Future Africa Review

Fund Performance and 2021 Defining Themes

for the Startup Ecosystem
Message from the General Partner 3

About Future Africa 4

Section One: Future Africa Performance 5

Fund Performance 5

Portfolio Performance 6

Section Two: Notable Themes in the Startup

Ecosystem 8

Introduction 8

Talent Shortage 12

Fintech Dominance 20

The Emergence of Global Name Brand VCs 28

Soaring Valuations 34

Looking Ahead 40
Message from the General Partner

Message from the General Partner

Hello Community Members, I wish you a happy new year!

Last year was extraordinary in numerous ways. Our AUM hit $30 million, up from $600,000 in
2017. We also deployed $4.3 million in funding to 43 companies, making us one of Africa’s
most prolific early-stage investors. Our portfolio companies raised over $300 million in 2021
from some of the world’s most renowned investors, including SoftBank.

In 2021, African startups collectively raised more than $4 billion in venture funding, 15x what
was recorded in 2015 - the year with the first official VC funding figures for the continent. We
also saw multiple unicorns in a single year, two of which - Flutterwave and Andela - are our
portfolio companies. The other three are; Wave, Opay and Chipper Cash.

Future Africa was founded and is run by operators who have helped build the ecosystem from
inception. As such, we truly celebrate these milestones and, like others, are hoping for an even
better 2022. But, amidst all the excitement and fun fair, we should not lose sight of the north
star. We all know that despite the milestones achieved so far, Africa is still home to the world’s
most complex challenges spanning healthcare, financial services, education, housing, logistics
and transportation and many more. Therefore, it is only mandatory that the successes of 2021
are used as a launchpad to solve these problems.

Future Africa’s vision is to build an Africa where prosperity and purpose are within everyone’s
reach, and our mission is to build the future in Africa by investing early in mission-driven
founders solving hard problems in large markets. That is why we are demanding ourselves to
do even more this year by leading with courage, doing the hard things and helping others
prosper.

I strongly believe that these guiding principles apply to the entire ecosystem, and we are open
to leading by example. We are offering an unprecedented and transparent glimpse into our
progress towards building the future in the first section of this report. In the second section, we
identify, highlight and add context to the defining themes of 2021. Although much happened,
we believe these four themes - talent shortage, the dominance of fintech, the emergence of
name-brand VCs and soaring valuations - stood out. By zooming into each, we point out why
they are significant and what they mean for the ecosystem's future.

This is the first edition of the Future Africa Review, our end of year report, whose purpose is to
spark difficult but meaningful and transparent conversations about Africa’s future. I hope others
are also inspired to offer a transparent and candid overview of their journeys and thoughts
about building an African future.

Yours in Service,
Iyinoluwa Aboyeji, General Partner
About Future Africa

About Future Africa

Future Africa is an early-stage venture fund that connects investors to mission-driven founders
who are turning Africa’s most difficult challenges into global businesses. The fund’s mission is
to work with relevant stakeholders towards an abundant future where purpose and prosperity
are within everyone’s reach.

Future Africa provides founders and co-investors with coaching, support and a vibrant
community of professionals — in addition to capital provided through its investment vehicles,
including the Future Africa Fund and the Future Africa Collective.

In 2019, we decided to formalise our investment firm and work with globally recognised fund
partners to bring outside capital into our deals. However, the team behind Future Africa has
been investing and supporting founders for far longer. Led by a team of experienced founders,
innovators, and investors, Future Africa has helped found, fund and build many of Africa’s
fastest-growing startups from Andela and Flutterwave to Kobo360 and 54gene, amongst
others. Future Africa currently has 75 portfolio investments with over $30 million under
management.

Future Africa’s Co-founder and General Partner, Iyinoluwa Aboyeji, spent the last ten years
building early-stage technology startups in Africa. Two of the companies he co-founded –
Andela and Flutterwave – are some of Africa’s most prominent and fastest-growing startups.
Andela, with a $1.5 billion valuation, connects brilliant African software engineering talent to
remote job opportunities at global technology companies. Flutterwave, with a valuation of over
$1 billion, enables local and international merchants such as Uber and Booking to accept and
send payments across Africa.

In 2020, we launched the Future Africa Collective and the Future Africa Fund, through which we
have invested in over 50 companies, and now we are looking to thematic funds. Starting with
our Future of Learning Fund, we are committing to invest in new and improved models of
learning that prepare Africans for the future of work.

Read the Future Africa Investment Thesis1 and visit www.future.africa to learn more.

1 Why We Must Invest in the Future

 Section 1
Future Africa Performance

2 MOIC - Multiple on Invested Capital

3 IRR - Internal Rate of Return
4 DPI - Distributions to Paid-In Capital
Fund Performance

Section One: Future Africa Performance

a)Fund Performance

Future Africa invests through the Future Africa Fund (Currently Fund II) and The Future Africa
Collective. Our first fund, Future Africa Fund I, has invested in 30 companies and has achieved
a 14x MOIC2, a 115% IRR3 with a DPI4 of over 500%. Our total value returned across all
investment vehicles is around $30 million, with an IRR of 113%.

We started investing our capital in 2017, deploying $600,000. Our initial investments through
the fund include Andela (partially exited) and Flutterwave (which we exited in 2020). Below are
our current aggregate statistics on the performance of all the funds we advise and/or manage
as of December 2021.

Fund Activity (Aggregate)

● Investments made till date: 75

● Total cash deployed till date: $7.2 million
● Outstanding value: $21 million
● Distributions: $9 million
● IRR: 113%
● Investment Multiple: 4X
● Distributions to paid-in capital: 128%

In 2021, we invested over $4.3 million in 43 companies. These deals span across a broad
range of industries we believe will shape Africa’s future, from Education to Healthcare to Media.
Financial Services - spanning cryptocurrencies, infrastructure insurance and payments -
remained our top sector, and made up 55.7% of our investment value, dominating the
investments we made in 2021.

2 MOIC - Multiple on Invested Capital

3 IRR - Internal Rate of Return
4 DPI - Distributions to Paid-In Capital
In furtherance of our pan-African drive, we expanded our geographical reach and made our
investment debuts in Ghana, South Africa, Tanzania and Zambia this year. Through these
investments, Future Africa’s presence is now established in 6 African countries, including
Nigeria and Kenya.

Also, at the start of 2021, we committed to ensuring that at least $1 million of our capital would
go to female innovators. We delivered on this, investing over $2 million in companies with
female founders. In total, we have 152 founders in our network, and 1 in 3 of our portfolio
companies have a female co-founder. These companies now collectively employ over 2,400
people as of the end of 2021.
Portfolio Performance

Our portfolio companies have a combined valuation of $3.5 billion. The most valuable company
in our portfolio is Andela which is now valued at $1.5 billion after raising $200 million in a Series
E round last year. Our portfolio companies raised over $311 million in 2021, with $290 million
raised in follow-on rounds. Below are some notable fundraises by amount.

● Andela raised $200 million in Series E led by SoftBank Vision Fund II

● Moove raised a $23 million Series A round led by LeftLane Capital and Speed Invest.
The round was closely followed by a $20 million debt instrument received from the IFC.
● Metro Africa Express (MAX.ng) raised $31 million in its Series B round led by Global
Ventures and Lightrock.
● PayHippo raised $3 million in a Seed round.
● Stitch raised a $2 million seed extension and expanded into Nigeria.

