Africa produces a third tech ‘unicorn’
A Nigerian-founded company has become just the third technology start-up in Africa to reach a billion-dollar valuation — the socalled “unicorn” status, since it seems so unattainable.
While this is likely to spark a new wave of interest in hi-tech start-ups across the continent, it is a very specific set of factors that enabled electronic payments company Flutterwave to attract the level of investment that took its value across the unicorn threshold.
The company, founded in Lagos and now based in Silicon Valley, but primarily serving the African region, has received $170m (about R2.54bn) in series C venture capital in a funding round led by New York venture capital firms Avenir Growth Capital and Tiger Global Management. The latter previously owned 46% of SA’s largest e-commerce player, Takealot.com. It had invested $100m in the online retailer in 2014, and subsequently sold its stake to Naspers.
Flutterwave’s new funding round followed investments from a range of other companies, including Salesforce and Visa. The investment appears to bring the start-up within reach of the first Nigerian unicorn,
Jumia, the country’s major online shopping portal.
However, the latter has had a rocky path since it first listed on the New York Stock Exchange in 2019 and shot up to a $2bn market capitalisation. Within six months it crashed to less than half a billion, as investors became wary of its uninspiring revenue numbers.
However, it recovered its unicorn status towards the end of the year. MTN, which held 18.9% of the business, seized the moment to sell its stake for R2.3bn in November that year. Jumia now enjoys a market cap of $4bn.
Flutterwave plays in the same space as US payment start-ups like Square and Stripe. The former has passed the $100bn mark in market cap, while Stripe was this month valued at $95bn in a funding round worth $600m. The third African Unicorn, Egyptian start-up Fawry, is also an e-commerce solutions provider.
A fourth tech company at unicorn level, Nigerian electronic payments company Interswitch, is, strictly speaking, not a startup, as it was founded in 2002. However, a minority stake sold in 2019 to Visa gave it a market valuation of $1bn. It had also drawn investment from Helios Investment Partners,
TA Associates and the International Finance Corporation, part of the World Bank Group.
According to Stephan Breban, founder and CEO of Giants’ Shoulders Capital, which advises investors in private markets across all African countries, Flutterwave got many things right that every other African start-up could not, as well as “many that others can but didn’t”.
“While the fund raise gets the headline, it is not the primary measure,” Breban says. The company has three secrets of success.
“Flutterwave focused on clients, winning clients, serving clients, keeping clients. Secondly, they give people what they want, not what they ‘need’. Customer experience is far more important than the pain point. Anyone can meet the pain point — doing it in a clientfriendly manner is what counts. Third is scale. Build the business, add clients — then the funding will come.”
Breban believes the prospects of more unicorns emerging from Africa are endless.
“Zeepay, Zazuu, Paga and Kuda are potentials down the road. There are more. Nigeria is going to produce more for the simple reason it is larger. It will benefit from that in the same way the US does versus Europe. Nigeria will also lead on fintech. It has stronger connections to London, which is the one area London leads in tech start-ups.”
Zeepay is a Ghanaian-owned fintech connecting mobile money wallets to international money transfer services, Zazuu is a Nigerian-founded money transfer service for African countries, Paga is a Nigerian company facilitating sending and receiving money and paying bills, and Kuda is a South African foreign-exchange platform.
The scale of the economy in the continent’s big four markets, namely SA, Nigeria, Egypt and Kenya, means the decks are stacked towards start-ups from these countries. However, the size of a local market is not the only factor behind the emergence of unicorns in African countries.
“It is tough but it will happen,” says Breban. “I could name the next round of countries in terms of size, but there is little value in that. So, look to Côte d’Ivoire, maybe Rwanda and Zambia too. All are beginning to buzz and they are hungry. They can use the small market to an advantage and quickly reach across borders.”
Much is made of Africa being the region with the greatest potential for growth in the world. While this is sometimes wishful thinking, such growth can be a catalyst for a new wave of unicorns.
Says Breban: “It is starting from a low
base. This is the brutal reality. It has legacy issues, but it also has the freedom from infrastructure that holds back other developed nations. It does offer the potential for more growth than anywhere else. However, potential is something you don’t have yet.”
Flutterwave’s founder and CEO, Olugbenga Agboola, known as GB, says the $170m will be used “to improve our technology,
product, customer support, expand to new frontiers, and continue to provide the support needed for everyday mom-and-pop shops to sell to global markets”. The company already has 290,000 merchants using its platform in 33 countries.
“We had a goal; to unite Africa through payments,” Agboola wrote on the company’s site last week.