Summary: In August 2023, Pezesha, a digital financial marketplace that provides debt capital to SMEs, filed a liquidation suit against MarketForce, a B2B marketplace, over unpaid debts. In March 2024, the CEO/Founders of both companies decided to end the dispute on a runway in the Maasai Mara.
The Debt
Startup founders Hilda Moraa and Tesh Mbaabu first discussed partnering for the mutual benefit of their companies at an event in May 2021 at Strathmore University in Nairobi. They had known each other for a while by this time and Strathmore is Hilda’s alma mater, so she invited Tesh as a mentor in a Pezesha-sponsored program she runs to inspire and build the next generation of entrepreneurs.
Their relationship began with merchant lending from Pezesha to MarketForce to the latter’s retailers. This was an inventory financing partnership and it was only later that Pezesha provided a working capital facility to MarketForce.
“We traded well for one and a half years, then at the end of this time Pezesha extended a larger trade finance facility with us,” says Tesh, the CEO and co-founder of MarketForce, a Pan-African B2B ecommerce and fintech marketplace.
Hilda says that Pezesha’s investment in MarketForce was more about the trust, friendship and good working relationship that the two founders had, than about other market dynamics.
“It wasn’t about what people say or, the amount of money MarketForce had raised. We had already built a friendship. It was about trust. So when Tesh said, ‘Hilda, let’s work together and grow each other’s business,’ I was happy to build this partnership.”
While both businesses had experienced a hit during Covid-19, the end of 2020 brought with it renewed optimism. Hilda, who was recently awarded the Forbes 2024 Technology & Innovation Award in the African woman category, has a long history of firsts and great successes. Her successes and leadership in the tech space date as far back as 2015 when she sold her first Fintech startup Weza Tele for $1.7M to financial firm AFB at the age of 26.
Pezesha, which she started in late 2016, is a leading enabler platform and marketplace that connects small and medium sized businesses to working capital through a collaborative approach where banks, MFIs and other financial institutions or networks can connect on the platform to be matched with quality SMEs. In 2022, Pezesha secured $11M in pre-series A funding to expand into more African countries. The startup now has over 250,000 registered SMEs and has distributed over 500,000 loans.
MarketForce too was making great strides after the pandemic slowdown. The MarketForce founders had pivoted the business earning them a seat in Y Combinator, the most prestigious startup accelerator in the world in the summer of 2020. This gave them a much needed boost to officially launch RejaReja, a B2B ecommerce platform that rapidly grew and enabled them to raise an additional $2M for product development and geographic expansion in 2021, followed by a significant Series A investment in 2022 where the company got valued at a whopping $100M.
The Dispute
In February 2022, MarketForce announced it had raised $40M to scale up RejaReja, but troubles lay ahead. It wasn’t long before the ongoing funding winter that began later that year caught up with the company, which was still VC-reliant. This coincided with the time it owed money to Pezesha.
Tesh says, “Unfortunately, some of the equity commitments from our series A funding were not funded, and that led to us being significantly undercapitalized. By the end of 2022 we started facing challenges accessing and repaying our debt, because we needed to balance our debt to equity ratio.”
He adds, “We started restructuring our debt commitments and Pezesha was gracious enough to extend our period by 6 months as we waited for the unfunded Series A capital to materialize. In the meantime, we continued making payments monthly until April 2023 when we experienced a serious cash crunch and couldn’t meet our monthly obligations. At this point, we were also forced to make our largest layoff, where we shed more than half of the team.”
Patience has a limit and unfortunately Hilda was facing her own pressure internally and externally over this funding that now was a significant chunk of their trade finance portfolio.
Hilda says, “Because of trust, I didn’t ask so many questions in the beginning…I didn’t ask, ‘oh, what happened to your fundraising?’ Those things came out later. This unpaid debt was really affecting our portfolio quality, especially when the dollar started to play its own role. Plus the fluctuations in the market. There were a lot of questions from our investors and board driven by our strong governance in place.”
