya) | Tokenized trusted service and decentralized trust infrastructure | 2018 | Undisclosed |
| 65 | Nikola Stojanow (æternity Ventures) | Sofia, Bulgaria | UTU Tech (Kenya) | Tokenized trusted service and decentralized trust infrastructure | 2018 | $250,000 |
| 66 | Tachyon Accelerator, run by Consensys Ventures | USA | Elkrem (Egypt) | hardware blockchain | 2018 | $75,000 |
| 67 | UNICEF Innovation Fund | – | Utopixar | Decentralized blockchain technology platform where people and organizations can collaborate on initiatives addressing social and environmental challenges | 2018 | $100,000 |
| 68 | Longlash Ventures | Singapore | Xend Finance (Nigeria) | Fintech for credit unions and co-operatives powered by blockchain | 2019 | Undisclosed |
In any case, it is worthy of note that although the value of Bitcoin has seen an astronomical climb, the same cannot be entirely said of other cryptocurrencies, of which Dala owned by Wala was one. Therefore, given, also, the widely known volatility of cryptocurrencies, and the increasing incidents of security breaches and scams associated with most crypto assets in recent time (more particularly in South Africa), whether investors could be said to have missed a great opportunity in Wala is a matter still very much open to speculations.
Former investor in Wala, Newtown Partners, has been consistent with supporting startups in its portfolio as far back as 2016 — the VC had participated in both first times and follow-ons in startups such as Lori Systems, Field Intellgience or SweepSouth. That it, presumably, did not back Wala further when the time came for further funding in 2019 was bad for the reputation of the startup in the face of incoming investors. This was even worsened by the failure of the startup to make returns to investors on the $1.2 million investments it raised during its Initial Coin Offering in 2018.
A Great Decision For Investors?
Neither here nor there. But then, it was only natural logic to say that investors might have been deterred by the recurring security and operational issues which Wala faced at the time.
“Rewards attracted scammers or people who figured out how to take advantage of a rewards system,” said Tricia, in her farewell note. “This led us to change our rewards model multiple times and have to remove users who were abusing our system.”
Two years after, scam is still a major issue facing cryptocurrencies in South Africa — even though a majority of Wala’s users were in Uganda and partly in Zimbabwe. Currently, the country is grappling with one of the biggest Ponzi schemes pulled out by Mirror Trading International, a South African Bitcoin trading company. The company had promised investors a 10 percent monthly return on their investments in Bitcoin. However, on 22 December, 2020 in a letter posted on Telegram, the management of the company reported that they were deceived and that Chief Executive Officer Johann Steynberg of the company might have fled to Brazil. Around 28,000 local and global investors were consequently defrauded to the tune of $644 million. Although this could have greatly impacted Wala were it existing today — especially given the decentralised nature of cryptocurrencies — the fraud could equally be argued off as more a matter of excessive greed on the side of the investors.
Nevertheless, South Africa has a well established blockchain ecosystem, with the backing of some of the top global venture capital firms as well as institutional investors. VALR, the Johannesburg-based cryptocurrency exchange recently raised $3.4 million in a Series A funding round led by 100x Ventures, 4Di Capital, among others. This followed a $1.5 million previous investment in the startup in 2019 by Bittrex and Montegray Capital. Another crypto exchange, Luno, backed by one of South Africa’s top investors Naspers was, also, recently acquired by Digital Currency Group (DCG), a global company that builds, buys and invests in blockchain companies. The value of the acquisition was not disclosed.
Regulations around cryptocurrencies have, too, been made by some countries in Africa, but even the cryptocurrency system itself is decentralised, further suggesting ambiguities around any far-reaching application of such regulations. None of these regulations has even deterred Bitcoin from soaring in value nor has it dampened the momemtum it has gained among investors on the continent.
Read also: Key Reasons South African crypto-based Payments Startup Wala Closed Down
The Bottom Line
In investment, nothing is guaranteed: there is every possibility that investors may have missed one of the biggest investment opportunities ever in Wala; and there is a corresponding possibility that they just may have saved themselves from a huge calamity. But while Wala did not succeed at wearing the cap of Africa’s ‘foremost Bitcoin’, its demise will certainly not stop cryptocurrencies, of different shades and colours, from fully taking shape on the continent.
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
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