Flutterwave, a Nigerian fintech startup, made headlines recently after joining the ranks of Africa’s newest unicorns. The journey of reaching a $1 billion valuation is a crucial milestone for any tech startup, and in this article, we delve into what aspiring businesses need to know about this achievement.
A startup is a company designed for rapid growth, and one of the key indicators of this growth is its valuation. This is where the term “unicorn” comes into play. A unicorn refers to any private startup founded after 2003, with a valuation exceeding $1 billion. The term was coined by investor Aileen Lee in 2013, who also introduced the concept of a “super-unicorn” for companies valued above $100 billion.
The $1 billion threshold is seen as significant because it reflects a company’s ability to disrupt existing markets or create entirely new ones. However, it’s important to note that being a unicorn does not imply a company is generating $1 billion in revenue. Rather, it means that investors, including venture capitalists and private equity firms, consider the company to be worth that amount based on market potential.
Becoming a unicorn isn’t easy, and only a select few startups ever reach this stage. Since 1990, there have been just 1,387 unicorns globally, with most emerging outside of Africa, where the startup ecosystem is still developing. However, this ecosystem is evolving rapidly, supported by increasing venture capital and private equity funding.
For African startups, the typical growth trajectory begins with seed and pre-seed funding, usually ranging from tens to hundreds of thousands of dollars. As they grow, they attract larger funding rounds (Series A, B, C, etc.), with valuations climbing higher. Eventually, these startups either get acquired by larger companies or go public through stock market listings.
How Do Startups Reach Unicorn Status?
A startup’s path to becoming a unicorn is largely determined by how investors value the company. While most African unicorns achieve this status after several rounds of funding, there are examples of companies reaching the $1 billion mark during early rounds. For example, Clubhouse, a social media app, reached a $1 billion valuation after raising $100 million in its Series A round. Similarly, virtual events platform Hopin raised $125 million in a Series B round and reached a $2.1 billion valuation just a year after launching.
Such early-stage unicorns are rare in Africa, underscoring the region’s growing yet emerging market.
Foreign Investment Powers African Unicorns
Africa’s first unicorn was Jumia, an e-commerce company that reached a valuation of $1.08 billion in 2016 after raising $326 million from investors such as AXA, Goldman Sachs, and MTN. Another notable African unicorn, Interswitch, achieved its $1 billion valuation with a $200 million investment from Visa, which took a 20% stake.
Flutterwave joined this prestigious group after raising $170 million in a Series C round led by U.S.-based private equity firms Avenir Growth Capital and Tiger Global, which valued the company at over $1 billion.
This trend of foreign investment shaping the valuations of African startups is evident across the continent. Although local funding has started to increase, it still remains limited compared to international capital. As local investors begin to make more significant exits, there will be more opportunities for reinvestment into new ventures, as seen with Nigeria’s growing investment syndicates.
The emergence of unicorns is a clear indicator of the maturing startup ecosystem in Africa. When major exits like DPO Group and Paystack occur, the region gains increased attention from global investors.
Flutterwave’s rise to unicorn status further solidifies the idea that Africa’s startups are answering the big questions and showing that the continent’s tech scene is now on the global radar. Following Paystack’s acquisition by Stripe, Y Combinator’s Paul Graham remarked that investors now have to consider, “What do I know that Patrick Collison doesn’t?”
Kyane Kassiri, a venture capitalist at Lateral Capital, believes Flutterwave’s unicorn milestone is just the beginning, and more African startups will follow suit.
This growing confidence in the African fintech sector has sparked predictions about the next unicorn to emerge. One thing is clear: the African startup landscape is now being taken seriously, and investors are paying attention to the region’s potential.
