GetFundedAfrica recently hosted a virtual investor event where several Vcs, investors, and accelerators convened to discuss a range of topics addressing the future of investments in the startup ecosystem. Meetings like these are critical to the evolution of the financial sector because they allow for the exchange of knowledge about the industry as well as the establishment of long-lasting networks, both of which could lead to fruitful outcomes and have a positive impact on the industry.
At one of the roundtable discussions facilitated by Yuan-Ting Meng, a Vc investor from SOSV, we had some well-known investors and partners speak about “Soonicorns.” The speakers were EduAbasi Chukwunweike, Partner Development Mgr. for ISVs and Start-Ups at Microsoft, Vincent Li, Partner at Adaverse, and Charlie Graham-Brown, Chief Investment Officer and Partner at Seedstars.
WHAT IS A SOONICORN?
Soonicorns are a term derived from the phrase “soon to be unicorns.” They are privately owned tech start-ups with the potential to develop and enter the unicorn club in the near future. Based on expectations for the future or a projected valuation, angel investors and venture capitalists are the primary sources of funding for soonicorns.
A unicorn is a company valued at over a billion US dollars.
WHICH VERTICALS APART FROM FINTECHS ARE RIPE TO SEE THE GROWTH OF SOONICORNS IN AFRICA?
NB: Verticals in business refer to a particular section of an industry or a collection of enterprises that provide the same goods and services to a certain specialized market.
In a bid to answer this question, Charlie Graham-Brown, one of the panelists, started by saying, “the “apart from fintech” part is where that question gets a bit tricky” and went on to explain that every venture has a strong fintech component integrated or embedded somewhere, like provision of credit, tracking of records, etc. Charlie also said, “There are a few sectors I would like to suggest are endowed with soonicorns,” and thereafter proceeded to identify them.
a. The B2B marketplace model;
Business-to-business transactions are those that take place between companies rather than between a company and a customer. B2B transactions typically emerge in the supply chain when one company buys raw materials from another to use in the process of production. These companies serve a completely different audience and provide the goods, raw materials, semi-finished products, finished parts, services, or consultations that other businesses require to exist, expand, and profit.
The business-to-business market model is a common part of the supply chain, and it is easy to see why one could imagine that model being a strong potential unicorn in Africa.
One of the most major B2B business models, especially in the manufacturing industry (where B2B models are commonplace), is the relationship between Samsung and Apple. Samsung, for example, is one of Apple’s largest suppliers in the production of the iPhone. Apple also has B2B relationships with firms like Intel, Panasonic, and semiconductor producer Micron Technology.
Charlie Brown pointed out that he had noticed a couple of B2B models popping up in different unlikely places. He pointed out the secondary ecosystems in Namibia. Specifically, a company (JABU) based out of Namibia whose business model is “powering the way in which shop owners order, source, and stock their products and execute the last line of production.”
He also points out that JABU has raised a couple of well-known investors in their journey and follows the model that he has noticed in a lot of companies that eventually become unicorns. He mentioned a few other startups in manufacturing and other industries that follow the same soonicorn model.
b. On-demand logistics sector;
These are the most user-friendly software multiservice booking platforms that connect many service providers with clients via internet platforms and deliver these products and services when and where they are needed. On-demand logistics necessarily requires the ability to provide same-day (or even faster) delivery to local customers.
“There are a number of players, so I think that sector is well served and is ready to spurn out some unicorns.”– Charlie Graham-Brown
Basically, Charlie explains that anything that kind of enables e-commerce and B2B models has huge potential, like on-demand logistics, on-demand warehousing, etc. These two sectors are non-fintech and have a few soonicorns and, hopefully, a couple of unicorns coming.
c. E-commerce (Electronic commerce);
This can be defined as a business strategy that enables businesses and consumers to purchase and sell products and services over the Internet. This has completely changed the way people purchase and consume goods and services nowadays.
Businesses can now easily reach more customers, and there is also the ease of purchasing goods from the comfort of wherever you may be.
d. The Second-Hand Cars and Auto Marketplace;
The growing African middle class and higher disposable incomes are driving up demand for used cars in several African countries. It is something that has really exploded around the world. Charlie believes in that sector enough to have invested in numerous models around the world.