In total, our portfolio companies have raised over $630 million in equity and debt instruments
from the most prestigious VCs, DFIs, accelerators and angel investors. Co-investors in our
portfolio companies include YCombinator, the International Finance Corporation (IFC), SOSV,
TechStars, Local Globe, CRE Ventures, among others.
 Section 2
Notable Themes in the Startup Ecosystem
Introduction

Section Two: Notable Themes in the Startup Ecosystem

a) Introduction

In March 2016, Jumia Group (then Africa valued at over $1 billion. A few months later,
Internet Group) announced raising $326 in August 2016, Facebook founder and CEO,
million from a line-up of investors, including Mark Zuckerberg, took his maiden Africa
Goldman Sachs, AXA and MTN Group5 visit6. Zuckerberg’s visit came after his
valuing the e-commerce company at over $1 investment in Andela’s $24 million Series B
billion. The company became Africa’s first that same year.
unicorn - a private technology company

Picture Collage: Mark Zuckerberg, Jack Dorsey, Michael Seibel, Sundar Pichai and Jack Ma visits to Africa

Around the same period, African startups itself has more than 50 African portfolio
including Paystack and Flutterwave started companies.
gaining admission into the highly regarded Y
Combinator accelerator. Today, one of these On all accounts - minting a unicorn,
companies is valued at over $1 billion, while attracting global investors and entry of YC -
the other was acquired for an estimated 2016 seemed like the inflexion point many
$200 million in 2020 by a fellow Y early entrants into the African technology
Combinator alumni, Stripe. Y Combinator ecosystem were hoping for. It was
impossible for anyone who was closely

5 Rocket Internet’s Africa Internet Group raises $326M from Goldman Sachs and others
6 Mark Zuckerberg makes first-ever visit to Sub-Saharan Africa
involved in the ecosystem to avoid thinking subsequent unicorns, other than Jumia.
that Africa had come of age. Despite its Others suggested that founders and
importance in shaping the future of the investors should revisit their ambitions and
ecosystem, the year did not prove to be the instead of unicorns, set their sights on
inflection point stakeholders thought it would gazelles7- companies valued at around $100
be. Following 2016, there were debates on million.
Africa’s capacity to legitimately mother

Tiger Global $3 million 2011

investment in Iroko TV
2012 Jumia and Konga are founded

Tiger Global leads another

round at $8 million for Iroko
2013
Partners
Takealot raise of $100m
2014
series C from Tiger Global
$185 million raised, Fawry
acquired for $100 million 2015
by Helios, MENA Long- $366 million raised, Jumia becomes
Term Value Fund, and 2016 a Unicorn, Paystack and Flutterwave
Egyptian American become first African companies to
Enterprise Fund get into Y Combinator, Mark
Zuckerberg visit, Michael Seibel visit.

$560 million raised 2017

$726 million raised, Zinox

2018
African startup funding acquires Konga,
crosses the billion dollar
mark, Interswitch becomes 2019
unicorn with investment
from Visa; Jumia IPO; Fawry
2020 Stripe acquisition of Paystack,
IPO
World Remit acquires
Sendwave
5 unicorns, over $4.6 billion
raised, Softbank makes debut 2021
with OPay Investment,
MainOne is acquired, Google
$50 million fund to invest in
African startups, Development
Partners International (DPI)
raised a $900 million fund

Timeline of key milestones in the African startup ecosystem

7 While waiting for Unicorns, should Africa settle for Gazelle startups? - TechPoint Africa
Five years later, the continent has recorded 5 unicorns in a single year - Wave, Flutterwave,
Opay, Chipper Cash and Andela. This was in addition to Interswitch which had attained its $1
billion valuation after announcing a $200 million raise from Visa in 2019. The year 2021 also
saw the emergence and/or doubling down of renowned technology investors, including
SoftBank, Y Combinator, Tiger Global, Sequoia Capital, Temasek and Founders Fund. In many
respects, the year was the inflection point that many thought or wished 2016 was, and it is fair
to assert that Africa’s technology ecosystem has come of age.

By the close of 2021, new themes defining the African ecosystem had already emerged. While
some are universal and in sync with the global trends such as talent shortage and rising
valuations, others are unique to the continent. One unique trend is the approach to startup and
technology regulation through proposing startup acts in Nigeria, Kenya, South Africa and other
African countries.

Despite all the progress, the continent is far from overcoming its wicked problems and
unlocking its true potential, and therefore requires more resources than it is currently getting.
While VC funding to Africa nearly surpassed $5 billion in 2021, the figure is still lightweight
when compared to similar regions such as India, Latin America or Southeast Asia. Even when
observed through the lens of the continent’s GDP or population size, the continent should be
attracting much more capital and attention. Take India with a comparable population and GDP
size of $2.5 trillion received $20 billion in venture capital in 2020 alone with its growth
outpacing China in 20218.

7 While waiting for Unicorns, should Africa settle for Gazelle startups? - TechPoint Africa
 Source: Briter Bridges Africa Investment Report 2021

The key question, therefore, is how to celebrate this progress while continuously challenging
the relevant stakeholders to fixate their attention on what the future of Africa can be. For
example, what would be possible if Africa attracted 10x or 100x the amount of venture capital
it is currently attracting? We take stock of notable themes that defined 2021 and will likely
shape the future. These include the talent flight and shortage, dominance of fintech in both
investment and ventures launched, the emergence of name-brand VCs on the continent and
the soaring valuations.

As is consistent with our vision at Future Africa, we strongly believe the challenges articulated
here are some of the world’s greatest emerging business opportunities; for example converting
talent flight into global opportunities for impact. We also believe the positive trends we examine
here can generate exponential multiplier effects that are unique to the continent and to the
startup ecosystem.

8 India's Venture Capital Growth Outpaces China's - Statista

 Talent Shortage

Technology was already changing the nature of work before Covid-19 took hold. The pandemic
only accelerated the digitisation of numerous industries across the world and compressed
almost a decade’s worth of technology adoption and digital transformation into one chaotic
year. Whilst it provided succour for employees with work-from-home opportunities and
provided an avenue for increased customer interaction; it also created an intense need for
technical talent, one which could cost the world about $8.5 trillion due to 85 million unfulfilled
jobs by 20309.

This problem is set to be particularly prevalent in new and niche areas such as AI and Machine
Learning, Software Engineering, Blockchain, and Cybersecurity; and these are areas that are
increasingly represented in the African startup ecosystem. According to a study by Harvey
Nash Group, 60% of companies expect their technology budget to increase in the next one
year, while 61% expect there to be an increase in technology head counts10. According to U.S.
Labour statistics11, as of December 2020, the global talent shortage amounted to 40 million
skilled workers worldwide.

Whilst asset-heavy companies were downsizing and reducing recruitment budgets amidst the
pandemic effect, big tech companies were hiring even more - with Facebook announcing its
plan to increase its Product and Engineering team by 10,00012 and Amazon pushing for 55,000
technical roles to be filled13.

As technology becomes ubiquitous, roles across engineering, product and data are now crucial
to businesses; and the war for technical talent is getting fiercer by the day as the competition is
now global and no longer exists among only technology companies. Other previously
traditional industries are now included in the mix.

9 The $8.5 Trillion Talent Shortage - Korn Ferry

10 Harvey Nash Group - Digital Leadership Report 2021
11 Global Tech Talent Shortage in 2022
12 Facebook expects to add 10,000 workers in product and engineering this year - CNBC
13 Amazon CEO unveils 55,000 tech jobs in his first hiring push
 Skills of Mass Disruption: Pinpointing the 10 most disruptive skills in tech by Burning Glass Technologies
Source: Forbes

This talent war has led to wage inflation in well known economic law; as demand for
developed economies, and - thanks to talent went up, so did the price.
remote work and ease of talent mobility - its
effects are further trickling down into Recent trends show a budding interest for
emerging economies, making it increasingly African tech talents by foreign companies,
difficult for less capitalized startups to fairly facilitated by an increasing internet
compete. In the pandemic’s wake, big tech penetration, and the emergence and
companies with the capacities for disruption proliferation of training hubs and talent
recognised that their key to beating the marketplaces such as Andela and Gebeya.
talent crunch was to expand their reach South Africa, Egypt and Nigeria are listed as
beyond their geographical borders to the top hotspots for software developers in
qualified candidates everywhere. They Africa14, and compared with the software
pumped even more of their budgets into developer salaries in the US ranging from
talent acquisition and in accordance with the $33,500 to $138,000 with an average of

14 African Software Developers: Best Countries for Sourcing in 2021

$86,523 annually15, Africa’s tech talent pool is relatively affordable, with software developers in
South Africa being the priciest location16 earning $68,956 on an average17.

Whilst African talent is being marketed outside Africa as a cheaper option for outsourcing
human resources, African startups and businesses are at a loss for skilled talent as they have
been crowded out of the market. This is a source of concern for the local companies building
for the local market. The rising cost of talent is not yet matched by increased consumer
spending power that can boost startup revenue, so these startups can’t compete in the wage
market — and there lies the Catch 22. African startups then find themselves in a binder trying
to build low-cost solutions with expensive operating costs.

It is not fair, however, to assert that the talent challenge is entirely the making of the western
market forces. The coming of age of the African startup ecosystem is also a contributor.

