When Jesse Ghansah cofounded Float in 2020, his definition of the problem his startup would solve was clear: closing the $300 billion liquidity gap for Africa’s small and medium businesses. But three years later, the company has dug itself into a hole with at least $6 million in unpaid deposits to startups. While the company’s original business model focuses on providing credit services to businesses, its recent losses stem from an unrelated venture.

Float attempted to profit from Nigeria’s currency exchange arbitrage by completing trades on behalf of businesses looking to buy or trade the US dollar with the local currency, three people with knowledge of the situation told TechCabal. The company, which raised $17 million last year in a round backed by Tiger Global, sourced foreign currencies through third-party brokers who traded on the speculative currency black market and USDT, the cryptocurrency stablecoin pegged to the dollar.

While Float profited from currency trading in Nigeria for the better part of the last 12 months, its fortunes turned after it became a victim of fraud in the unregulated and speculative market it attempted to profit from, the sources claimed. Two sources said that at least four startups have an estimated $6 million stuck with Float due to those trading losses. 

Jesse Ghansah, the cofounder of Float

With co-founder Jesse Ghansah scrambling to remedy the situation, startups who used Float face a significant risk of never getting their money back. The companies involved declined to comment on the record for this story, while one startup spoke about an ongoing police investigation to resolve the issue. TechCabal made persistent efforts to contact Float’s cofounders, and while Jesse Ghansah agreed to a meeting, he did not take calls or reply to messages.

An ill-fated deal 

In May, Float entered into a trading agreement with a firm looking to buy as much as $2.5 million of the greenback. Float agreed to make the trade using a fixed exchange rate of ₦748 to $1, according to internal documents seen by TechCabal. Float received the naira equivalent of the total sum, promising to remit the agreed dollar amount to the client’s designated bank account within two days.

Float, however, was defrauded by its exchange merchant when it attempted to buy the $2.5 million worth of USDT. Sources said it successfully bought only $1.5 million of the digital currency and lost $1 million. In the unregulated currency speculation market, trust is fickle. And for large transactions, the wait time to complete a transaction could take a few hours, currency traders told TechCabal. During this window, there’s a high chance of getting conned. “No matter how many times you trade, every time you transfer naira, the wait time until the merchant releases the USDT to you is filled with anxiety,” said one trader who asked to be anonymous to allow them to speak freely. “This is a largely unregulated space; nothing will happen if the merchant doesn’t release the USDT after collecting naira.”

The $1 million fraud put a hole in Float’s balance sheet, people familiar with its finances told TechCabal. Yet the company continued trading, agreeing to source US dollars for more clients. It suffered further complications in June when efforts by the newly elected Nigerian government to stabilize the exchange rate caused a 63% devaluation within a few days. Currency volatility persisted, causing the naira to slide to ₦950 to the US dollar on the black market.

Float, with its promise to provide dollar liquidity to businesses within a few days at a fixed rate, became a victim of the volatility. Fast-rising rates meant it could not settle previous trades at the agreed value, people close to the company told TechCabal. Executives at two startups who requested anonymity declined to confirm how much money their transactions involved. 

Another executive at a startup who also requested anonymity confirmed that it held $3 million in deposits with Float. “The goal is to work with Float and get all of our money back,” he said. He added that despite the situation, his company’s operations are unaffected; “It’s important to state this hasn’t impacted our operations; we’re solid in terms of runway.” 

Other sources told this publication that Float is working on bridge financing and will present payment plans to its clients as it tries to salvage the situation; they also shared that Float’s investors are in the process of a forensic audit of the company’s finances. TechCabal contacted Tiger Global Management, one of Float’s investors, to understand whether it was aware of the situation but did not receive a response at the time of this report. Another investor who asked not to be mentioned confirmed that a forensic audit is in the works and that “the situation is being handled.” 

How lucrative but risky currency trading deals backfired 

Nigeria’s complex FX regulations and lack of liquidity mean that individuals and companies needing US Dollars must often get creative. On Airtel Nigeria’s earnings call in 2022, for instance, the company admitted that it repatriated cash from Nigeria but didn’t disclose how it moved the money. “It is not the Central Bank rate,” said Segun Ogunsanya, the company’s CEO. “We have used many instruments and options for upstreaming the money. Unfortunately, we cannot give you the exact average rate or any specific answer.”

Needing the greenback is a common problem for Nigerian companies. Startups that receive funding in dollars may be reluctant to dip into their USD reserves to pay international clients, creating a business opportunity. Float helped source FX for these transactions by taking Naira from clients and buying USDT from traders and merchants–popular Nigerian financial services companies sometimes broker these transactions. The USDT is then converted into USD and transmitted to the designated account. 

Since anyone can buy USDT from merchants on platforms like Binance, sources familiar with Float’s business say the company offered two unique selling propositions: it reduced the exposure of startups to the markets, escaping regulatory attention from a hawkish Central Bank. It also provided clients with cheaper rates for USD than the prevailing market rates. There was only one catch: clients would not get their USD immediately, but in T+2, a colloquial term in financial circles for 48-hour transactions. 

For instance, a client would agree to buy USD from Float at a specific price—say $1 for ₦650 instead of $1 to ₦670 on the parallel market—transfer the Naira equivalent and then receive their USD in two days. For Float, offering cheaper rates than the market was possible because it would use the Naira it received to execute various other trades. In a perfect world, Float would use other parties’ money to make profitable trades and remit USD at the agreed and slightly discounted rate in two days. The most important rule of this high-stakes game is that the other party must receive their USD on the agreed date. The singular enemy of this lucrative business model is market volatility. 

In a situation where Float entered an agreement to give a source $2 million at the rate of $1/₦650 in two days, it would bet on market stability in the two days. If in two days when the transaction is supposed to be settled, the USD gains N10 against the dollar, it would put Float in the hole for ₦40 million; a ₦30 gain against the Naira by the USD would result in a ₦60 million deficit. Volatility had expensive consequences.

While the situation remains uncertain, several startups continue to engage with Float to get their money back. Yet, across many conversations, the prevailing sentiment among startup executives was disappointment. “A founder’s morals and integrity are important, and what Float has done has tarnished the ecosystem,” a founder who asked not to be named said. “Having deposits and being unable to withdraw money is difficult.”