SmallSmall, a Lagos-based property tech startup looking to digitalize and deal with the problems challenging the Nigerian rental system, has secured $3 million in seed funding. The seed funding came in the combination of $2 million in equity and $1 million in debt. The startup plans to use the new funding to expand into other main cities in Nigeria such as Port Harcourt, Enugu, and Jos, before the first quarter of 2023 comes to an end. The round received participation from investors like Oyster VC, Asymmetry Ventures, Vivaz, and Niche Capita and individual angels such as Sean Fannan of Chartboost, Adam Meghji of Universe, Jimmy Ku of Flutterwave, Samir Goel and Wemimo Abbey of Esusu, Jason Njoku of Iroko and Tunde Kara of Vendease participated.
The platform provides monthly rent payments to renters and landlords, a way to vet tenants, increase their income and manage properties. It was founded by Tunde Balogun, Naomi Olaghare, and Pidah Tnadah in 2018, and was formerly RentSmallSmall. “We started by understanding the pain points of landlords. Even though they collected rent one year upfront, the default rate of the yearly system is very high because when people’s finances take a hit, they might not be able to pay subsequent rent. The legal process of evicting tenants where they’ll have to wait six to 12 months is also not supportive of the landlords,” CEO Tunde Balogun said.
He added that the startup’s monthly model allows landlords to speed up the process when they issue notices. The best part is that with SmallSmall, landlords get only quality tenants and will be able to curb defaults by receiving monthly payments with extra margins of about 10 to 15 percent margin, the CEO added.
On the other hand, tenants get to enjoy the ease that comes with monthly payments and be devoid of transacting with house agents. Building a good profile will give them access to financing should they sometimes default.
SmallSmall is similar to platforms like Kwaba, Muster, and Spleet. Earlier this month, Spleet announced its $2.6 seed investment in a round that saw the participation of investors like Mac Ventures Capital, Noemis Ventures, Plug and Play Ventures, Assembly Funds, Ajim Capital, Francis Fund, MetaProp VC, and HoaQ Fund, and proptech operators Eduardo Campos and Paulo Buchucher of Yuca and Majed Chaaraoui of Insurami.
Talking about the startup’s target audience, the CEO said that “Our market is for young professionals with an average age of around 28 years. It’s a huge market. We surveyed almost 3,000 people last year in Lagos, which showed that 80% of them wanted to pay their rent monthly. So that tells you how much adoption the monthly space would have if the markets eventually opened up.”
Since it started in 2018, SmallSmall has had more than 476,000 people register on its platform. While 80,000 of that number are on the startup’s waiting list, Small Small has served only about 1,500 people. “That shows how huge demand is, relative to the supply, which is very slim,” CEO Tunde Balogun added.
In July, the startup rebranded from RentSmallSmall to SmallSmall to increase the supply pool and provide customers with options. RentSmallSmall is now one of three product lines; the rest are called BuySmallSmall and StaySmallSmall. RentSmallSmall allows users to rent housing and pay every month. BuySmallSmall looks out for newly built properties by reputable developers that meet the company’s market demand, then packages them to young professionals looking to invest in real estate. When purchased, these owners turn to landlords and list their properties on RentSmallSmall so they can earn passive income when other users pay rent. The third, called StaySmallSmall lets users book furnished bed spaces starting at $4 dollars per night.
Speaking on the BuySmallSmall product, the CEO said that “Supply was our bottleneck in a way, and we needed to be able to control quality because many properties were in bad shape. We also wanted to provide a channel where customers can invest in real estate and work toward owning homes. We’re encouraging young people to own homes and invest in properties by paying as little as 20% down payment while we help them finance the remaining. That’s one of the reasons we raise debt financing.”
The startup has processed over 25,000 monthly stays across Lagos and Abuja, meaning a typical SmallSmall user stays an average of 17 months on the platform. It also claims to have had less than a 7% rent default rate, saving property owners over $1.5 million in damages and tenants over $1.2 million in broker fees.
SmallSmall was part of the Techstars Toronto Accelerator Program in 2021, the first African property tech startup to get into the program. It received $120,000 as part of its pre-seed round. Sunil Sharma, the managing director of Teachstars said that “Techstars Toronto was proud to be an early investor in SmallSmall as we saw enormous inefficiencies in the experience that renters face when getting accommodation in Africa. With the early traction and multi-aspect business model, Techstars decided to make a follow-on investment and join the latest funding round,” while speaking on the investment.
With the new funding, the startup also plans to support its vision of “providing flexible, quality housing solutions and financing to intending home buyers.” It will also strengthen its technology and relationships with landlords, developers, property and assets managers, and other stakeholders. “When we look at the fundamentals of housing as a basic human need, it’s not just when people have access to homes but also in home ownership. Homeownership can improve economic status in one way or another because it generates passive income for people to meet other needs. So we want to play a part in that and help young people in their journey from renting to investing to eventually buying real estate,” the CEO added.