In 2015, only 55 startups successfully raised funding, the number stood at 359 in 2020 with the
ecosystem growing at a 46% annual rate, which is six times faster than the global average,
according to BCG18. In 2021, the ecosystem saw over 740 announced deals19. This impressive
growth has created a need for talent to service these startups, the majority of which require
technical hires such as data scientists and software engineers. African startups, flush with cash
from foreign venture capitalists, have been on a hiring spree as they race to scale up and beat
rivals in an increasingly competitive market. Several African technology startups have also
reached a point where they can lure key hires away from established markets such as the US,
the United Kingdom and Europe.

Others are blaming the talent shortage on the presence of too few local developers, the rise of
remote work, and more are making talent agencies like Andela rethink their models. Back in
April 2019, Sacha Poignonnec20, the French-Canadian co-CEO of the Africa-focused e-
commerce site Jumia, sparked outrage in African tech hubs around the continent when he said
in an interview that Africa didn’t have enough software developers. With all this going on,
founders need to quickly figure out a fix to the talent challenge. Beyond the founders, in order
to build a sustainable ecosystem, stakeholders also need to bundle together and come up with
a long-lasting solution.

15 Software Developer Salary - Zip Recruiter

16 Africa’s software talent offers affordable outsourcing options
17 Remote Developer Salaries in South Africa
18 Africa: 500’s Next Ecosystem Hub
19 Africa Investment Report 2021
20 The Truth about Africa’s Tech Talent Shortage
A. How startups can combat the talent shortage

Globally, we are living in a talent-driven market, It is thus clear that startups can not win in
with most employees unlikely to stick at a a talent bid war fuelled only with salary.
company for long. Few things are more scarce But there are a few things that startups
than crucial team members of a startup staying can do, which others are already doing. In
for more than a few years. In certain cases, India, there have been instances where
there is little a company can do to compete startups are offering sweeteners like more
with well established brands such as vacation time and gender-neutral parental
Facebook, Google, Microsoft and others, who leave as they compete for graduates and
also are struggling to retain talent. In other professionals22. One Bangalore startup is
cases, it is well capitalized upstarts such as trying a more dramatic solution: a three-
Flutterwave and Andela with the capability to day work week23.
compensate talent in double-digit multiples of
their previous pay. Companies such as Hotels.ng have
managed to circumvent the talent
However, it is not all doom and gloom. There shortage through running a well
have been attempts by many startups to established internship program for
expand their talent pool by going remote. This software engineers. Depending on the size
is reflected in many job descriptions that of the company and the resources
startups share nowadays. Others are throwing available at their disposal, they can run
in perks like fully-paid vacations and luxury similar fellowships as a recruitment
vehicles, along with high dollar-denominated pipeline. This way, they grow a pipeline for
salaries21. Although these may get talent in the themselves as well as for the entire
door - especially seniors - it is unlikely that it community.
will keep them.

Hotels.ng Internship Female finalists

21 It’s raining perks for IT workers
22 ‘Start-up dads’ at tech major get 3-month paternal leave
23 Bangalore Startup Introducing A 3-Day Workweek With Employee Benefits
Another common practice that venture focused on the Future of Learning, we are
backed companies have always relied on is investing in upskilling and reskilling
the issuance of employee stock options that companies to do exactly this.
are supposed to vest over a set period of
time. Such a program allows a company Company employees who would love to
predictability around the talent they have grow with the company often lack access to
hired. However, companies need to realize resources. Available resources such as
that they may need to part with more equity MBAs and leadership fellowships are not
allocation to ESOPs than has previously only expensive but also have a longer
been the norm. There is also the need to turnaround time. For a company that has
ensure that as many employees as possible raised funding and is in aggressive
are recruited into the program - if not all. expansion mode, as an example, it needs its
employees to level up as soon as possible
In cases where talent won’t stay despite the with a likely quarterly turnaround cycle. In
above, there should be the ability for the two the end, if internal employees are not
parties to harmonize expectations. For enabled to grow within the company, they
example, if an employee is looking for an will leave.
opportunity to emigrate, both the company
and the employee should consider an The last aspect that startups seriously need
agreement that ensures an employee stays a to consider is the company culture. Right
given amount of time at the company and from the get go, African startups need to
after that, they qualify for certain benefits carefully consider the type of culture that
including support with processing their they cultivate as it will play a crucial role in
documentation. not only attracting new talent but also
ensuring that they are retained for the long
For those looking to go for further training, haul. This will therefore require investing in
education, or start their own companies, a activities and practices that may seem a
similar policy can be adopted. A fund which slow-down especially for a fast-growing
employees can draw on depending on what company but in actual sense may have long
their next step is can be set up. For term payoffs.
example, as a company policy, it can take an
equity position in all companies set up by ex- As a startup, you have to offer these
employees that stayed for a given period of employees the things that only a startup can.
time and exhibited certain qualities Company culture can look like trusting your
demanded by the company. team and sharing information liberally. When
challenging tasks are given, tolerate a few
Companies also need to introduce strong failures and reward the best people. One
incentives around upskilling and reskilling particular investment is in ensuring the
their talent - which can result in upward standards to which all employees are held do
movement of talent within the company. not drop. Once a low performance culture
Startups are engineered to grow permeates a company, it can drive away the
exponentially, and the founders are offered most talented in the company.
close guidance — usually by investors and
the board — enabling them to grow lock-in Culture is the glue that keeps the workforce
steps with the company. At Future Africa, together on a common mission and exciting
through the launch of our thematic fund of traversing uncharted waters. Startups
should therefore focus on investing in be the proposed Talent City24 which
building a company culture that can survive positions itself as a home for technology
challenges seen and unforeseen and offer talent and stakeholders providing everything
opportunities for leadership, growth and self- ranging from living, studying and working
determination across all employee levels. facilities at a price that is affordable with
quality that matches global standards.
B. Long term opportunities
There is also a need for governments to
around talent shortage channel more funds towards short course
programs similar to Refactory in Uganda that
Looking at the funding figures that Africa is are aimed at training technical talent. Some
attracting, with 2021 almost hitting $5 of this money can also go towards scaling
billion, there will be continued demand for programs such as the ones being offered by
technical talent for the foreseeable future. Hotels.ng and TalentQL’s AltSchool Africa.
The suggestions made above are simply to With government funding and investment,
plug the talent shortage hole for the short run these programs can be expanded to include
and on a smaller scale. In order for Africa to a period of training for individuals interested
sustainably solve its talent shortage and for in technical skills and the best performers
the rest of the world, there is a need for all placed in various startups for internships and
the relevant stakeholders to work together in eventual employment.
a concerted effort. This list of stakeholders
include education ministries, investors, 2. Academic Institutions
startups, corporates, academic institutions,
city and national governments as well as
Academic institutions, especially
other private sector employers.
departments in charge of minting software
engineering talent, also need to take radical
1.Government steps in reforming their requirements.
Universities such as Makerere University in
Among the key contributors to talent flight is Uganda still demand passing certain
the need for better social and economic subjects as a prerequisite for acceptance
infrastructure. Many software developers, into a bachelors program for software
who can actually work remotely from African engineering. Programs like Andela and
cities such as Lagos or Nairobi, are fleeing to Lambda School have debunked the myths
Europe, the U.S. and Canada in search of around having taken and passed certain
better amenities such as stable internet and subjects in order for one to be able to
electricity, and to avoid harassment from successfully become a software engineer.
security authorities.
There is also an opportunity for more
There exists an opportunity for local and universities to pursue affiliate partnerships
national governments to position themselves with companies, fellowships and software
as epicentres for remote and technical talent. companies that offer resources and
They would however need to ensure that programs which in the end result in well-
they develop such amenities that ensure they rounded and qualified software engineers.
are talent friendly. An example of this would

