Part 1: Ventures And Valuations: Africa’s Billion-Dollar Startups

Forbes Africa
Published 1 month ago
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Venturing into the world of entrepreneurship is often strenuous and risky business. But the rewards far outweigh the costs. Since 2013, the added prize of being lauded as a ‘unicorn’, that is a business valued at $1 billion or more, has become highly coveted among the entrepreneurial class. On the continent, very few can claim this status. FORBES AFRICA spotlights African founders who have scaled these heights, making their mark on the world at large and redefining the African story of success. 

By: Marie Shabaya, Chanel Retief, Lillian Roberts, and Peace Hyde

IN POPULAR IMAGINATION, UNICORNS CONJURE up the picture of a rare but beautiful mythical creature
described by the ancients as resembling a horse, with a single horn emanating from the center of its
forehead. A timeless symbol of purity and uniqueness, this rich symbolism also translates to the world of business. In the startup lexicon, a unicorn is also a rarity and defined as a relatively young company, usually less than 10 years old valued at $1 billion or more by public or private investors.

According to CBInsights, a New York City-based market intelligence company, as of October 2022, there were over 1,200 unicorns in the world. Popular unicorns include the artificial intelligence (AI) company, ByteDance, from China that is valued at $140 billion; Elon Musk’s spacecraft engineering firm, SpaceX, valued at $127 billion and Chinese online fashion retailer, Shein, valued at $100 billion. Some former unicorns include Airbnb, Facebook and Google. Furthermore, according to the report, the total cumulative valuation of these rarified businesses is $3,871 billion.

In Africa, the rise of these mythical commerce creatures is not different.

A few years ago, the continent saw the emergence of its first unicorn with the pan-African online retailer, Jumia Group. The company had capitalized on a major gap in the virtual market building a customized platform where consumers in 14 African countries can order their groceries, shop the latest fashion or
order takeaway from their favorite restaurants online. In 2019, Jumia became the first brand from the continent to list on the New York Stock Exchange (NYSE), after commanding a valuation of $1.6 billion the previous year. Since then, six more businesses have entered this very elite club, illustrating that the rate of unicorns forming on the continent is fast accelerating.

“I suppose the rise of African unicorns is starting to validate the potential of African companies,” says Ian Lessem, Managing Partner at HAVAÍC, a company in South Africa that invests in early-stage, high-growth technology businesses.

“So, it’s one thing to say ‘I want to invest in African businesses’, and then someone will say, ‘well, what’s the potential, how is my investment to make money’…as a continent, [we’re] an emerging market or frontier market.”

While continental startup ecosystems are relatively young compared to more developed markets such as the United States (US), Israel, or the United Kingdom (UK), they are growing at around 15% faster than these more mature markets each year, according to Lessem.

“And in 2022, the African venture capital (VC) market is set to be the only region in the world to have grown year-on-year,” Lessem tells FORBES AFRICA.

“So, while on a relative basis Africa is a small part of the global startup and VC sector, it is growing, and growing quickly, and with a maturing ecosystem and the continued influx of capital, its place on the global venture stage is set to continue, with many more unicorns to follow as a result.”

According to a study by Mastercard, the global payments giant, on the state of fintech in African markets, startups within this sector boasted exponential growth in 2021. In terms of funding, the study showed that the continent’s fintech startups recorded 894% year-on-year growth in 2021.

“[What] Africa has to do as a continent is figure out [how] we overcome some of [the] barriers that make it difficult to build big enterprises and can we make it easier to do business across the continent?” Sarah Dusek, an Investor and Co-founder of Enygma Ventures and Co-founder of Under Canvas Inc. says to FORBES AFRICA. “Money movement across the continent is still very challenging. And that’s where we’re seeing most of the unicorn space happen right now, in fintech.”

Nigeria emerged as a leading fintech hub across the Middle East and Africa as startups there accounted for a third of all funding deployed into fintech in 2021.

The African Private Equity and Venture Capital Association (AVCA) noted in October that, within the first half of this year, African startups captured $3.5 billion in venture capital investment. The industry group further stated that the funding, raised by 300 different companies, represented a total growth of 133% compared to the same period last year.

“I think we have the potential for having a lot of unicorns on the continent. But equally, this ecosystem is really young,” says Dusek. “So if you think about how old the sort of Silicon Valley model of investing in the US is, it [is] 50 years old. [In Africa] we are under a decade in the venture capital model. Only $4 billion was invested in 2021 on the whole continent into businesses. So there’s no way we can have a lot of billion-dollar companies, when we’ve only invested $4 billion a year.”

