AFRICA’S UNICORN: WHAT IT MEANS FOR THE ECOSYSTEM
For every promising startup, achieving the “unicorn status” is one ambitious goal they all aim for. One can understand this ambition that comes with becoming a unicorn, especially the strong value proposition or the promise of how and why the product will bring value to customers. Despite how hard the unicorn probability is, some have managed to achieve that feat in the world and Africa.
In this article, we will look at what this status as a unicorn means for the startup ecosystem on the continent.
What is a Unicorn?
In the general world, a unicorn is a mythical animal typically represented as a horse with a single straight horn projecting from its forehead. It has been described since antiquity, for example in the Middle Ages and Renaissance as an extremely wild “woodland creature”, a symbol of purity and grace. It is mostly used often to represent fantasy or rarity.
In the business world, a unicorn is simply a privately held startup company valued at over $1 billion. Despite how common the word is in the ecosystem, it was famously introduced in a TechCrunch Article in 2013 by Venture Capitalist Aileen Lee where she used the mythical animal to represent the statistical rarity of successful startups.
In the article, Aileen pointed out 39 companies that belong to the Unicorn Club. She stated that these companies make up about .07 % of venture-backed consumer and enterprise software startups.
Since Aileen introduced the term “unicorn” in 2013, the number of unicorns has drastically increased. According to CB Insights, there are more than 900 unicorns in the world with about 8 of them in Africa.
The Africa Unicorn Club
In Africa, some high-performing startups have gotten the label “unicorn” with Jumia founded in 2012 emerged as the first African unicorn in 2016. Since then, they have been more startups joining the unicorn club.
Only in 2021, 5 startups in Africa(Flutterwave, Andela, Wave, Chipper Cash, Opay) joined the prestigious unicorn club in Africa. There are increasing predictions to show that there will be many more startups on the continent getting the label of “unicorn” in 2022.
Dominated by the fintech sector, sectors like E-commerce(Jumia) show the way for other sectors to join this prestigious club on the continent. The most recent of them is Andela, a talent accelerator raising $200 million from investors led by SoftBank Group to reach the unicorn status.
Investors are willing to bet on more startups on the continent to prevent missing out on the possibility of a unicorn startup in Africa.
What does Unicorn Status mean for the Ecosystem in Africa
Possible IPOs
Although Jumia is already publicly listed in New York and Fawry an Egyptian e-payments company listed on the Egyptian Stock Exchange in 2019, there are increasing possibilities that more unicorns will be filing for an IPO in the coming years.
Nigeria’s Interswitch founded by Mitchell Elegbe in 2002 became a unicorn in 2019 when VISA took a 20% stake of the company for $200 million and some crediting it to be Africa’s first homegrown unicorn. According to some reports, Interswitch is having plans on going public in the London Stock Exchange.
Others like Flutterwave are also predicted to achieve this feat, due to it exponential growth, having processed over $9 billion transaction.
More Investment into the Ecosystem
2021 was indeed a remarkable year for the startup ecosystem in Africa. With deals worth $4.27 billion that is 2.5x that of 2020 according to Africa: The Big Deal and $1m+ deals growth at +73% YoY(comparing with 2019 and 2020).
A year that saw an increase in the number of unicorns on the continent, with Francophone West Africa having her first unicorn in Wave Senegal. Big names like Target Global, Tiger Global, Sequoia Heritage, SVB Capital etc took part in major deals not forgetting SoftBank through its Vision Fund 2, led 2 big deals in Andela and Opay.
This is undoubtedly getting the attention of VCs and Venture Firms across the World that are ready to participate in the fundraising stage from Pre-seed to Series E. Expect further and record-breaking investment in the coming years, as startups look to unlock opportunities across Africa.
Local Acquisitions Among Startups in Africa
In 2020, Paystack was acquired by Stripe for a whopping $200 million as Stripe seek to expand into Africa. This news was greeted with excitement as one of Africa’s biggest exits and what it meant for the ecosystem in Africa.
In 2021, new standards were set with some high profile mergers and acquisitions with over 333 M&A deals worth $57.7 billion done in the first half of the year an increase of 567% increase in deal value from 2020 $8 billion.
Most notable of the acquisition deal in 2021 is MFS Africa’s(largest financial interoperability hub in Africa) deal with Capricorn Digital one of Nigeria’s largest digital solutions and distribution companies. Although the amount of the deal is undisclosed, we understand it to be the “second-largest” fintech acquisition deal in Nigeria.
It will be important to point out Flutterwave’s acquisition of creator’s platform Disha which shows us that startups across the continent are combining to solve the continent’s problems and help unlock human potentials across Africa.
You can trust that there will be more mergers and acquisitions in the coming years.
More Partnerships & Opportunities
As the Africa startup ecosystem keeps getting the attention of the world, partnerships with multi-national organizations will come to life. Like Google announcing a $1 billion investment in Africa’s digital transformation which will cover a range of initiatives like improved connectivity to investment in startups over a period of 5 years.
Andela, through its Andela Learning Community as for some years now partnered with Google and Pluralsight to scale technology talent and learning across Africa with its bold mission of training 100,000 software engineers across Africa in 10 years. With its $200m Series E fundraise from SoftBank, you can trust that there are more strategic partnerships to come in.
Also, Flutterwave entered into a partnership with Standard Bank Group to help drive digital transformation efforts across Africa. Founder and Chief Executive Officer of Flutterwave said: “We are proud that Flutterwave’s white-label services power digital efforts for top banks in Africa. Our partnership with Standard Bank demonstrates that fintech and banks are not competitors but trusted partners with the key focus being the customer. We plan to grow financial and digital inclusion through this partnership and in the long run, we expect to generate more jobs in the digital economy and enable rapid business growth across the continent”. A testament to show that much more partnerships are in the pipeline.
The Future
Looking forward, Africa’s future unicorns will be more diverse than it is currently, as the appetite to invest and splash the cash on fast-growing startups keeps rising. I am predicting that sectors like hr-tech, digital lenders, investech, healthtech, edutech and blockchain startups will join the fintech dominated unicorn club in Africa.
We are seeing the coming of age of the ecosystem, it is really a function of time — Kola Aina General Partner Ventures Platform Fund
Countries like South Africa and Kenya which are key fintech spaces in Sub Saharan Africa are yet to have a unicorn. We can expect more unicorns coming in the foreseeable future.
Also, the implementation of the African Continental Free Trade Area(AfCFTA) will further help to unlock more opportunities on the continent.
Indeed it is an exciting time for the startup ecosystem in Africa.
Cheers to many more record breaking deals in 2022.
Happy New Year.
