JUMIA IPO: An Historic Moment for African Start-ups
Last year for my MBA dissertation my topic focused on why Venture Capitalists (Vcs) prefer to go the buyout route versus IPO (Initial Public Offering). It was a simple enough question and most individuals I spoke to were much more in favour of selling their business to a larger entity than taking the company to IPO. This is a fair point because a trade sale is a much easier and less invasive process than an IPO. My topic seemed to have a simple answer and I was a tad stumped.
But once one does further research on VC and how they make money, the financial rewards of an IPO can be almost infinite because there is no ceiling on the possible returns. A good example is UBER, the infamous Lance Armstrong is said to have invested $200 000 into a VC fund that invested in UBER and that investment is now said to be worth $20 to $30 million over a 8–10 year period. That is a very sizable return and will secure your future for life.
IPOs were in the “in thing” during the dot-com bubble and they are now considered a legacy practice because companies can now raise enormous mega-rounds of funding. UBER is a prime example of this because the company has raised over $100 million in one round many times. Previously the IPO was the only method for this kind of fundraising. The game clearly has changed and the IPO is not the sole method to raise capital.
So as I entered the rabbit hole of research and went deeper the data kept saying that IPO is no longer cool and companies will delay it because of things like founders power and other important info. The value of company IP has increased a company’s reluctance to IPO because when you file for IPO you give up so much information to the market and your competitors. I recently went through Lyft’s S1 filing https://www.sec.gov/Archives/edgar/data/1713832/000121390018006777/fs12018_hyrecarinc.htm
and it’s like a mini business plan. (mind you Lyft and UBER are in a race to IPO 1st and it’s pretty exciting).
My focus was on South Africa because it is the largest economy in Africa depending on your data source and the most well run economy on the continent, but funny enough the only Unicorn that exists on the continent does not come from its shores. It emanates from Nigeria in the form of Jumia, which achieved this status in 2016. South Africa has the best start-up ecosystem in Africa but it has yet to have a unicorn.
The American VC model is not only the gold standard, it is also the best model we have in the world. Huge IPOs created some of our favourite companies today, Facebook ($473Bn), Twitter ($24Bn), Google ($825Bn) and Apple ($877Bn). The African start-up scene is nowhere near this and my belief was that IPOs are needed to give South African start-ups that global look and give the scene more attention.
Fast forward to March 2019 and Jumia has decided to IPO its shares not on an African exchange but on the NYSE. Personally I would have loved to see this listing take place on the JSE because of the hype and interest that it would create on the African continent amongst investors and start-ups in the region. Investors are driven by success, capital follows success and an African start-up listing in Africa as a story as good as any. Despite all of the JSE’s might and acclaim it pales in comparison with the NYSE which is steps ahead and many levels higher.
Jumia’s potential listing is a historic moment for African start-ups and it really shines the spotlight on Africa, to the entrepreneurs and VCs that did not believe that IPOs would happen in South Africa or Africa, well the proof is in the pudding. When Jumia lists that will set the roadmap and show others that it is possible on the African continent. As Africans we need to tell our own stories and list these great businesses on our continent. This is one of the ways we will show the world that we believe in our own start-ups.
MTN is set to pocket $600 million from the listing of Jumia as the largest shareholder and the business will be approximately valued at $1.5 billion. Jumia has losses totalling over $800 million and more than 4 million users. But hey who isn’t making losses? UBER and Lyft are still losing money and Twitter was loss making for 5 years.
All in all Africa needs its time in the spotlight if it is to be taken seriously as an investment destination and the IPO is the crème de la crème for start-ups, so let’s hope Jumia is not just a flash in the pan but a taste of things to come.
