A report on startup ecosystems worldwide has indicated that a whopping 540 companies achieved unicorn status in 2021. This was up from the total of 150 in 2020, with 113 ecosystems producing at least one company valued at more than $1 billion.
The report by Startup Genome and the Global Entrepreneurship Network found that the average value of Series A funding rounds globally has tripled to more than $18 million since 2012 with tech companies have been leading the way with 2.3 times more growth on average than non-tech start-ups since the pandemic.
When a startup or a company crosses the billion-dollar threshold and is worth such an amount, it is given certain titles. Aileen Lee, the founder of CowboyVC, coined the term, unicorn, in a TechCrunch article in 2013.
Here are some details about Unicorns that you should know:
- They are private companies.
- They are usually but not limited to high-tech companies, i.e. mostly software, and the rest are either hardware or product & services companies.
- They are innovative and produce novel solutions that change the norm. Such companies keep innovating over the company lifetime to stay ahead of their competitors.
- Just that you know: 62% of unicorns are consumer-focused.
The rise of more unicorns
At the beginning of 2021, 66 new startups reached the unicorn mark, according to Eqvista. By the end of 2021, Startup Genome reports the number to have risen to 540.
Below is the list of the top 10 most valuable unicorns in the fintech space across the globe:
Pitchbook research cited in the report found that the growth in unicorns is due, among other factors, to new, non-dilutive funding sources, to which founders don’t have to give up equity. That can be more appealing than traditional VC funding.
“A flood of funding from nontraditional and crossover investors has played a crucial role in driving up valuations,”- Pitchbook report. These nontraditional money sources can include a wide range of investors from outside the venture capital world.
Despite a post-pandemic unease, on the part of investors, the global unicorn population appears to be holding steady.
According to Tracxn’s Unicorn Club, 216 companies became Unicorns in 2022.
This is 60% down from last year’s YTD. The average funding raised by a company till it became Unicorn in 2022 (YTD) – was $142 million. That is down by 1% from last year. The report also says that on average, unicorns took 4.4 years from raising Series A funds to becoming unicorns.
Of that lot of Unicorns added in 2022 so far (216), the US leads with a total of 123 unicorns and none is from Africa.
Africa’s share of the pie
About six years ago, no African startup had achieved unicorn status, but today, the continent accounts for about seven unicorns.
And, in terms of funding, Africa has fared relatively well, as the first quarter of 2022 recorded a total VC Funding of $1.8 billion. This represents a 150% increase compared to Q1 2021, which stood at $730 million.
According to a report by BusinessDay, African startups raised $3.1 billion in H1 2022, more than what they had raised in H1 2021 and H1 2020 combined.
We can jolly well say that Africa’s digital economy is on a roll.
The Inflection Point, a report by Endeavour Nigeria, forecasts that the size of Africa’s digital economy will grow sixfold, to $712 billion by 2050, and insists that the continent “has barely scratched the surface of its potential relative to other regions.”
Endeavour bases its argument on the speed of growth of the GDP of African countries as well as consumer spending, the accelerated use of digital services following the pandemic and the growing digitally savvy young populations with an increased interest in tech jobs.
To corroborate this, the founder and Managing Partner at TLCOM CAPITAL, Maurizio Caio explained the funding attractiveness of the continent for investors. According to him:
“Growing number of venture capital teams have recognised investment opportunities, driven by large underserved African markets, the ability of entrepreneurs to design innovative business models that leverage the high penetration of mobile technology, a lack of legacy infrastructure and increasing spending power.”
And, as the number of players increases so is the opportunity to do more.
According to Statista, Nigeria has an estimated sum of 3,300 startups as of 2020, the highest number in Africa. South Africa and Kenya account for approximately 660 and 600 startups respectively, in the same year. Other key African markets for startups were Ghana, Morocco, Tunisia, and Rwanda, The number today has almost doubled.
But the question is: why are none of these startups reaching unicorn status as rapidly as those in countries like the US?
Founder of Eversend, Stone Atwine told the Rest of the World:
“The thing is, our valuations were getting crazy in Africa, in terms of the work some of these startups had done to deserve them… Now investors will want to see numbers: it’s all about unit economics again — not just ‘vibes.’”
Similarly, Oluwatosin Ogunjuyigbe, a journalist at Ventures Africa said that the investors are gradually seeing beyond the hype. According to him:
Investors want to see sales, revenue, and cash flow today, while the market wants to feel their impact. Because when the hype declines, those are the only things that would matter.
Similarly, Maurizio Caio adds that in Africa, entrepreneurs live in a less mature and supportive ecosystem, resulting in longer times for financing. He is optimistic though.
No doubt, Africa has potential, especially with its attractive markets, but local funding is crucial to boost the confidence of international investors.
As a side note, Xavier Helgesen suggests that instead of African companies striving to become the likes of Silicon Valley unicorns, they should instead focus on raising camels – organisations that can capitalise on the opportunity but also can survive on drought.
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