In Africa, he pointed out that “Autochek“ is one to look out for. Autochek, based out of Nigeria, is another B2B model company that partners with major car distributors in Nigeria to offer its clients “great and affordable options,” especially when it comes to brand new cars. Find out what suits your taste. ”
Charlie believes that there’s space in the auto b2b marketplace in Africa, and he is very watchful to see who emerges to take the lead in that sector.
e. SME Digitization;
Small and medium-sized enterprises (SMEs) can move their businesses forward more quickly when cash is readily available through digitization. This is encouraging African SMEs to accelerate their adoption of quality-control standards and speed up their routes-to-market.
Charlie points out that this field has massive opportunity and is still under-optimized. “It’s quite a broad category, but anyone who is helping small businesses sell online, kind of like Shopify, make payroll, manage their accounting, is the kind of thing I’m talking about.” There are a few names that come to mind, he continued.
Seamless HR is an all-in-one software that helps its clients streamline their HR. They provide an end-to-end HR management system that “leaves nothing out of the picture from hire to retire.”
As quoted from their official website, “The Sky Garden merchant app is a fully stocked inventory management system that business owners use to upload products, specify price points, stock levels, variants, and much more. Once products are uploaded, they immediately appear on the customer marketplace, which is a website. Each business owner gets a unique link for both their web shop and each of their products that they can share with their networks directly from the app.
If a customer makes a purchase for a product on the platform, Sky Garden’s platform will ensure end-to-end fulfilment of the order. The order will be dispatched through one of our delivery partners, which enables us to accomplish same-day deliveries across urban areas. After a product is successfully delivered, the seller is paid immediately through “mobile money.”
Given the size of that space, 80% of employment is in Africa, with 40 million businesses plus, Charlie thinks there really is space in that sector.
f. Agro (Agriculture);
“African agricultural land is 60% of the world total, and if you look at the potential yield increase, it goes up by about 50%. That shows exceedingly high potential in that sector. ”– Charlie Graham-Brown
Charlie continues, “There are a few names there,” in which he mentioned Tomato Jos, but he thinks that that is a particularly challenging market to play in, because unfortunately, the first movers are doing a lot of spending to first educate the market on how the models work before they can be implemented.
But nevertheless, Charlie hopes to see more players in agriculture moving forward.
INSIGHT INTO AFRICAN SOONICORNS FROM THE PERSPECTIVE OF AN ASIAN INVESTOR
Yuan Ting-Meng, the facilitator, agrees with him and moves on to ask Vincent Li for his insight into Soonicorns in Africa as an Asian investor noting that he would have had some experience in Africa’s burgeoning start-up culture as a result of his various investments in the continent.
From an Asian point of view, Victor says we can see a couple of Asian companies already thriving in Africa: Opay and PalmPlay, for instance, and in the fintech space, one can spot the Asian VC, MSA Capital, also in the B2B marketplace, so it is logical that these sectors are really in their prime time to grow. Vincent divides the sectors that are showing an upward trend in growth into two: web2 and web3.
For the web2: He goes on to point out that in the near future (a year or two, he specifies), he expects a large growth in the healthcare sector and the secondhand car marketplace, pointing out that he agrees with Charlie on that bit.
Regarding web3: Another aspect Vincent points out is the huge jump in the blockchain and cryptocurrency marketplace in Africa, noting the rise of global investors in that space.
Recently, they have seen a significant increase in seed funding in Congo. The three-month-old Congo-based start-up “Jambo” raised about $7.5 million in pre-seed funding, and since it is a new market over there, the potential is incredibly positive. The startup is building a Web 3 super app for Africans to democratize access to crypto-based income-generating opportunities.
Due to its young, fast-growing population, high smartphone penetration rate, increasing crypto adoption, and elevated level of unemployment, Africa is poised to become the next big market for Web3. Startups such as Jambo are positioning themselves for this next boom. Jambo wants to onboard young Africans to web3 financial ecosystems through play-to-earn gaming and decentralized finance (DeFi) services including currency exchanges and remittances.
Apart from the unicorns that already exist, Vincent points out that there is also a fast pace of growth on the Token blockchain technology. He also mentions that in the typical blockchain projects that he has been a part of, after the first round, they often see up to 10x the growth of the venture. For example, after the first round, they start with a $50-$60 million seed and so if they can become tenfold in half a year, their valuation becomes ten times that amount, which is already a soonicorn.