24 Talent City
For example, Alt School Africa has partnered with associations have to take the lead and
reputable higher institutions across the continent, get ahead of the talent shortage. The
which allows the organisation to offer a certificate most logical recommendation here is to
after a nine months training program that is tied to unify the efforts of all stakeholders who
a further three months internship placement. are affected by the shortage with the
goal of growing the future pipeline of
Education ministries and departments across talent coming into the ecosystem.
Africa should also consider further reforming the
education system to align with the interests of the Because there are already companies
learners. It is not uncommon for graduates of five training new talent, they only need to
years to not have jobs or work in something that amplify these efforts. Here, the
barely maximises their potential. This is largely ecosystem stakeholders should
because many skills and courses offered by consider setting up a foundation or
universities are out of sync with the market needs. non-profit organisation with the aim of
Today, demand for blockchain and web3 engineers financing initiatives aimed at growing
globally and across Africa far outstrips the supply. the talent pipeline. Beyond working
In order for African universities to tackle this, and players such as Alt School Africa,
make Africa the buffer region for such talent, there Andela, Gebeya and others, this
should be a deliberate step towards revising the foundation would also work with
course materials offered as well the length of the established universities to set up
programs. programs that are aimed at training
talent with an evolving curriculum. This
One incentive that can perhaps spur on many foundation would finance curriculum
universities to make this change is to align the development and revamp to ensure
destiny of their graduates with the way universities that there is no falling behind the
are compensated. Similar to Lambda School, market needs.
African universities, especially in the private sector,
can consider dropping or lowering tuition fees in This foundation can be financed by
order to share part of the income generated by annual donations from the various
their graduates after employment. Given that there stakeholders including companies such
is a higher demand for software engineers, many Google, Facebook, Microsoft, and
will naturally dedicate themselves to ensuring that others who are already beneficiaries of
their graduates are pushed towards this direction. African talent and would continue to
benefit from the growth of the pipeline.
Donations could be in the form of cash
3. Immediate Ecosystem or equity that is allocated to the
foundation and held in trust. There are
Stakeholders already model foundations that can be
looked at in order to bring this to life.
Despite the suggestions made above, it is highly Notable examples include; the
unlikely that governments and universities will Ethereum Foundation, the Web
make the necessary changes soon enough. This Foundation, the Mozilla Foundation
implies that the immediate startup ecosystem and the AfriLabs Foundation.
stakeholders including the founders, VCs and

25 Any Company Can Offer Financial Services

26 Finnovating for Africa 2021
Fintech Dominance

In November 2019, Angela Strange, a Y-Combinator has invested in 63 African

General Partner at Andreessen Horowitz startups, nearly 40% of which are fintechs. In
focusing on financial services, posited that their 2021 summer and winter batches,
every company will be a fintech25. Today, fintechs occupied 11 spots out of 23 (the
fintech as a sector receives the largest only other sector that came close was B2B
amount of funding across emerging markets, Software and Services, with 8 startups).
Africa included. As of December 2021, over
$2.29 billion had been raised by over 156 A report by Disrupt Africa states that there
fintechs in Africa, more than they had raised was a 17.3% growth in the number of
in the past ten years according to Partech fintechs across Africa from 2017 to 202126.
Africa reports. Last year, four fintechs – As of 2021, the continent had 576 active
Flutterwave, Opay, Wave and Chipper Cash fintech startups with Nigeria, South Africa
– became unicorns. and Kenya being the biggest markets,
accounting for 67.9% of the continent’s
fintechs.

African Fintech Innovation Map

Source: Briter Bridges

25 Any Company Can Offer Financial Services

26 Finnovating for Africa 2021
Fintechs combine innovative business rise in funding in this space is also enabled
models and technology to disrupt financial by a growing population of 1.2 billion people
services. There are six broad fintech with a large chunk of digitally savvy youth;
segments namely: Payments, Mobile Money rising smartphone ownership and mobile
and Digital Banking; Lending; Savings; money adoption; and wider recognition of
Investments and Crowdfunding; Enterprise the opportunity to reach 350 million
Services and Infrastructure; Blockchain and unbanked adults, who account for 60% of
Cryptocurrency, supported by an ecosystem the total population in sub-Saharan Africa
of enablers including private equity and and 17% of the global unbanked
venture capital firms, incubators and population27. Below, we give a brief overview
accelerators, regulators and startup hubs. of each of these factors that we consider
paramount.
So what is it about African fintechs that is
drawing in global name brand venture I. Financial Inclusion Drive
capitalists and resulting in these mega
valuations? This trend is similar to the period
Few industries have benefited from the
between 2012 and 2016 when the African
concerted effort towards financial services
startup ecosystem was largely dominated by
adoption, thanks to a rally behind financial
e-commerce. Companies such as Konga,
inclusion from some of the world’s most
Takealot and Jumia raised millions of dollars
vocal individuals and institutions. The past
in a race to dominate the continent’s
two decades have seen a rapid increase in
fledgling digital commerce landscape. In a
interest in financial inclusion from
typical investor-led innovation market, many
corporates, policymakers, politicians,
innovators rushed to build products in the
investors, activists, philanthropists, and
space with the hopes of mimicking the
researchers alike.
fundraising success of the above three.
In the early 2010s, financial inclusion (along
A few years later, for the third year in a row,
with financial health and asset building)
financial services are the darlings for
captured the reality that specialized financial
investors and innovators. Africa is awash
institutions aimed at low-income people are
with fundraising news dominated by fintechs
unlikely to meet the financial needs for the 2
and for many investors, Future Africa
billion people without even a basic bank
included, the number of investment
account. Despite all its successes, the
applications by fintech founders outweighs
microfinance industry still reached only
those from all other sectors combined. What
about 200 million people – or about 10
the continent is experiencing is a cycle
percent of the global need. There was a need
where, for a given period of time, a market
to build financial tools and resources for the
sees a surge in interest in a particular sector
remainder of the population.
or vertical.
Financial inclusion is the availability and
There are numerous factors that have
equality of opportunities to access financial
contributed to making fintechs the prime
services. It refers to a process by which
candidates for VC dollars, ranging from the
individuals and businesses can access
need to attain financial inclusion to the
appropriate, affordable, and timely financial
availability of necessary infrastructure. The

27 State of Fintech in Emerging Markets

products and services. These include Indonesia, 50 million) and associations like
banking, loans, equity, and insurance the Partnership for Responsible Financial
products. Financial inclusion efforts typically Inclusion (70 million) and the World Savings
target those who are unbanked and Bank Institute (400 million).
underbanked, and then direct sustainable
financial services to them. It is about All these efforts have been pursued on the
leveraging and connecting existing financial back of proof that structural, as well as
players (e.g., banks, microfinance policy-related, factors play an important role
institutions, insurers, government pension in achieving financial inclusion. Encouraging
programs) to non-financial players (e.g., banking competition or channelling
mobile network operators, retail outlets with government payments through bank
large operating footprints). This helps to accounts are initiatives that show the
scale up outreach bigger and faster than potential macro and microeconomic benefits
specialized providers could do by that can be derived from greater financial
themselves. inclusion.

According to the World Bank’s 2014 Global However, in the end, they laid a foundation
Financial Development Report, about 50 for investments to be channelled into
countries had adopted explicit policies to financial services technology companies
boost financial inclusion. In its analysis of across the continent. Many startups have
policy frameworks in 55 emerging market aligned themselves with and significantly
economies, the Economist Intelligence Unit’s benefited from this narrative, which has
Global Microscope reported that about two- availed abundant capital from organizations
thirds of these countries had explicit national such as the World Bank in a bid to ensure
financial inclusion strategies in 2014. By that they meet the targets they pledged
2019, all but one of the analysed countries themselves to. Few industries in the past two
had them. decades have had similar benefits in
targeted communication as the financial
The World Bank Group also sponsored an sector.
initiative called Universal Financial Access
2020. The goal of this initiative was to ensure II. Presence of Necessary
that by the year 2020, an additional 1 billion
adults would “have access to a transaction Infrastructure
account to store money, send and receive
payments as the basic building block to By nature, financial services require building
manage their financial lives.” The World Bank on top of existing infrastructure. It is in rare
Group – the World Bank and IFC – cases that a new player does away with the
committed to enabling 1 billion people to entire existing infrastructure. Even then, it
gain access to a transaction account through would take years, if not decades, to achieve
targeted interventions. a certain level of scale that one would enjoy
if they ignored non-core offerings and simply
Many others have also made numeric built on top of others. As such, banks,
pledges, including VISA, Mastercard, and mobile network operators and more
GSMA (500 million people each), large mass- established financial services players have
market-oriented financial institutions (Ant proven crucial allies for African fintechs,
Financial, China, 100 million; Equity Bank in providing them the rails upon which they
Kenya, 50 million; and Bank Mandiri, have built their products.
Because money has to move from one point Take an example of telecoms and banks,
of the world to another, there are at least which are the leading partners for fintechs
existing protocols needed to build upon to across Africa. A typical telecom at least has
scale from one African market to another, no a presence in more than two markets, while
matter how rudimentary they may be. It is banks like Standard Bank and Ecobank
thus difficult to think of another industry that operate across most of the continent. This
has the same level of infrastructural scale or has made scale for fintech less
stipulated guidelines as financial services. cumbersome.

