The end of the African Unicorn? 🦄

In with Acquisition Season

January 20, 2023

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Here's the tour plan for today 🧭

  • Are Unicorns out and Acquisitions in?

  • Deal Roundup

  • Events and Opportunities

  • Tech Twitter

Alright, lets get this tour started 🦍

Out with the Unicorns?

Unicorn status was the defining moment of startup success. Being valued at $1 Billion dollars with a capital B.

And five years back, unicorns in emerging markets were unheard of.

You’d be more likely to find a unicorn in real life than you would in an African VC’s portfolio.

But that quickly changed.

Between 2020 and 2021 we saw 6 newly minted unicorns in Africa - a sign of confidence in African startups.

And at the start of 2022, we expected the hype to continue. We all expected another monster year of funding, growth and unicorns.

But instead, startups raised $4.8 billion in 2022 - barely passing 2021's funding by $200 million.

And lot of that funding came in the first months of 2022 - before the bear market hit the continent.

Briter Bridges reports that investments over $10m (growth stage investments) fell by 40%, while investments under $250k nearly tripled.

And in 2022, no new unicorns were born in Africa.

Instead, acquisitions have taken centre stage in 2023.

Could it be the start of Africa’s Acquisition Season?

Acquisition Season

Last week I wrote about Africa’s biggest acquisition to date - InstaDeep bought by BioNTech for $684m.

I think it’s a sign of things to come.

Growth-stage startups in Africa don’t have that many great options. I’d say they can do 2 things:

  1. IPO (Go public)

  2. Acquisition (Get bought)

Option 1 - Go Public

We've seen Option 1 in practise. Jumia and SWVL went down this route, and they’re not doing too hot.

This isn’t to say an IPO can’t work in Africa.

I think Jumia and Swvl are failing because their model is not a fit for Africa. That’s for another edition, but this post by Abubakar Idris is a great overview.

But there is no doubt this has lowered public and late stage private market confidence in African IPOs.

So lets look at Option 2:

Option 2 - Get Bought

Remember Africa’s acquisition playbook? Just like Paystack and Sendwave..

  1. Repeat a business model from the West and contextualise it for Africa.

  2. Execute and grow beautifully.

  3. Sell to a global leader in the space.

But once you get too big, it’s harder to get bought.

For example - Flutterwave is now valued at $3 billion. Who can they sell their company to?

There are only a handful of fintech companies with the market cap and alignment to buy them.

So their best option (and what they’re planning for) is an IPO. Once you get as big as Flutterwave, you have less options.

Which is why I think less African companies will go public and more will get bought.

8-9 figure acquisitions could be the sweet spot for African startups.

And it looks like that’s where we’re headed - this month alone, we’ve seen four startup acquisitions in Africa:

  • GOTWENTYSIX LIMITED (Nigerian valet service provider in Nigeria) has been acquired by DriveMe Mobility Tech (Nigeria)

  • Galactech LLC (Tunisian gaming startup) was acquired by GBarena (an Egyptian e-sports platform) in a share swap valued at $15 million.

  • IRNET Coop Kenya was acquired by Kenyan fintech startup Kwara off the back of a $3 million funding round.

  • And of course - InstaDeep Ltd was bought by BioNTech SE for $684 million in Africa's biggest acquisition to date last week.

Africa failed to spawn unicorns in 2022. But could this be the start of something better?

I think we can expect more founders to shoot for 8-9 figure acquisitions, rather than raising mega-rounds or going public.

African Acquisitions might replace the African Unicorn as a sign of startup success in Africa.

What do you think?

Are acquisitions the future for African startups? Or do you think the African IPO can work? Let me know here.

Deal Roundup

Startup raises

  • Gebeya, an Ethiopian talent marketplace, has raised an undisclosed Pre-Series A round from a Tokyo-based firm, Inclusion Japan. The raise comes after Gebeya’s $2m seed round in 2020.

  • KWELY, a Senegalese B2B Marketplace for African products, won the MEST Africa Challenge - banking $50,000 in equity funding.

  • KarmSolar, an Egyptian solar power company, has secured $3 million in debt funding from HSBC, to develop and roll out its second micro-grid solution.

  • Kwara, a Kenyan fintech digitising credit unions (known as Saccos), raised a $3 million seed extension from Breega, SoftBank Vision Fund Emerge, Finca Ventures and New General Market Partners.

  • Carry1st, a South African publisher of social games, raised a $27 million pre-Series B round led by Bitkraft Ventures with participation from a16z and Konvoy.

  • Flow, a South African proptech startup that automates advertising for real estate agencies, has raised $4.5 million in pre-Series A funding, led by Futuregrowth Asset Management.

Acquisitions

Events + Opportunities

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Startup Twitter

Our favourite tweets on African tech this week

I didn't know Senegal was in the conversation..

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Catch you soon!

👋🏾 Caleb