I've lived in South Africa since 2017, and in that time have long wondered how we can get more people like my friend working to solve the biggest and hardest problems facing the country, and the continent, at large.

There are a lot of really smart and ambitious people in South Africa, who also care deeply about building a better country than the one they live in at present. Many of these people are currently working in corporate South Africa, particularly in finance and consulting. And let's be honest - the problem solving, innovation and job creation that South Africa needs is not coming from these firms 😊

Part of the challenge, I recognize, is representation. There haven't been many examples, to date, of South Africans choosing the entrepreneurial path with widespread success. Choosing a well-paid, stable career makes especial sense when considering South Africa's apartheid past, where a corporate job is perhaps the most certain to (re-)build generational wealth and prosperity.

But in that context, Yoco's round - R1.23 billion - feels significant.

Not only does it make Yoco, and perhaps startups in general, a more plausible employer for a select group of South Africans, but it also elevates Yoco into a class that I don't think any other startup born and operating in South Africa has yet achieved.

It's made me realize just how corporate-dominated and uncompetitive the South African market truly is, and how important it is for the ecosystem that more startups like Yoco go from zero to growth-stage company.

There have been a few other companies that have raised a greater amount of venture and growth capital than Yoco. Two that stand out are Jumo and Takealot. But Jumo does not operate in South Africa, and Takealot was an acquisition backed by Tiger Global and then a merger with Naspers-owned Kalahari.com

Instead, most startups in South Africa either get crushed or subsumed by corporates. Many corporates do support early-stage innovation through investment and/or accelerators - but to their own benefit. Enterprise startups, in service of their large customers, are promptly swallowed up soon after they gain initial traction.

Take SnapScan, a QR merchant payments provider with a fantastic UX. Launched in 2014, in partnership with Standard Bank, the team was later acquired by Standard Bank in 2016.

Or the on-demand delivery startup Bottles. Launched in 2016, it partnered with the retail chain Pick n Pay in 2018, and was acquired by them in 2020 for just R33 million, or around $2 million.

Meanwhile, promising insurtech startups like Naked Insurance and Pineapple - so-called disruptors - are backed by the very insurance companies they are supposed to disrupt!

There are exits, and there will be more exits when the potential acquirer is on a startup's cap table, but they're not the kind that allow for the proliferation of an ecosystem.

So perhaps instead of asking "where are the exits", we should be asking "where are the growth-stage companies". Hear me out...

Where are the growth-stage companies?

Earlier this year, friends of The Flip, Osarumen Osamuyi and Derin Adebayo, addressed the "where are the exits?" question. And they told us to chill out,

...the conversation around a lack of exits in Africa is premature. Ecosystems have to go through experimentation and scaling before liquidity starts to emerge. This process is well on its way in the African ecosystem.

Africa is still in the experimentation phase, they argue. And ecosystems really take off once there are some proven winners and unicorns, which then go on to "acquire smaller companies as they drive to consolidate and become regional winners".

Growth-stage companies become acquirers, but of a completely different kind. They're not merely "buying innovation", but employing an M&A strategy as part of larger growth and expansion objectives, both geographically and from a product perspective. (There is a big difference between the growth opportunity of Paystack inside of Stripe is entirely different from that of SnapScan inside of Standard Bank.)

So when we ask "where are the exits", we must also ask "who are going to be the acquirers". We'd prefer it to be growth-stage companies, of course.

It's required for the ecosystem flywheel to spin (faster and faster).

And, indeed, it's happening more and more across the continent. Just this week Piggyvest acquired another savings and investment company Savi.ng.

And growth-stage companies are hiring at a rapid clip, in part to increase these capabilities. Yoco has an open role for a Strategy Analyst, whose responsibilities include to "support M&A and fundraising processes". Flutterwave has an open role for a Corporate and Strategic Finance Associate who will "help evaluate potential M&A and equity investment opportunities from a financial perspective".

Last year, we told the story of MFS Africa's acquisition of Beyonic, and MFS Africa's Deputy CEO, Rachel Balsham, spoke of the significance of the acquisition from an ecosystem development perspective,

I think the consolidation that this acquisition represents and that the ecosystem is likely to see continue should inform other players. So if you’re a large corporate and you’re looking at the African tech ecosystem, you know, I think you should think about other African tech players as your competition for those acquisitions, not just other large corporates. So I think it’s exciting for us that this, we hope, represents a change in terms of what is possible for other African startups. That a strategic exit that doesn’t shift or pause or stop your company’s growth and your company’s services as possible.

So while I personally tend to downplay the significance of funding rounds - yay dilution! - in the case of Yoco and South Africa, I do believe it's quite significant.

More and more, early-stage startups will look to Yoco and its contemporaries as potential acquirers. More and more South Africans will look at Yoco and its contemporaries as choice employers, too.

Ecosystems need growth-stage companies. South Africa has a bonafide one.

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Thanks, as always, for reading 🙏

Justin

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