Growth in mobile money adoption across Africa

Source: State of the Industry Report on Mobile Money - GSMA

Startups in other industries such as most instances, startups in other industries

healthcare can not boast of the same are required to build out their necessary
privilege when it comes to time to scale. In infrastructure from scratch, which can slow
down their growth. On the other hand, businesses struggled to integrate payments
Fintechs looking to establish presence or into their product offerings – resorting to
expand have usually found success in accepting cash, which is extremely difficult
partnerships with the big names in the to handle, especially when it has to change
financial services and telecommunications hands numerous times. In the end, cases of
sectors. fraud and cash losses were bound to arise,
which is exactly what happened to Jumia in
Flutterwave has partnered with over 10 Nigeria. In the end, the company launched
companies since inception including Alipay, its own payments unit in order to try to
MTN Group, Access Bank, PayPal, WorldPay address their payments challenges. Jumia
and more. It partnered with PayPal in March Pay is now one of its most promising units as
2021 to enable African merchants receive per their quarterly filings.
payments from PayPal customers globally;
partnered with Ethiopian digital money and This ubiquity of financial services has made
e-commerce platform Amole in May 2021 to fintechs necessary for any industry to thrive
facilitate remittances from the country’s or extend its product offering. As of today,
diaspora; and also executed a partnership similar to Jumia, any company no matter the
with MTN Group allowing businesses industry that interfaces with consumers or
integrating with Flutterwave to receive businesses is figuring out how to layer
mobile money payments via MTN Mobile payments, lending or BNPL offerings on top
Money. of their core product or service lines. Not
only is this a quick way for these companies
All these partnerships enable Flutterwave to to generate an alternative stream of revenue,
simply tap into their infrastructure network to but they legitimately are fixing a need in their
extend their services to millions of users respective industries that had been left
across the globe. Additionally, these unresolved. Nigeria’s Helium Health, well-
incumbents typically have long-standing known for its core electronic medical records
relationships with regulators and consumers (EMR) and hospital management solutions in
alike that give fintechs such as Flutterwave Africa, now operates a myriad of fintech
the necessary reach. services. The company’s fintech offerings
include HeliumPay, a billing and payments
III. Ubiquity of Financial solution; a collateral-free loan product and
HeliumCredit, a patient-provider and revenue
Services cycle management service HeliumDoc.

Financial services is an integral aspect of However, as the continent’s financial services

every industry in an economy. Without fixing and payments industry is maturing with an
how people and businesses can pay and get abundance of necessary building blocks and
paid, it is impossible to have any meaningful a growing market, it is also becoming
economic progress. These challenges have lucrative to launch niche focused fintech
been faced previously by e-commerce plays. These are typically focused on a single
companies including Jumia and Konga that vertical or industry; SchoolPay in Uganda for
defined the first wave of venture and startups example is focused on payments of school
across Africa. fees, while Payday is addressing remittances
between foreign employers and clients.
Because the continent had no structured
payments infrastructure, many e-commerce
1.How can non-fintech founders them down, these businesses extend credit
facilities based off their relationships.
attract funding?
For context, we are not recommending that
Despite being the most funded sector, we every startup should immediately layer their
still believe that financial services across products with financial offerings. There has
Africa are not receiving enough funding. We to be a careful procedure followed to ensure
are therefore not advocating for money to be that by adding something like this, you are
redirected away from fintechs to other actually getting from 1+1=2 to 1+1=11.
startups. What we are signalling here is an
understanding that there are founders in
2.What is next after fintech?
other industries that also need capital to
solve equally important problems.
In order to accurately predict what will come
after fintech, we need to ask: what can be
As seen with financial inclusion, when
done when an individual or a business can
countries institute national strategies, they
easily pay or get paid; when an individual or
increase the pace and impact of reforms.
business can easily get access to credit or
Taking a strategic approach to developing a
send money seemingly within and beyond
national financial inclusion strategy in several
borders. In its current form, fintech is yet to
countries brings diverse stakeholders
actually solve much of the problems.
together including financial regulators,
telecommunications, competition, and
Right now, it is difficult to predict exactly
ministries. A similar deliberate approach
what will come after fintechs because
must be taken by countries that desire to
despite the funding being funnelled to the
channel more financing into areas that are
industry, there is much more that needs to
lacking innovation and as a result funding.
be done. Remittances are still difficult to
Take Insurance, for example, whose rate of
execute for individuals. Small businesses
adoption and penetration across the
can not afford to access credit, and ride-
continent is still miniature compared to other
hailing drivers do not own the assets they
parts of the world. Such an industry can
use to generate income on a day-to-day
benefit from a deliberate national policy and
basis. All this will require financial
so can education, healthcare, logistics, and
engineering in order to achieve the level of
others.
scale and success that is convincing.
When it comes to startups, because it has
The industry will therefore continue to attract
become extremely possible to integrate
funding until it attains full maturity. Once a
fintech offerings into companies in other
payments layer is fully integrated and the
industries, there is also a possibility of
infrastructure is in place, we should then
exploring this path. This makes a business
expect consolidation across the board in the
model or company that was initially
form of acquisitions or aggressive vertical
unattractive to a certain set of investors all of
expansion of product lines. Companies such
a sudden interesting. For example, BNPL
as MFS Africa are already pursuing this
has gained momentum because businesses
strategy. The company executed a number
that have established long term relationships
of strategic acquisitions since 2016 in East
with individuals or merchants add a financing
and West Africa, including acquiring Nigerian
layer to their model. Rather than send these
agent banking platform Baxi.
customers to banks that will most likely turn
So far, it looks like the fundamental layers are In terms of industry, because of the myriad
still the main focus. There are businesses sets of challenges, it is difficult to pick one
that have built the rails that are making it particular industry to advocate for. However,
easier for non-core fintech companies to we think that more work needs to be done
integrate financial services in their offerings. around education. The continent is a ticking
To illustrate, when M-Kopa started bomb with its explosive population growth
conducting asset financing, they had to build numbers dominated by the young with a
out their own financial lending infrastructure. median age of 19.7 years. There has to be a
Today, you can simply leverage an API from deliberate effort to channel investment
another player to execute this, making towards the industry through dedicated
embedded finance a growing reality. funds.

Average age in the most funded markets in Africa

That is why we are betting on the re- models of tech-enabled, scale-focused

invention of education to generate significant learning have the ability to radically change
investment opportunity and attention in the the access, affordability, quality, and
coming years. We are launching a thematic relevance of education. We are betting on a
fund, the Future of Learning Fund, to be the paradigm shift of learning in a skills economy
continent's first investor solely focused on that can dramatically alter the decades-old
the future of learning and work as a result. narrative about lack of access and poor
There is now an increasing acceptance that education delivery and outcomes on the
traditional education systems in Africa continent.
cannot build or adapt fast enough to meet
demand. And there is a newfound
recognition and acceptance that entirely new
The Emergence of Global Name Brand VCs