Therefore, Africa could easily produce soonicorns in the blockchain technology space. Vincent ends by encouraging VCs and entrepreneurs to pay attention to these sectors.
WHAT ROLE IS MICROSOFT PLAYING IN SUPPORTING POTENTIAL SOONICORNS AND HELPING THEM GROW?
Our facilitator asks EduAbasi what her thoughts are on the role Microsoft has to play in supporting potential soonicorns and helping them grow and become unicorns.
EduAbasi starts by pointing out that a “soonicorn” appears to be a company that needs just a little more work to take them across the finish line to unicorn status.
“When you think of Microsoft as a global player, you think of the level of penetration Microsoft has in most companies.”– EduAbasi Chukwunweike
The Fortune 500s, down to the corporate accounts and SMEs, and these connections that Microsoft has formed can facilitate easy partnerships with the soonicorns.
For example, she referred to the B2B point Charlie made and explained that a partnership between Microsoft and Seamless HR would allow Microsoft to help amplify the company’s solutions, put their “micro stamp” on the solution, and have you go in as a “handshake move” into the various crevices that may have been much harder to get into otherwise. So, Microsoft is not only coming in to provide the “last mile” of operations, but they are also coming in to help put in that “extra work,” as stated earlier, to get these companies to soonicorn status.
When you think of what a soonicorn really does to attain a unicorn status?
“Exposure to more customer ecosystems, more people using your solution, and such an increase in number will trickle down to your valuation and to the general impact of the company.”– EduAbasi Chukwunweike
So, using Microsoft as a case study, this is how the MMCs and big players can play a role in the development of future unicorns. Soonicorns. These partnerships are things that Microsoft has already begun doing, she continues, and if more big players get involved, it will also help to accelerate the growth of the company, catapulting them much sooner than later to a full-blown unicorn.
WHAT ARE THE EXIT OPTIONS FOR SOONICORNS, ESPECIALLY THOSE COMING OUT OF AFRICA?
Charlie Brown thinks the secondary market is a very feasible exit opportunity for an investor. Four or five years in, there is likely to be liquidity from a later-stage investor coming in, thereby providing an exit option. Speaking about later stage investors, growth equity and the likes, there are only two feasible options. Charlie continues.
One is the M&A activity, and a lot of the African companies he invests in are starting to see a lot of regional unicorns getting on board the M&A train and even going as far as having entire departments dedicated to M&A. This will help provide a liquidity option, which is important because regional competitors buying out one another are also going to trend upwards.
NB: M&A (mergers and acquisitions) involves the integration of companies or assets through various financial transactions such as mergers, acquisitions, consolidations, tender offers, asset purchases, and management procurements.
Secondly, IPOs (Initial Public Offering);
If somewhere like Indonesia has any relevance to the African context, the Indonesian IPOs have really been scaling and reaching levels that are quite remarkable. Apart from Egypt, we are yet to see that on a large scale outside of Africa.
“That is something we are going to have to hope is around the corner.”
Charlie concludes by saying, “In my view, when you have the right opportunity with the right metrics, there is capital in the world to back such companies, so it is just a matter of time.”
Vincent points out that, like Charlie, he is also an early-stage investor, and as such, he is careful to demand certain things. One has to be patient and wait five to seven years before “asking in.” Secondly, Vincent acts as an accelerator to help companies organize and restructure their companies, putting some equity into the organization, and then he can get quite a bit of liquidity from the token market. That is another exit option, but this method is not doable for many kinds of businesses.
It is mainly for companies that have a relationship with marketplaces like web3 and a couple of other fintech companies. For those kinds of companies, it is a viable option.
EduAbasi points out that this same conversation was had at the recently completed African Tech summit.
“Not a lot of startups are going to be bought by the big MMCs as a matter of exit options.” “We should think of aiding continuity, and the government has a role to play.”– EduAbasi Chukwunweike
A case like Paystack was a good moment for the country as far as representation goes, but cases like that are rare. These companies should be listed on a foreign stock exchange, but still, that is not very sustainable. So, the call to action is on everyone, including the government, to “clean up” and provide ways to prepare the ecosystem for the enormous growth that awaits. This is a common misunderstanding.
Our facilitator points out that GetFundedAfrica also has such goals in mind, and we look forward to more forums and round tables, and that our thoughts on the issues be put into action.