Nigerian fintech startup Flutterwave made a splash today after becoming Africa’s new unicorn. Olumuyiwa Olowogboyega and Alexander Onukwue find out what tech startups need to know about the billion-dollar race.
A startup is a business designed to grow quickly. A key metric for determining growth is a company’s value; this is why unicorns are a fascinating subject.
A unicorn is a private startup created after 2003 and valued at over $1 billion. The description was invented by Aileen Leea US-based investor, in 2013. She defined a “super-unicorn” as being valued at more than $100 billion.
$1 billion is the magic number, because it’s the kind of growth that suggests you’ve disrupted the market or created a new market.
However, one important thing to note is that being a unicorn does not mean that a startup has $1 billion in revenue; it simply means that for investment purposes, venture capitalists and private equity firms value them at that amount.
Still, it’s going to take a lot of work before venture capitalists think you’re worth close to a billion. So you won’t find many unicorns, because creating a market big enough for a billion-dollar valuation is not easy.
According to Dealroom, there were only 1,387 unicorns since 1990 most of these unicorns coming from outside the African continent. Indeed, the startup scene in Africa continues to grow. A necessary part of this growth is that venture capital and private equity financing are now commonplace.
For African startups, the natural progression is to first attract pre-seed and seed funding ranging from tens to hundreds of thousands of dollars. After a period of sustained growth, larger million-dollar rounds follow (Series A, B, C, etc.) thanks to mega-valuations. Exits This will happen later, either when these startups are acquired by other large companies or they themselves become publicly traded companies through acquisitions or public listings.
How Startups Become Unicorns
A startup’s unicorn status depends on how it is valued by investors. While African startups tend to become unicorns after later funding rounds, it is possible to become a unicorn at an early stage.
For example, popular social media audio app Clubhouse raised $100 million in a one-to-one Series A funding round. $1 billion valuation
. Virtual events platform Hopin hit a $2.1 billion valuation a year after launch when it raised $125 million in Series B funding round.
In Africa, large preliminary rounds like this are rare, but that only speaks to the nascent state of the market.
Foreign investments are the driving force behind African unicorns
Africa’s first unicorn was e-commerce company Jumia, after raising $326 million in funding from AXA, Goldman Sachs and MTN for a valuation of $1.08 billion in 2016. Payments startup Interswitch also got its $1 billion valuation after Visa invested $200 million for a 20% stake.
The Flutterwave C series which raised $170 million was led by Avenir Growth Capital and Tiger Global, two US-based private equity firms that valued the company at over $1 billion.
This highlights a trend of foreign investment driving the high valuations of startups in Africa. Although some have criticized this trend toward foreign funding, it is to be expected. Even though local funding has started to flow to startups, it is still far from becoming dominant.
This dominance will continue as some of the early local investors make big exits. Big exits mean these investors will have more money to bet even more on new companies, as evidenced by the new wave of investment syndicates in Nigeria.
Ultimately, it’s a connected conversation. Unicorns signal to investors that a market is mature and more players are starting to pay attention. The questions “Where are the exits” were answered in part by DPO Group And Paystack release.
Flutterwave’s entry into the unicorn The club reinforces the idea that African startups are answering important questions.
Following Stripe’s acquisition of Paystack, Paul Graham, founder of YCombinator, said: “Investors who ignore Nigeria must now ask themselves: what do I know that Patrick Collison doesn’t know?” »
Kyane Kassiria VC at Lateral Capital who invests in African startups, sees Flutterwave’s unicorn status as “just the beginning” of a wave to come.
The fact that we can already see questions and predictions about who the next unicorn will be is a testament to the strength of the African fintech space. Whatever the answer, one thing is clear: the African startup space must now be taken seriously.