In 2014, when South Africa’s Takealot raised world’s leading technology investors.
$100 million28, it was a monumental milestone
for the startup, the country, and the continent. Africa’s venture capital investment scene is
But few read into details about the investor, largely dominated by foreign investors,
Tiger Global Management, then a hedge fund particularly from the U.S. and Europe and
taking its initial steps into technology. Tiger increasingly China and Japan. From 2014 to
had earlier invested in iRoko TV’s $3 million 2019, 40% of the total number of investors
Series A in 2011 and followed up by leading that took part in VC deals in Africa were
the company’s Series $8 million Series D in based in the US30. Japanese VC Kepple
201329. So by the time they invested in Africa invested in 36 African startups in
Takealot, they had had their eye on the 2020, with further investments in 22
continent for quite some time. startups through the first seven months of
202131. 500 Startups’ portfolio includes 74
In the past ten years, there have been bouts African companies32, and Samurai Incubate
of excitement caused by one or two globally has investments in 31 African startups in
acclaimed investors or individuals betting on addition to closing an $18.6 million fund for
a startup across the continent. One of those African startups in April 202133.
incidents was Andela’s Series B that Chan
Zuckerberg led, and the Series D that Even with all the foreign presence in the
Generation Investment Management of African startup ecosystem, it was not until
former US Vice President, Al Gore, led. Y 2021 that numerous name-brand VCs
Combinator’s role has also been consistent entered the market or decided to double
and outstanding, with the Mountain View down. Tiger Global, the first to enter the
headquartered accelerator and early stage market with its last investment recorded in
investor boasting a portfolio of more than 50 2014, re-emerged with an unpredictable
companies on the continent. and wide-ranging investment focus that,
aside from targeting fintechs, ranges from
Despite all these significant intermittent as early as Seed to Series C for now. The
occurrences, other than 2021, no year since firm co-led with Avenir Growth Capital
the inception of the African startup Flutterwave’s $170 million Series C round,
ecosystem, slightly over a decade ago, can led FairMoney’s Series B round of $42
claim to have attracted the attention of the million and then API fintech startup Mono’s

28 South African E-Commerce Giant Takealot Raises $100M From Tiger Global
29 iROKOtv Raises $8 Million Series D From Tiger, Kinnevik And Rise Capital
30 African Private Equity and Venture Capital Association
31 Japanese VC Kepple Africa Ventures makes 22 investments in first 7 months of 2021
32 Africa: 500’s Next Ecosystem Hub
33 Japanese VC Samurai Incubate closes $18.6M fund for African startups
Series A round of $15 million. It also invested in Zambia’s first YC alumni, Union54,
participating in their $3 million Seed round.

On the other hand, SoftBank, through Vision company Telda, leading its pre-seed round of
Fund II, debuted in Africa by leading OPay’s $3.25 million.
$400 million Series C round, in conjunction
with existing investors Sequoia Capital China Why Are They Important?
which had initially invested in the company in
2019. The round valued Opay at $2 billion.
Like human beings, ecosystems go through
The Japanese venture juggernaut went on to
cycles. There is a cycle when they start, they
lead Andela’s $200 million Series E round at
walk, start running, talking and eventually
a $1.5 billion valuation, bringing its total
can live on their own. Here is the full
African startup investments to two, each a
visualization of a fully fledged startup venture
unicorn.
ecosystem; 1) angel investors; 2) early stage
investors (pre-seed/seed); 3) early growth
When Wave announced their $200 million
stage investors (series A and B); 4) growth
Series A, valuing the company at $1.7 billion,
stage and late stage (Series C and beyond);
it featured a roster of high profile investors.
and 5) exit (IPO, SPAC, or Acquisition). Not
Four big-name backers jointly led the round
all companies necessarily go through the
— Sequoia Heritage, an endowment-style
entire cycle. As we saw with Paystack which
fund and a separate entity that operates
was acquired after raising a little over $10
independently under the Sequoia brand;
million in a Series A round.
Founders Fund, Stripe and Ribbit Capital.
Stripe had previously invested in Paystack
The ideal gauge for the maturity of an
before acquiring it for $200 million in 2020,
ecosystem is the ability to nurture and invest
while Ribbit Capital led Chipper Cash’s $30
in companies from inception until exit. But, in
million Series B in 2020. Sequoia on the
order to gauge the stage of the cycle on its
other hand made its first investment in North
way to maturity, one needs to watch out for
Africa in 2021, in Egypt’s digital banking
the signals. Emergence of name-brand VCs Angel investors such as Jason Njoku have
is one of those crucial signs. also doubled down on investments.
Countries such as the US already have their
cycle on lock. It is only recently, with the Another reason that makes globally
emergence of globally ambitious investors acclaimed technology investors important is
such as SoftBank, that US companies have their ability to effortlessly write or attract
needed to make trips outside the country to outsized cheques to later stage companies.
raise capital. Even then, it is considered as a Usually, after Series B, African companies
complement to what is already available struggle to raise funding from making a few
locally. In Africa, there is no such luxury, as calls to local fund managers. A typical
the continent has a broken capital value African fund size now cannot consistently
chain. accommodate leading multiple Series B
rounds in a year that are not part of their
High net worth individuals are typically hell- existing portfolio. Few have the ability to
bent on investing in traditional assets such write cheques, let alone lead these rounds.
as treasury bills, bonds and real estate. While For most, the focus is on Seed and Series A,
the equivalents of LPs in mature markets do with a little follow-on here and there at Series
not have enough to spare for risky alternative B and C.
bets such as venture capital. This means that
the continent needs to quickly come up with Lastly, African startups have reached a
a self-fulfilling cycle, starting with angel realization that they can actually expand
investors. So far, the most impactful beyond the continent. However, in order to
investors are (former) founders and VCs who do that, they need globally competitive
have grown to appreciate the effectiveness capital and advisors in their corners because
of the asset class. Founders and early there are certain markets where capital is not
employees from companies at Series B or C enough. In addition to this, because most
are always offered the opportunity to take African startups incorporated in Delaware,
some cash off the table. In most cases, they they will likely be acquired by external
end up using this very capital to invest in players or publicly list outside the continent
their friends and other promising ventures. on NYSE or the NASDAQ, as we saw with
Jumia. These firms bring impeccable
However, for all this to happen, there is a expertise in that regard.
need for liquidity in the market, which in turn
demands the presence of players willing to
buy out earlier investors through secondaries
or exits. SoftBank, Founders Fund, Sequoia What will their impact in Africa
Capital and co. provide the much-needed be?
liquidity for founders, early employees and
investors and micro funds who go on to
With China no longer a predictable
multiply their impact by investing in more
investment destination34, more VCs looking
founders generating more pipeline. Thanks
for growth opportunities will turn to Africa as
to the Stripe acquisition, Ventures Platform,
India, Latin America and Southeast Asia
an early investor in Paystack closed a $40
become more competitive and saturated.
million fund while LoftyInc Capital
But, when assessing the potential impact of
Management also closed a $10 million fund.

34 SoftBank pauses China investing as crackdown roils portfolio

funds such as Sequoia Capital, Tiger Global, technology fund focused exclusively on the
SoftBank, and others in Africa, it is important fast-growing region; specifically starting in
to look at what their impact has been like the countries of Argentina, Brazil, Chile,
elsewhere. Precisely Latin America, India, Colombia and Mexico, covering areas like e-
and Southeast Asia. commerce, digital financial services,
healthcare, mobility, and insurance. This was
First, there is no uniform approach that all the first time that SoftBank created a fund of
these funds take when looking at a market, its kind focused on a single region —
even internally. While Sequoia has a fund for although it had previously spearheaded big
China and India, they have none in Latin bets into specific countries like India. It
America, despite having a significant doubled down on Latin America in 2021,
investment in Nubank in the region. SoftBank announcing the launch of the SoftBank Latin
on the other hand has a regional fund for America Fund II, its second $3 billion
Latin America but none for India and China. dedicated private investment fund focused
on tech companies located in the region.
In 2019, SoftBank launched its $5 billion
Latin America Fund, the largest-ever

Investors with the most unicorn investments

Because of the size of their fund, SoftBank the leading investors in unicorns globally.
has primarily pursued deals that propelled Although Tiger Global does not have a
their portfolio companies to unicorn status. dedicated fund for any region,
The same can be said of Tiger Global, one of headquartered in New York City and a single

