When Jesse Ghansah launched Float in 2020, his goal was clear: bridge the $300 billion liquidity gap for Africa’s small and medium enterprises. However, three years later, the company finds itself struggling with at least $6 million in unpaid deposits to startups. Despite its original focus on offering credit services, Float’s recent financial troubles are tied to a different, high-risk venture.
Float tried to capitalize on Nigeria’s currency exchange market by facilitating foreign exchange (FX) transactions for businesses needing US dollars. According to sources familiar with the situation, Float engaged in speculative currency trading, sourcing foreign currencies through brokers who participated in the unofficial black market and using USDT, a stablecoin pegged to the dollar.Although Float initially benefited from these trades, things took a turn when the company became a victim of fraud in the unregulated market. Four startups are reported to have at least $6 million tied up with Float due to these trading losses.With cofounder Jesse Ghansah working to address the issue, many startups now face the possibility of not recovering their funds. While the companies involved have remained tight-lipped, one startup mentioned an ongoing police investigation into the matter. Efforts to reach Float’s cofounders were unsuccessful, as Ghansah failed to respond to calls and messages after agreeing to a meeting.
A Costly Deal.
In May, Float entered a deal to facilitate the purchase of up to $2.5 million in US dollars at an exchange rate of ₦748 to $1. The company received the naira equivalent, agreeing to transfer the agreed dollar amount to the client’s account within two days.However, Float was defrauded by the exchange merchant it worked with, receiving only $1.5 million of the requested $2.5 million in USDT, leaving it $1 million short. In the volatile, largely unregulated currency market, trust is fragile, and delays in completing transactions can lead to exploitation. As one trader described it, the process is filled with anxiety, as merchants can withhold funds after receiving naira.This $1 million loss severely impacted Float’s finances. Despite this setback, the company continued trading, attempting to fulfill similar orders. Things worsened in June when the newly elected Nigerian government’s efforts to stabilize the exchange rate caused a sudden 63% devaluation. The naira dropped further, trading at ₦950 to the US dollar on the black market.
Float’s promise of quick dollar liquidity at a fixed rate became unsustainable, and it struggled to honor previous deals at the agreed-upon rates due to the fast-changing currency values. Two executives from startups involved, who asked to remain anonymous, confirmed that their companies still have significant deposits with Float.
One of them, holding $3 million in deposits, stated that their operations had not been affected by the situation, and they are working with Float to recover the funds. Other sources revealed that Float is exploring bridge financing and working on payment plans as it attempts to resolve the crisis. Meanwhile, the company’s investors have initiated a forensic audit to assess its financial health.
A Lucrative But Risky Market.
In Nigeria, businesses often face difficulties accessing US dollars due to complex regulations and limited liquidity. This scarcity creates opportunities for companies like Float to help facilitate currency transactions by purchasing USDT from brokers and converting it into USD. Float offered clients cheaper rates for these transactions, often lower than the parallel market, with the promise of delivering the USD within two days, known as T+2 transactions.For example, a client would agree to buy USD from Float at a fixed rate, say $1 for ₦650, and transfer the naira equivalent. In return, they would receive the USD in two days. Float’s strategy relied on executing other trades with the naira it received to cover the difference between the agreed rate and the market rate. In theory, Float would use its clients’ funds to make profitable trades and fulfill the obligations at a discounted rate.The catch, however, was market volatility. If the naira weakened within the two-day window, Float could face significant losses. For instance, if it committed to supplying $2 million at ₦650 per dollar and the exchange rate shifted by ₦30, the company would have to cover the difference, potentially incurring a deficit of millions.
As the situation remains unresolved, many startups are still hoping to recover their funds, but disappointment looms. One founder expressed frustration, noting that Float’s actions have tarnished its reputation and that the inability to withdraw funds is a major setback. For many in the startup community, the company’s troubles are a harsh reminder of the risks of dealing with unregulated markets.
