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The landscape of startup valuations in Africa is undergoing a seismic shift, as innovative valuation tools are being developed to provide more accurate, nuanced, and market-relevant appraisals. For years, African startups and investors have grappled with the challenge of establishing fair market values, often relying on methodologies and data sets that fail to capture the continent’s unique economic dynamics. Today, we stand on the brink of a new era in valuation science, thanks to the integration of comprehensive data aggregation, macroeconomic insights, and real-time market activities added to an ever-evolving ecosystem that moves from infancy into established and stable conditions for growth. How is this possible? For the following reasons.
The journey to better startup valuations in Africa begins with the aggregation of a vast array of data points. By analyzing financial metrics, in our case, from over 900 publicly listed companies across 11 key industries, startup founders and ecosystem investors can now access a goldmine of information. This data spans crucial indicators such as enterprise value to revenue, annual recurring revenue (ARR) to full-time employees, EBITDA to enterprise value, and more.
Furthermore, incorporating data from thousands of African tech financings and recent cap table configurations offers a current and contextually relevant snapshot of the investment landscape. The data set from which baselines and benchmarks are no longer those in European or American markets.
Layered upon this rich data set are macroeconomic indicators that provide a comprehensive economic backdrop for each valuation. Inflation rates, foreign exchange projections, liquidity indexes, debt-to-GDP ratios, and real GDP growth rates are all considered to give a complete economic picture of Africa's major markets and stock exchanges. This multifaceted approach allows for valuations that reflect not only a company's performance but also its position within the broader economic context.
The proof of this new valuation paradigm lies in its practical applications. By running case studies with existing and potential customers, the effectiveness of these tools has been evidenced through significant adjustments in valuation multiples. For instance, some companies have seen their multiples on revenue adjusted from 10x to a more realistic and market-aligned 3x. Particularly for industries like real estate prop-tech, the ability to close term sheets informed by the latest market data, such as comparable monthly recurring revenue (MRR) and investment trust liquidity volumes, has been transformative.
For startup founders and ecosystem investors in Africa, the message is clear: valuations can no longer rely on imported methodologies or generic data sets. Instead, a locally sourced, robust, and data-driven valuation system is essential to serve the unique contours of African markets. This approach ensures fairer valuations and enhances trust, transparency, and investment readiness across the continent's burgeoning startup scene. As we continue to refine these tools and incorporate ever more granular data, the future of startup valuations in Africa looks bright, grounded in a methodology as dynamic and diverse as the continent itself.
Read all about Raise’s 2023 valuation product release below.