34 SoftBank pauses China investing as crackdown roils portfolio

fund at a time, it has also aggressively Initially, name-brand VCs entered the regions
invested globally. The fund is famed for at later stages. However, seeing that many
outsourcing its research and due diligence to are going upstream to the earliest stages of
consultants, and often pays for its portfolio investment, there is going to be a need for
companies to have access to consultants as many local VCs to adapt to increased
well35. Additionally, unlike SoftBank, Tiger competition and prices for deals. Y
Global is flexible when it comes to the Combinator had initially set this competition
investment stage, routinely writing cheques in motion, but now we should expect it to
at an early stage. This particular versatile multiply. This high level of competition will
approach is closer to the Sequoia Capital’s breed the need to be highly specialized.
play book. The storied Silicon Valley investor Larger funds shall be raised to focus on pre-
with notable exits in Apple and YouTube set seed and seed – stages that are typically
up Chinese and Indian arms that invest from less institutionalized in other parts of the
as early as pre-seed to late stage. world, and typically executed by angel
investors. Two years ago, a $100 million fund
It should be anticipated that most global VCs would have been sufficient for an African
will adopt a similar approach for the fund manager looking to invest in Series A
continent. However, because there is no through to Series B. However, with this
significant player with a fund large enough to competition, funds of that magnitude will be
consistently scoop up and lead all late stage focused on entry at pre-seed and seed.
opportunities, if any was to launch a $1
billion-plus fund focused on the continent, it Lastly, growth stage African startups will also
would be SoftBank. Having tested out the become global companies scouring for
model in Latin America, with now over $8 opportunities in geographies and verticals
billion in capital committed to the region, where these VCs can offer crucial insights
SoftBank would likely adopt the same and support – either through their in-house
strategy in Africa. team or by connecting them to their diverse
portfolios. For the startups that are only
But, beyond the obvious offering of liquidity uniquely suited to exploit their opportunities
to the market, the instant and visible impact on an African scale, they will be required to
that name-brand VCs usually have on a adjust their businesses to match the global
region is the inflation in deal prices, no needs and benchmark established by these
matter their stage. As an example, when investors.
Sequoia led Telda’s $5 million pre-seed, a
one-month-old startup, it became the When SoftBank pumped cash into OYO, the
region's biggest by a wide margin. Similarly, Indian startup went on a wild expansion
by the end of 2019, SoftBank was a large spree in domestic and international markets
investor in nine Indian unicorns, out of the 20 such as the US, UK, and China. In the past
that became unicorns in five years prior36. 24 months, we began to see a similar
Except for PayTM, the rest of the eight expansion drive with Andela, Chipper Cash,
startups became unicorns only after and Flutterwave, which began turning their
SoftBank invested. attention to global markets. Chipper Cash
added both the UK and US to their markets

35 How Tiger Global is outpacing VC with better, faster, cheaper capital

36 SoftBank tops list of unicorn investments in India
in 2021 and since the advent of COVID-19, we will see consolidation of companies that
Andela now supports developer recruitment complement the portfolio companies of
from more than 30 countries across Latin these firms as they will seek artificial growth
America, Europe, North America and Asia. in an African market where acquisitions may
be cheaper and faster than building out the
Many African startups, no matter the stage entire product suite.
and whether they have taken investment
from these firms or not, will tweak their The availability of endless capital from these
narratives to have a global appeal or conjure firms and their ruthless demand for growth
up enough growth metrics to warrant listing and global standards should be welcomed
on exchanges, especially in the US. If it is as the incentive for many African startups to
not possible to attain the global narrative, as think of building truly global companies.
we saw with Stripe’s acquisition of Paystack,
Soaring Valuations

With more than 900 unicorns in the market raised three rounds—including a $15 million
today37, we are living in the greatest-ever Series A in October—in under 18 months.
tech boom. Startup valuations are also rising
thanks to ample capital availability and more At the beginning of the previous decade, it
investors going earlier in the investing wasn’t uncommon for a decent startup in the
process. Although many believe that U.S. to raise a $5 million Series B at roughly
valuations are soaring out of control — $10 million to 25 million pre-money
drawing comparisons with the infamous dot- valuation. Today, the round size is at least
com bubble — startup valuations are also $25 million for a Series B and the valuation
rising, partly due to growth rates not only more than $100 million. African startups are
proving stronger than anticipated at tech increasingly commanding similar valuations.
companies, but also proving to be more Chipper Cash, founded in 2018, raised over
durable than expected. $250 million in 2021 alone, attaining a $2
billion valuation in October.
As the African startup ecosystem
approaches maturity, it is trending towards The most important points to an investor are
other ecosystems in several aspects — in the points of entry and exit. An investor
particular valuations. It is taking African prefers to enter into a deal at the lowest
startups a shorter time to raise follow-on price possible, and exit at the highest
funding and increase their valuations. possible price point. High valuations are in
favour of the founders, which is why it is not
In an interview with TechCrunch, TLcom uncommon for investors to rail against them.
General Partner Mauricio Caio noted that Startups and founders push for higher
“we're celebrating the amount of money that valuations because it can prevent over
is invested and the fact that some financing dilution, especially at initial stages; and it
rounds are associated with very high signals a company as a winner among
valuations, including unicorn valuations”. employees, partners, customers, and
Mono, which started in 2020 has already investors.

Average valuations at Pre-seed, Seed and Series A (based on Future Africa data)

37 The Complete List Of Unicorn Companies

This divergence in interests could lead to impact on valuation conversations thanks
tensions between investors and entrepreneurs, to the SAFE38, which tilted the fundraising
as the former have all the incentives to keep conversation in the favour of founders,
valuations lower, while the founders want to especially those that go through the
see their efforts rewarded through an attractive accelerator. Companies that are accepted
valuation. Regardless, there are risks into Y Combinator are handed a standard
associated with too-high valuations. Raising at SAFE that allows YC to invest $125,000 for
a ridiculously high valuation can come back to 7%. By nature of their reputation, once a
haunt the founders, as they may not be able to company gains acceptance into YC, its
grow fast enough to justify an up round in their valuation immediately soars.
next raise — leading to a stalled raise or
down round. In more extreme cases, new Since its first investments on the continent
investors might shy away from even engaging in 2016, YC has had the same impact on
in a deal because they worry that doing so will valuations across Africa as it has had
offend their limited partners (LPs). elsewhere. Startups that gain acceptance
into the accelerator immediately gain
A high valuation also increases the interest from both local and global VCs
expectations for the next rounds and makes it looking to back them. Many investors in
hard to keep increasing the valuation as there African startups sit on the sidelines to wait
is no margin left for error, something startups and confirm a company’s acceptance into
should keep as the next funding round will Y Combinator or another reputable
require a lot of traction to justify raising the accelerator, before committing to bet on
valuation. them. It is a decent way of reducing costs
associated with due diligence, but when a
On the flip side, low valuations result in more company comes out of said accelerator, it
dilution, especially at the seed stage. If is usually more expensive to invest in.
founders raise a hefty investment at a low
valuation, they naturally end up losing a lot This influence has led to instances of local
more equity. The more equity a startup parts investors complaining that YC is pricing
with at the early stage, the less it will have to them out of deals. Startups across the
give away in the future rounds. Plus, a hefty continent enjoy reasonable valuations
dilution can be a red flag for future investors. compared to when they did a few years
ago, partly because of YC’s entry into the
Naturally, due to various factors, valuations are market. If a company has potential to get
engineered to keep rising. Across Africa, there into YC, chances are it will not take funding
are several factors responsible for the soaring below a certain price. And those that do
valuations, and anyone looking to founding or not end up getting into the accelerator still
investing on the continent should take note of benchmark themselves against those that
them. get accepted into YC.

A. Y Combinator B. Entry of Name-brand VCs

Since entering the early stage investment The year 2021 recorded the highest
space, Y Combinator has had a tremendous number of unicorns for the African

