An African Tech Exit - Selling Sendwave for $500 Million

Justin Norman: This is Sid Sridhar. He helped sell an African fintech for half a billion dollars. And the crazy part is they sold that business to build an even bigger one. 

Sid Sridhar: We think it's a much bigger opportunity and a very different type of business.

Justin Norman: I sat down with Sid at the FT Partners Fintech in Africa Summit to ask about his lessons from selling Sendwave for $500 million and the most important piece of advice he has for founders.

Sid Sridhar: One of the big lessons for us was…

Justin Norman: Sid joined Sendwave as the company's head of business to help solve the problem of crazy high fees for sending money to Africa. But a few years later, they made a discovery that there was an even bigger problem moving money domestically within African countries. So they decided to sell the remittance business, Zenwave, to focus entirely on the mobile money business, Wave.

Sid Sridhar: So we stayed close to the likely buyers for this type of business. We separated teams for Sendwave and Wave very early on. A lot of these things made it easier for us to sell the business when we sold it.

Justin Norman: In this video, Sid breaks down the biggest mistake founders can make, how to qualify a deal, and the value of transparency in the M&A process.

Sid Sridhar: What's really important to understand is every M&A deal depends on…

Justin Norman: I'm Justin Norman, and this is The Flip.

Justin Norman: Sid, I think the big question that we always talk about in the African tech ecosystem is where the exit's going to come from. And you in your past role have been involved in one of the biggest exits with Sendwave selling to WorldRemit. So here's the first question is where are the exits going to come from and how do they happen? Thanks, Justin.

Sid Sridhar: I think what's really important to understand is every M&A deal, the impetus for every deal is different. So the first mistake you can make is to have a preconceived notion of how things are gonna go. There are many reasons M&A happens, and it depends on the type of industry that you're in, the margin profile. And fundamentally, businesses either are incredibly cheap and incredibly efficient or have huge network effects, etcetera. And I think you have to have a thesis for which of those things is the real driver for the merger or the acquisition.

So with Sendwave, what was very clear, it is a scale business. So it's very clear to us that the acquirer for that business was going to be somebody that did something very similar to what we did. You have to very quickly know what is the type of business that you're building. What are the modes? What are the things that make it a giant business in the future?

And then work sort of upstream from that to go downstream from that to figure out, you know, what your paths are, who your targets are. Start beginning that work early. But, yeah, I think the most important thing is to not to think it's going to be x or y or z, but really understand the business model, what you're building.

Justin Norman: Yeah. There's a saying that companies get bought, not sold. To what extent was that true or to what extent do you believe that that's true in in your experience?

Sid Sridhar: Yeah. I think that's the best characterization of what happened. We knew who the potential buyers were, and we were kind of building relationships sort of on on the side. It is true that companies got, you know, bought, not sold. But what really matters is the speed at which things get done.

When you have an impetus and you have a thesis around your industry and you have great product market fit, things move much faster and efficiently. And so, you know, with these M&A transactions, the worst thing that could happen is you spend a bunch of time and money and think things don't happen. Yeah. So it's super important. And I think a lot of mistakes that founders make is they try to sell their business when things happen much faster and much cheaper.

There's lawyer's fees involved. There's distraction to your business. What do you wanna do next? So, yeah, I think 100% true that Sendwave was was bought. And I think it's because of what's happening with remittances and consolidation.

Justin Norman: And I said before, sort of the industry that we're in. I recognize that every deal is sort of specific to the circumstances, but, generally, I I think you are going through this period of seeing increased M&A and increased consolidation in Fintech in particular in the region. And I'm wondering if there are lessons for founders you have from your assurance.

Sid Sridhar: Look, I think the beginning when the impetus begins to develop, I think is incredibly important. And one of the big lessons for us was there are many fishing expeditions in M&A. And I think it was very quickly qualifying that this was there was a real interest here, you know, and a company really How do you quantify that? So the way we did it, and this is not a secret, but we very quickly, we talked to board members of the buyer.

And these are board members that are from reputed VCs, etcetera. And they're not gonna talk to, you know, random start setter. The moment we knew that was the case, board members got on the phone within 48 hours of, you know, starting conversations with the CEO. And I think that gave us just a ton of comfort that we were driving towards something. And that's something that I would that I would suggest talking to investors, board members, etcetera.

