Flutterwave raising $275 million Series B fund in February has been the biggest highlight of funding activities in the tech ecosystem in Africa in 2022. But the funding in itself is not what is the most spectacular, because it is not the highest ever raised by a startup. OPay, another Nigeria-founded company, has that bragging right due to its $400 million raise.
To a lot of experts, Flutterwave’s funding is mostly spectacular because of the valuation that accompanied it. As a result of the funding, Flutterwave is now valued at $3 billion. It is arguably the largest valuation for any tech startup from Africa.
The closest most valued startup on the continent is Chipper Cash with over $2 billion valuation following its $150 million funding in 2021. OPay is also valued at $2 billion.
Flutterwave breaking into the $3 billion valuation league raises expectations that funding in 2022 is set to surpass the record $4.9 billion (Briter Bridges report) startups on the continent raised in 2021.
Odunayo Eweniyi, co-founder/COO, Piggyvest, told BusinessDay that the current rise in interest in the ecosystem is a result of the groundwork laid by African startups that have been working and building in the past.
“Exits and big funding rounds are driving it, and so is the sheer number of startups we’re churning out who are now making names for themselves across international accelerators,” Eweniyi said.
Victor Asemota, growth partner, AnD Ventures, agrees with the groundwork laid.
“Change has long been overdue in Africa and tech startups are now spearheading efforts at changing how we live and do business. They are also doing it profitably while opening up markets,” Asemota says.
While Flutterwave’s achievements may not be in doubt, some have raised eyebrows on the $3 billion valuation. As of March 2021 when it raised $170 million, Flutterwave was valued at $1 billion which confirmed its status as a unicorn. However, it took the company about 5 years to reach that feat. Conversely, it took about 11 months for the valuation to grow to $3 billion.
Why is this the case?
Eweniyi says the $3 billion valuation is neither shocking nor surprising given that non-African companies have reached higher valuations in less time.
Valuation is defined as the analytical process of determining the current (or projected) worth of an asset or a company. There are many techniques used for doing a valuation.
According to Investopedia, an analyst placing a value on a company looks at the business’s management, the composition of its capital structure, the prospect of future earnings, and the market value of its assets, among other metrics.
The Corporate Finance Institute (CFI) highlights three valuation methods used by industry practitioners: (1) Discounted Cash Flow (DCP) analysis, (2) comparable company analysis, and (3) precedent transactions.
“These are the most common methods of valuation used in investment banking, equity research, private equity, corporate development, mergers and acquisitions (M&A), leveraged buyouts (LBO), and most areas of finance,” CFI notes.
Eweniyi also argues that venture capital valuation is not about current value rather it is about the future potential. In any case, the potential and future value of a startup are extensive. She sees today’s startups as more ambitious, risk-tolerant, and innovative than previous ones. These explain why investors are taking more and bigger chances on entrepreneurs who want to find new ways to improve people’s lives and solve significant societal challenges.
In the case of Flutterwave, it has been dealing with all the economic challenges and infrastructural deficiencies Nigeria poses for the past six years of its existence. The company managed to overcome the challenges and thrive. Its infrastructure currently serves 34 markets across Africa and the globe. Asemota says considering the company’s reach added with real revenues and not projections, Flutterwave is undervalued at $3 billion.
“Similar companies in other regions are being valued on projected revenues over time but Flutterwave is making the money now in a market that is still largely untapped,” Asemota says.
African startups often suffer undervaluation because of the “African discount” by global investors which places more emphasis on African risks rather than opportunities on the continent, according to Asemota.
What the valuation brings
The high valuation is expected to bring catalytic capital into startups within the ecosystem. In essence, it will boost the confidence of more investors to invest in startups on the continent.
Irrespective of the record funding achievements in 2021, Africa continues to lag the rest of the world. For example, while total funding in Africa hit $4.9 billion according to the Briter Bridges report, European startups closed over $100 billion in total funding the same year. Olaoluwa Samuel-Biyi, co-founder of SureGroup says this is because the tech ecosystem in Africa is yet to go mainstream, hence it is still early days for the continent.
Iyinoluwa Aboyeji, a founder and General Partner of Future Africa makes the point that Flutterwave is an ecosystem-enabling infrastructure. Hence, the fundraise means talent and asset acquisition, growth through M&A, and empowerment of African businesses to scale globally. Aboyeji and Olugbenga Agboola co-founded Flutterwave in 2016 and he was the first CEO of the company until 2018 when he stepped down.
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