38 Safe Financing Documents - YC

continent - Flutterwave, Wave, Chipper Cash, D. Proper understanding of
Andela and Opay. All these five attained their
unicorn status after raising from name-brand the market
VCs including SoftBank, Tiger Global and
Founders Fund. Typically, such funds do not A few years ago, there was a talk of the
write checks below a certain threshold no African discount whenever foreign and
matter the funding round, implying that as long local investors were thinking about
as they are to participate in a round, the price investing in an African startup. Part of this
of the round will automatically go up. thinking stemmed from the lack of
understanding of the African continent and
There have been cases of Tiger Global and appreciation of the opportunity that the
SoftBank investing heavily into founders market presented. As more and more
elsewhere in the world, giving them more investors have educated themselves about
capital than they ask for at founder-friendly the market, it suddenly seems less risky.
valuations. Given they are now invested in the
African market, if they truly believe that the More importantly, many are learning to
founders they are backing will build avoid thinking about Africa in the same
companies that shall scale globally, there is no context as the west and rather appreciate
reason as to why they wouldn’t do the same; its uniqueness. Solutions such as Wave
furiously back them and charge them with Mobile Money make sense when one looks
growing aggressively. With Mono, we got a at how successful M-Pesa has been in
taste of Tiger Global’s willingness to go after a driving mobile money adoption and
company they believe in, and lead a round that financial inclusion of the unbanked. While
is 7x their previous raise in less than five the West has existing infrastructure to
months after the company had raised funding. which new solutions can be compared, for
much of the continent, the competition is
C. Quality of companies and usually non-consumption or something
extremely ridiculous. Before the advent of
entrepreneurs mobile money, less than 20 years ago, it
wasn’t uncommon for one to put cash in an
Over the past decade, the quality of envelope and send it via a bus or postal
companies and entrepreneurs across Africa services.
has improved. Part of this improvement is
attributable to the emergence of sophisticated E. Abundance of Capital
support structures in the form of investors and
advisors. Other founders, such as
There is no doubt that part of the reason as
Flutterwave’s Olugbenga Agboola and
to why valuations have soared is due to the
mPharma’s Gregory Rockson are actively
abundance of capital, at least as compared
investing in and advising other startups. There
to the years before. When you interact with
has also been the poaching of talent from
most founders, the reason they will cite as
globally renowned corporations such as
one of the challenging ones to build a
Google, Uber, Facebook and others to help
startup is the lack of funding. This is still
scale businesses. Global accelerators and
largely true, however it is safe to say that it
early stage investors are also actively invested
is not as it used to be a few years ago. VC
in the continent and increasingly accepting the
funds focused on Africa, such as Partech,
continent’s founders.
have raised at least $100 million funds. In
2021 alone, more than 10 funds announced investor or founder should first look at the
raising of at least one $10 million fund. average valuation for companies at a
According to data from The Big Deal, startups similar stage and in a similar industry to the
in Africa raised funding from more than 800 one they are evaluating and find an average
investors. All this capital is chasing a few great valuation. For companies seeking angel
deals, leading to a small bubble in valuations. funding, this value has slowly been
creeping up over time, with an estimated
average pre-seed SAFE value of $4.4
million in 2021 as per our data. Once the
How to get valuations right average has been established, the investor
will then apply a multiplier, based on their
assessment of several qualitative factors.
One of the most dreaded consequences of
high startup valuations is that a bubble will
For the company, it is important to not give
burst, resulting in significant losses for all
away such a portion of ownership that
involved, especially VCs and their LPs; and
could jeopardize their control over it
that is why there is talk of bracing for a
through the dilution of subsequent rounds.
correction in 2022. Though this conversation
Founders should note that usually, a
has been lingering for the past two years and
company gives up between 15% to 20% at
was especially sparked by WeWork’s
each fundraising round. Below, we give a
shambolic IPO attempt which made for a great
brief take on the numerous methods that
many interesting speculations, the said bubble
have been devised to accurately estimate
has continued to flourish.
the worth of a startup.
Many also believe that despite the soaring
valuations, more of the highly valued
businesses today have strong underlying A. Early Stage - Pre-seed and
fundamentals. As such, rounds that may seem Seed
high-priced now might end up looking like a
cheap deal if they reach the scale of truly
At this stage, the company is at the
generational companies.
concept stage with minimal traction.
Traction at this stage is anything from
At the end of the day, whether during a bubble
number of users, effectiveness of
or not, it is important that an investor pays the
marketing, or the growth rate. It is
right price when making an investment. But
important to demonstrate that the team is
accurately valuing startups – avoiding a
extremely resourceful with a small budget
valuation too low or too high – is extremely
of resources. Investors at this stage are
tricky. Ultimately, the “correct” valuation is the
typically friends and family, and there is not
one that gives entrepreneurs the funds they
much sophistication. However, recently,
require to reach the company milestones for
there has been an emergence of solo-VCs
the phase that they are in. It also gives them
and micro-funds targeting this stage,
time to devote themselves to the business
though it is still largely dominated by
without constantly focusing on fundraising.
angels, accelerators and micro-funds.
In this report, we attempt to give figures based
The emergence of the SAFE, pioneered by
on the valuations we have in our database.
Y Combinator, brought some clarity around
However, it is essential to note that the
early stage investing in pre-seed and seed
rounds which are rarely priced. A SAFE, which C. Growth and Late Stage -
stands for Simple Agreement for Future Equity,
is a form of convertible security that allows Series C and Beyond
you to postpone the valuation conversation
until later on. A SAFE is neither debt nor A company at this stage has achieved
equity, and there is no interest accruing or scale and is more predictable when it
maturity date. comes to revenue and growth, and
sometimes profitability. Valuations of
When looking at the SAFE, the usual terms companies at this stage take into account
include a valuation cap at which earlier financials, business sector, valuations of
investors will be allowed to convert their equity comparable companies, recent funding
once the company raises a priced round, rounds and other known arm’s length stock
usually at Series A or sometimes Seed. This purchases, and the relative rights of
cap largely depends on the traction the common stock versus various flavours of
company has attained as well as the quality of preferred stock.
the team. Looking at our data from the past
two years, pre-seed rounds have ranged from
$500,000 to $1 million, while the valuations
ranged from $4.5 million to $6 million.

B. Early Growth - Series A/B

Investments in Series A are usually the first
institutional rounds into a company and
typically happen after the company has found
product-market fit and ready to start scaling.
During the Series A rounds, it is not
uncommon for founders to receive multiple
term sheets from lead investors at different
valuations. Generally, the valuation range
results in the group of Series A investors
taking 15 per cent to 25 percent of the
company.

At this stage, it makes sense to employ the

Discounted Cash Flow (DCF) approach to
value the company. Much like a standard DCF,
this is based on financial projections made by
the startup management team. To calculate
the terminal value, the last projected EBITDA
(or similar figure) is then multiplied by the
multiple extrapolated from a group of
comparables. The cash flows are then
discounted using a rate that represents the
weighted cost of funds (debt and equity).
Looking Ahead
We can confidently assert that the African where we are seeing a lot of overlap in
startup ecosystem has taken off. Given it is solutions and investments.
not the first ecosystem to be at this stage
before, it is not quite difficult to lay a few MFS Africa fully acquired Beyonic in 2020,
predictions regarding where we should and then Baxi in 2021, making two
expect it to go from here - ecosystems grow consecutive acquisitions in a year and some
gradually and then suddenly. India for months. Baxi’s acquisition was aimed at
example went from minting a handful of expanding into Nigeria, a market that Dare
unicorns every year to more than 40 in 2021. Okoudjou, the CEO and Founder of MFS
We strongly believe that the African Africa, said had been elusive to them for
ecosystem is bound to experience the same years40. At the same time, Flutterwave also
in 2022. acquired Disha and made a strategic
investment in Cinetpay in 2021.
In terms of comparisons, Africa is where
India was roughly four years ago and where All in all, we are in a unique moment in the
Southeast Asia was roughly five years ago. history of African technology that makes it all
When you look at what happened to each of important that we support the transformation
these ecosystems after they hit take off, the of the continent to become the world’s
next steps are exits - lots of them. In India, leader in frugal innovation, talent and other
many have opted to list locally, with the likes frontier technologies. As judged from the
of PayTM listing on both the National Stock trajectory taken by other ecosystems, it is
Exchange and the Bombay Stock always the early strategic players that end up
Exchange39. However, in order to attain as the biggest winners. At Future Africa, we
meaningful exits, companies will have to are so proud of being squarely in the centre
attain reasonable scale through a series of of this fast emerging ecosystem and to have
paid for growth and expansion in terms of helped create and support some flagship
acquisitions. examples of what is coming. We look
forward to increasing our commitment and to
One unique case is mPharma which has joining hands with you in doing this
opted for offline acquisitions to ramp up their extremely important work.
expansion. In 2019, the company acquired
Haltons in Kenya and in 2021 acquired Vine
Pharmacy in Uganda. South Africa’s
SweepSouth also acquired Filkhedma in
Egypt to ramp up their expansion into the
North African market. We should therefore
anticipate that African startups post Series C
shall explore inorganic growth methods such
as mergers and acquisitions in order to ramp
up growth and expansion. This is especially
true for companies in financial services,

39 Paytm set for share listing

40 The Flip Africa Podcast: A Conversation with Dare Okoudjou
Report Authors

Peter Kisadha
Principal Manager, Research

Chukwuyemisi Isichei
Research Associate

Chine Ezekwesili
Design Partner

39 Paytm set for share listing

40 The Flip Africa Podcast: A Conversation with Dare Okoudjou