And you can very quickly tell how quickly they respond, how quickly they set up meetings, etcetera. So read the body language. All of that stuff really matters. And I think the second point is around, and you have a lot of asymmetric information in the beginning, and I think being smart about who the team is at the buyer that you're sharing that with. Because, you know, 90% of deals from that initial IOI don't really get to close.

So I think being really smart and strategic about who's in the know, what you're disseminating. You know, you don't want to be exposed if the deal doesn't go through and you're competing fiercely. And so, yeah, there's a number of things you can do there. Limit the number of people. Oftentimes, you know, very senior people are less involved in the day-to-day, you know, board having a board member involved that isn't, you know, operating the company, I think, are all sort of ideas.

And we did sort of a few of those things. 

Justin Norman: Yeah. So qualifying, were there any other lessons?

Sid Sridhar: Yeah. I think being transparent. There's nothing worse than holding back the bad or the challenges. And we took an approach of almost saying like, hey, everything is great, but like these are the things. These are red flags.

And we were very clear about that from the beginning. And there there really wasn't, you know, much. But, you know, the worst thing that could happen is after, you know, months of negotiation, there's some big issue that crops up at the end. Yeah. We're very clear about what some of those issues were.

And they weren't really that big issues because, you know, risk tolerance is very different for different companies. Companies have different philosophies on things. So there were things that we thought were risky that really the buyer was very comfortable. You know, there are things that you're doing and you don't know what the other, party's doing. And so we're, I think, very transparent.

That's the other thing, I think. So we didn't really have any red flags. So we addressed those issues very early on, and that created, I think, a lot of trust, I think, on the other side as well.

Justin Norman: Yeah. And then when it came to company building, was there any sort of explicit methodology of building towards a specific outcome? And then I'm wondering when you started with Sendwave, was there an expectation that the strategic acquisition would be the outcome and that informed how you built?

Sid Sridhar: I think with that, we had a fuzzy end state of what might happen, But when you're building, you're heads down building. So you don't think about any of the stuff from, you know, your first few years. You're focusing on product market fit, growth. When you get all of that right, things happen. Right?

You get bought. So but I think there was a fuzzy state thought in the back of my mind that this is a consolidation play. And so we, you know, stayed close to the kind of likely buyers for this type of business. And then we made some structural decisions around team, etcetera, autonomy. We separated teams for Sendwave and Wave very early on, you know, I think 2019 years before sale.

So a lot of these things, again, made it easier for us to sell the business when we sold it and also, showed the, you know, the buyer that this is gonna be not as as hairy. Right? Integrations are super hard. And so anything you can do to make things go faster. And then we were opportunistic.

You know, we didn't run a big M&A process, but we were opportunistic and got a transaction that we thought would close quickly.

Justin Norman: It does seem like you guys benefited from the process unfolding quickly, and obviously, the business was a good business, so you're able to find a positive outcome. But I wonder to what extent, especially as businesses get older and there's pressure from investors pushing down saying where's the exit, that sort of informs how you build expansion, grow, like, all of these things. And maybe you guys had the benefit of the doubt to not feel those pressures, but it does feel like some founders feel those pressures and it may inform how they built the business.

Sid Sridhar: Yeah. A lot of this, it's really important to start from fundraising and from day 1, you know. And, like, there are a lot of things you can change about your business. It’s pretty much impossible to change your investors once you've taken money. But I think we had very aligned investors from the start.

And, you know, like, not every company has that opportunity. But I think, again, being transparent about what you're trying to build. If you're trying to build a scale business that is where efficiency is super important, etcetera, you build it very differently with maybe a different type of investor base versus you're trying to build a network effect based business that's sort of a winner take all market, and you build a very different type of investor base for that type of business. So it's about, I think, being very transparent, clear, and having that clarity of thought on what is the thing you're building.

Justin Norman: I know the story, to some extent was also the Sendwave team realizing that they were on to something with mobile money and Wave. I would imagine that the anticipated outcome for Wave is going to be different than for Sendwave. Is that something that you guys

Sid Sridhar: We really don't think about it. And that because we're in the building phase. You know, maybe there's a fuzzy state thinking about this, but it's not something that we would we're ready to share because it really is a random thought in our head. We think it's a much bigger time and a much bigger opportunity and a very different type of business. So I expect the outcome to be very different.

But the truth is we spend 0 brain cells thinking about this. And then there'll be a time when we do, and we'll be more transparent about that. And you'll only know the answer years down the line. But you have to look at kind of what the messages we've been sending, you know, over many years of building and Africa and to extrapolate from that.