However, there is a reason for the low investment volumes. Investor perceptions have long been marred with challenges and stereotypes that have been difficult to eradicate. However, Lessem believes that this is mostly due to lack of data.

“Africa is still a pretty new market…so investors will always be quite wary. The other challenge is when anything is new, there are very few data points,” Lessem explains. “So as a foreigner to go and say, ‘okay, well, I want to invest in Uganda’, what data do they have to draw from? In researching, you would see that it is probably hard for you to find some of the data you were looking for. ”

“I think it’s a bit of a chicken and egg [scenario],” Dusek adds. “Because I don’t think we can break those stereotypes without going to these places in the first place. If you look at most of the unicorns… how many of them are out of Nigeria? Most of them [are]… and that is just about building companies in big markets with big opportunities. And that’s actually one of the biggest challenges for Africa, we are a continent, not one country.”

Starting a business on the continent is not easy and is one that is riddled with a multiplicity of issues.

“Whereas I think in Africa, there is a perception that if you fail, it’s almost built for life, which I think is true, in terms of the stigma that comes with it. People almost don’t want to embrace failure. So I like to fail quietly. The only concern and a chance of failing quietly, is [that] for you to get assessed for business, you have to put yourself out there.”

Lessem further notes that one needs to remember that without meaning for it to happen, legislation and regulatory frameworks will always play a role in what businesses you invest in, particularly in Africa.

“Each country is different [and] we have very different legal systems. In southern Africa, we are very English and Dutch-law based. The same would be for Nigeria and Kenya. But then you look at Mozambique and Angola, and that will be Luciferians, which would be very kind of your Portuguese type of law, which is a little bit different.

“And then Francophone Africa; the DRC, Senegal, that would be French Civil Code. When you make an investment, you have to sign a subscription agreement and [understand] what you are actually signing in for [particularly if] you don’t have experience in the various kinds of laws [of] the country.”

Moreover, there is a reason why most of the continent’s unicorns are in West Africa or have founders from the region.

“Nigeria is a powerhouse economy in Africa with access to hundreds of millions of tech-savvy consumers who have access to mobile phones,” Lessem adds. “It stands to reason that it will attract VC funding and produce powerhouse startups. But taking a step back, and looking at what defines a unicorn, which loosely is a VC-backed early-stage business that has raised capital at $1 billion or more valuation.”

Lessem further compares Nigeria to South Africa. In terms of consumer numbers, Nigeria is far larger. However, from a capital markets perspective, South Africa has much more depth. What this means is traditional venture investors may lean towards markets such as Nigeria where their funding could play a more meaningful role, and potentially impact more people in the process.

“South Africa, on the other hand, has many other capital options besides venture capital funding and depending on the type of business can look to venture capital or to other capital pools as appropriate,” Lessem says. “That being said, venture capital funding plays an important role in South Africa, as well, especially for businesses looking to scale internationally and this is where we are going to see many unicorns emerging from South Africa in the coming years.”

And now that we are seeing growth happening in the unicorn space for Africans, the next barrier is breaking what could easily turn into a boys’ club if more women are not welcomed into the space, as one can intimate from the unicorns profiled within these pages. But that, according to Dusek, can only happen with more investment.

Women make up 58% of Africa’s self-employed population and businesses founded by women ultimately deliver higher revenue—more than twice as much per dollar invested—than those founded by men. This should make women-owned companies more attractive to investors. However, with all the data and research available, we are yet to see a female-founded and led unicorn from the continent.

“Women have shown that they are capable of accelerating the economy but this is only possible through the provision of equal opportunities. With decades of gender disparity issues, women are not asking for preferential treatment but for the same opportunities as men,” says Dusek.

“To tackle Africa’s socio-economic challenges, we need to invest in women-led businesses, because when women work, they drive impactful changes in society. We already know that women-led businesses are statistically more profitable than male-led ones, [they are] more likely to repay debt, and more likely to continue to operate after the first five years in business.”

The story of African unicorns has been two years in the making for FORBES AFRICA. We’ve been watching the markets for the growth of these billion-dollar outfits and those behind them. The founders within these pages have not only grown and scaled their businesses, despite the odds, but have been thinking beyond reaching unicorn status, because for them, the work has just begun!