Pezesha’s business model is one of getting debt from investors, then on-lending at a reasonable return. Meaning, they were accountable to them too and had a fiduciary duty to report to investors on the progress of the repayment plan from MarketForce.
Other movements in the market were also predictive of tough times to come. Twiga Foods, a giant in the Kenyan B2B ecommerce sector had just laid off 33% of its staff and was scaling down operations in mid-August of 2023. Wasoko, a Kenya-based ecommerce player, had conducted massive layoffs and shut down operations in Senegal and Ivory Coast. Kenyan B2C ecommerce startup Copia had shut down operations in Uganda followed by laying off 25% of its workforce in the same year.
“We started freaking out because we do a lot of trend analysis in Pezesha and because we also have worked with all these players, we had a lot of data in our hands to make informed decisions for the company. We started looking at the data and it started not to make sense, especially on the side of defaults. It was a macro situation and it’s still happening, especially in the retail sector, which is of course where all these businesses are,” Hilda says.
Worse still, there was a communication breakdown which led to further anxiety on Hilda’s part that things were not going well at all at MarketForce.
“Tesh was using other people to come and talk to me, which really surprised me, because I think that’s why I felt like the trust was really broken. I felt we already had a friendship. Why is he not calling me?” she adds
On his part, Tesh was under a lot of strain that made engaging in conversations about unpaid debt emotionally draining. He was witnessing a company he had poured blood, sweat and tears into over a four-year period, undergoing an existential crisis. He says, “I felt that communicating with Hilda via someone else would bridge the gap that had now formed in our own friendship. I needed help.”
In August last year, Pezesha filed a liquidation suit against MarketForce.
Prior to this, Hilda feels she had exhausted all possible options and was facing a lot of pressure to resolve the situation. She says, “There was a lot of board pressure to get this MarketForce debt repaid or restructured because it was affecting our portfolio quality. The board really pushed us to do what is best for the company, you know, to try out all possible ways. We tried to restructure, but there was no commitment from MarketForce.”
It was never her intention for matters to go public, but once the lawsuit was gazetted, it was only a matter of time before bloggers found this information and reached out to both for statements. Hilda shied away from making any comments, but as the party that was being accused of wrongdoing, Tesh felt the pressure to clear his name. Online engagement between the two was getting messy.
A stalemate had been reached for months where Pezesha was not settling for anything other than the loan repayment and MarketForce was not able to provide that and was trying to settle unsuccessfully via other options.
Both parties continued to hurt in their separate corners, with the tech ecosystem sometimes picking one side or another, but also with several parties wanting to see them resolve the issue amicably given they are two personalities in the Kenyan tech space whose career paths are the stuff dreams by young techies are made of.
How They Made Peace
An opportunity to make peace would come months later in March 2024 in the halls of Hemingways Hotel in Karen, Nairobi at a weekend event that brought together. The event was organized by The Harambe Entrepreneur Alliance, a member organization of African innovators boasting the likes of founders of startups such as Andela, Flutterwave and Yoco which collectively have raised over $1bn. Both Hilda and Tesh are members of the alliance which has around 30-40 members and affiliates.
A three day follow-up event that took place in the Maasai Mara National Reserve brought a much needed opportunity for healing against the backdrop of the idyllic savanna.
Tesh says, “Hilda pulled me aside at Hemingways. She said we need to talk and I thanked her for taking that first bold step. She started by giving context about what led her to taking the legal actions. She explained about all the pressure she was facing and how it affected her too. She also apologized for some of the exchanges that had happened, while I apologized for the agony I had caused her and her business.”
As Okendo Lewis Gayle, the charismatic founder of Harambe spoke about the symbiotic relationship in avoiding predators between sharp-sighted zebras and ostriches that have a strong sense of smell, but very poor eyesight—both wondered if they were being hinted at on the need to reconcile.
