Each week during Season Two of The Flip, we’re going to publish an essay that corresponds with that week’s podcast episode. This week is Season Two, Episode Four: From Idea to Exit – A Startup Fundraising Journey, featuring Zachariah George – angel investor, Chief Investment Officer of Startupbootcamp and General Partner at Launch Africa, Chidinma Iwueke – Partner at Microtraction, Andreata Muforo – Partner at TLcom Capital, Ciku Mugambi – Associate Investment Officer, IFC Disruptive Technologies and Venture Capital, Fope Adelowo – Senior Vice President, Helios Investment Partners, and Victor Basta – Managing Partner, Magister Advisors.
The topic of exits seems almost inseparable to the topic of startups and startup ecosystems at large. “We need to see more exits” is a prevalent remark on the conference and webinar circuit.
I’m interested in when we stop saying that. What is good enough?
To be sure, there are exits – recent ones include the acquisition of DPO Group (which acquired PayFast in 2019) by Network International for $288 million, as well as the MFS Africa acquisition of Beyonic, Paga’s acquisition of Apposit, OneFi’s acquisition of Amplify, the acquisition of KOPAGAS by Circle Gas, and ENGIE’s acquisition of Fenix International. For more, Digest Africa has a comprehensive list. Additionally, investors are exiting too, often in the form of a secondary sale to follow on investors during later funding rounds.
But from a qualitative perspective, I get it. There haven’t been the marquee IPOs (Jumia being another conversation altogether) or the nine- or ten-figure acquisitions by Google or Facebook or Visa of an African tech company.
I suspect a major IPO is what the ecosystem is waiting for. The intangible and symbolic value, above and beyond the true economic value of a public listing, may be immeasurable. I suspect the Jumia IPO – the background of its founders and leadership, the fraud claims by Citron, the stock price downturn – needs to be “overcame” by a less drama filled listing. Perhaps Interswitch?
The question becomes – on a macro scale – how likely is an international listing for African tech companies?
Let’s use a few datasets as proxies for this discussion – the number of VC-backed IPOs versus M&A in the US, the volume of VC deals in Africa, as well as the number of African companies listed on international exchanges.
First, according to data from the National Venture Capital Association and PitchBook, there were 1,719 VC exits globally in 2019 (both IPO and M&A), of which 53% were in the US. The number of VC-backed IPOs in 2019 was 82. Meanwhile, the number of venture-backed M&A deals was 836, a 10x greater volume than IPOs.
The average number of venture deals (both VC and growth capital) from 2009 to 2014 – or five to ten years before 2019 – was 8,130 per year. So only 11% of companies exit, and 1% through an IPO.
Meanwhile, there were 2,121 venture investments on the continent in 2019, according to Partech1. If African startups were going to exit at the same rate as US startups, that would mean 21 of these companies will exit through a public listing.
However, we must further assess the likelihood of an international listing for an African startup, which we must also admit is less likely. For context, there are 122 African firms listed on the London Stock Exchange, which represents less than 5% of listed companies. For the New York Stock Exchange and NASDAQ, African companies represent less than 1% of listed companies. And most (if not all) of these companies are legacy businesses and/or in sectors like mining.
So what’s the likelihood of an international listing? Is that even the right question to ask?
I’m intrigued that several of the acquisitions listed above – MFS Africa’s of Beyonic, Paga’s of Apposit, OneFi’s of Amplify – are growth-stage companies acquiring other startups.
Fintech consolidation is something I recently talked to MFS Africa’s CEO, Dare Okoudjou, about. He told me,
Most markets in Africa are sub-scale. So winners will need to be multi-market to be able to get to something that is sizeable and matters in the long run… I think from that perspective consolidation will play a big role, and the ability for fintech companies to think laterally about combining resources at some point to be able to achieve that scale faster.
To be sure, this kind of consolidation may then make African companies more attractive for international listings. Jumia was operational in fourteen markets when they filed for their IPO. MFS Africa, having acquired Beyonic, is in over 30.
So while we build towards international listings, perhaps what we ought to expect, and celebrate, is this kind of phased approach – consolidation that ultimately leads to the larger exits we wish to see in our ecosystem.
Additionally, in this week’s episode, The Flip’s executive producer Sayo Folawiyo and I also talked about volume – the proverbial conveyor belting of startups along the exit pathway – which requires adequate activity and resources at every stage.
So perhaps the best question to ask is, how are we doing at building the conveyor belt?
- There are disputes about the number of deals and the methodology of this research (see here). For the purpose of this discussion, I chose to use Partech’s data because it was the most liberal.