MTN locked my startup in paralysis for three years says top tech entrepreneur [Updated]

UPDATE (14 March 2019): MTN Group finally commented today on the saga with SMEasy. It said while MTN Group and SMEasy Business Software entered into a three-year revenue sharing agreement, with respect to the distribution of SMEasy’s accounting software, on 1 April 2016 — there are “no exclusivity undertakings” in the agreement. The agreement is valid for three years and expires on 1 April 2019.

Group executive for corporate services and sustainability at MTN, Nompilo Morafo, said MTN Group explained today that it means that under the agreement SMEasy was not locked into any deal with the corporate and would have been free to distribute the product via other companies or organisations if it so wanted to. Morafo said as the official who oversaw the agreement is no longer at the company, MTN Group is looking into the case and expects to comment further on the matter to Ventureburn shortly.

Award winning SA entrepreneur Darlene Menzies has hit out at telco giant MTN, saying the corporate reneged on a multi-million dollar distribution deal and then locked her accounting software business SMEasy in a three-year agreement, preventing the company from expanding.

Despite this, subsequent to the publication of this story MTN Group stated on 14 March to Ventureburn that under the agreement (which ends on 1 April) “there are no exclusivity undertakings”.

While MTN Group said it expects to comment more on matter in due course, Menzies (pictured above), who founded SMEasy in 2009, said the trouble started just after the company signed a three-year deal with MTN in 2016 to distribute the accounting software that SMEasy had developed for micro firms across the continent. The three-year deal is set to expire on 1 April.

With so many micro firms already selling MTN airtime across the continent, the deal would allow the product to reach hundreds of thousands of small businesses.

SMEasy founder Darlene Menzies says MTN reneged on multi-million dollar distribution deal and then locked her accounting software business in a three-year agreement, preventing the company from expanding

Investors who had ploughed millions into the software company were set to score big. “It was going to be a massive uptick for investors,” Menzies told Ventureburn last week.

Menzies says when the company initially approached MTN in about 2016, the telco giant initially wanted to acquire her company.

Then something happened that would change everything. A month after her approach to MTN, Nigeria authorities accused the telco of illegally repatriating billions of dollars from the West African country (in December MTN announced that it had reached an agreement with the Central Bank of Nigeria in terms of what the bank alleged was the improper repatriation by MTN Nigeria of $8.1bn between 2007 and 2015).

Menzies says it was then that MTN put a hold on all pending transactions across the group at the time.

MTN, she says, then suggested that it could white label the platform as “MTN Easy Accounting“. A revenue share agreement was then concluded with the company to take the product to 20 African countries. MTN agreed to pay for the marketing and support cost, she says.

The idea was that once white labelled, MTN Easy Accounting would sit on a separate tech platform. Then the entire project then hit its first hurdle — the platform was still at the Beta stage.

R5m spend diverted

During this time SMEasy was able to raise a new round of R5-million from an investor (who Menzies declined to name) to add to the millions already invested by a number of previous investors.

This round was earmarked to help the firm to expand locally in South Africa. Instead the company was forced to deploy the new funding on hiring nine developers to customise the product in things like taxation, payroll and currencies for each of the 20 African countries that MTN operates in.

Then MTN carried out a pilot of the new MTN Easy Accounting in Kenya, but Menzies says SMEasy has yet to receive any of the revenue derived from licenses sold during the pilot. She said she was told that it proved too complex to work out how to get the revenue back to South Africa. The money owing, she says, is only about $500.

Menzies says during this time, SMEasy was approached by another large telecommunication company (the name of which she declined to reveal) that was keen to take the product to the rest of the continent.

When it became clear that what was promised by MTN in the deal would not materialise, Menzies says she and her team went back to MTN and asked if the company could release SMEasy from the agreement in the countries on the continent in which MTN didn’t operate, but where this other telecommunications company was active. MTN, she says, refused to do so.

Added to this, changes at MTN management level in South Africa also contributed to delays, she argues.

In another attempt to get things moving Menzies says she seconded her company’s general manager to work full time at MTN. She was to oversee training necessary to prepare MTN workers to deploy the product. But five months later after little had changed, the company pulled her out.

Investors pull out, job losses

With things on hold two of SMEasy’s investors — the Asisa Fund managed by Edge Growth, 4Di Capital and Investec — decided to exit from the company.

A decision was taken by Menzies and her team to then form an investment consortium to take 70% of the company. The consortium consisted of Menzies herself and the most recent investor Kingson Capital. Kingson Capital’s CEO Gavin Reardon was made the chairman of SMEasy. Kalon and Grovest continued with their smaller share in the company.

The company was also forced to retrench five of its team of 10 people.

“It was tough on me as the founder, as you can imagine and my team,” she said.

Said Menzies: “You think that working with corporates will give you an opportunity, but you end up being locked out of such opportunities”.

For her the end to what she calls a “three-year paralysis” is in sight, when the agreement comes to and end on 1 April.

There is also another silver lining for SMEasy. The company she said has some “nice irons in the fire”. The same telecommunication company that was interested in the product, while the company was locked in the agreement with MTN, is still engaging with SMEasy.

Added to this the company has had two approaches from funders to undertake a Series-B round. But she says the company is in a “holding pattern” until the end of what she calls “this nightmare”.

*Correction: According to MTN Group, the three-year distribution agreement signed on 1 April 2016 between MTN Group and SMEasy is set to expire on 1 April 2019, and not June as we previously had it.

Featured image: SMEasy founder Darlene Menzies (Supplied)