Harambe Members and affiliates such as Maryanne Ochola, Sneha Shah and Muthoni Wachira also urged both parties to find an amicable solution to their challenges. Maryanne is the Managing Director of Endeavor Kenya, a non-profit organization that supports high-impact entrepreneurs and which has a new initiative for high-growth founders in East Africa.
Sneha is the head of new business at SEI investment company, a trustee at Harambe and the former Managing Director at the London Stock Exchange. Muthoni is the Managing Partner at Katapult Africa which invests in and supports impactful agritech, foodtech and climate tech startups operating in Africa.
Tesh says, “Hilda is an entrepreneur who I admire and respect. She’s built a great business and more importantly I acknowledge her efforts to resolve our situation. I am sure it was not easy. ”
By the last day of the retreat, on a dusty runway in the Mara awaiting the groups’ chartered flight, a resolution was finally reached under the scorching sun.
“We decided, let’s do it for us. Let’s do it for our future. Let’s do it because we both need this reconciliation,” says Hilda.
By the time they boarded the plane heading back to Nairobi, it was decided that the lawsuit was going to be dropped and that a solution would be found that served both parties well.
The week after, an agreement was reached with some of MarketForce’s intangible assets that are of value to Pezesha being used to fully settle the debt.
Hilda says, “I was asking myself, why did I not think about this earlier? Because there were a lot of emotions and pressure at the time we were trying to collect the money. I was not in the right mindset to think about solutions. Now that we met in the Harambe global summit, I got to relax. And I’m very good at coming up with solutions when I am at peace.”
What awaits you and what lessons have you taken from this?
Hilda: One of the biggest lessons I’ve taken out of this is it’s really important as a company and as a fintech person to really make sure that your risk appetite is aligned and you can be able to understand it as you evolve and as you grow. You better have a small piece of the cake and diversify rather than putting all your eggs in one basket. At Pezesha, we are looking deeply now into our risk appetite and being very pragmatic about how we evaluate potential partnerships.
On a personal level, my biggest learning is that it’s important to make sure that you look at all the options on the table and really try as much as possible to resolve issues out of court as the litigation journey robs you of time to focus on your business goals and growth plans. Because in the end, businesses are different. They have been built on different foundations. And so it’s really important that all those assumptions are put on the table.
Tesh: As we scaled MarketForce, I quickly realized that doing big things costs A LOT of money. Please take this from me and act a bit less surprised when you see the ‘crazy’ fundraising headlines. No, the founders aren’t ‘chopping money’, at least not in most cases. Big visions tend to require a lot of cash to execute, at least way more cash than the 25 year old me could ever fathom while launching MarketForce.
Second, I have gained more inner strength and courage to face big challenges with boldness. I have learnt the importance of acknowledging obstacles and picking up your phone even in the darkest moments instead of wishing to disappear. This means leaning into your difficulties even though they may look untenable on the face of it. If challenges are approached with an open mind, you will always overcome them at the end and come out even stronger. Most times, we underestimate the depths of our inner power until we are tested.
Hilda: Also knowing that things can get to a bad point, but after that, you can be able to pull it back from there. Pulling back from the lawsuit, it’s a signal to other people that sometimes things might get messy and there’s a lot of factors, but you can always still be able to find a solution and hopefully to rebuild the trust. More importantly, ask for help. It’s not a sign of weakness but strength.
How happy are both with the agreement reached?
Hilda: We are doing this for the future as we both have bigger visions and ambitions to build bigger companies and we do not want this to be a deterrent. Where there is a will, there is always a way out.
Tesh: Let’s find ways of building each other up as entrepreneurs and an ecosystem both on good and bad days. It’s still day one and we have a lot of work to do. There’s a profound African saying that goes: when your neighbor’s house is on fire, get a bucket of water because one day, it might be your house. During this tough season, and there will be more to come, strive to be the person who carries buckets of water, not gasoline.
Ciku Kimeria is an author, journalist, communication and strategy specialist who is currently the Cultural Editor at Global Press Journal.
