Thread by @drdotun

If you’re raising money as an African startup founder, it is important not to calibrate your company valuation based on what you read on TechCrunch about similar businesses in other markets.

Things are different.

Valuation is a function of market, investment landscape and exit potentials.

Lets start with market. The African market is not as deep and wide as most entrepreneurs want to believe.

Despite the stats on mobile phone penetration, not everyone with a smart phone in Africa has internet. Not everyone with internet can afford to buy data. Not everyone that has data use it constantly. Not everyone that use the internet trust it enough for transactional purpose

And most people have low disposable income. So your ARPU and LTV will be significantly low compared to similar product in the US/Europe

Worse still, your CAC will be higher because the market is less matured with fewer distribution channels. Retention is low and the cost of maintaining existing customers is high. So your ability to scale is lower compared to similar company elsewhere

The investment landscape in Africa is less sophisticated. The conveyor belt for funding rounds is short. There are fewer post-seed investors competing for handful deals, with little incentives to follow on.

And $100m+ exit in Africa for startups are still the stuff of legends. The public market is not well capitalised, there is little appetite or willingness for sizeable M&A deals for growth stage startups

These are not reasons to be apathetic about African startup opportunities, actually it’s an argument for the opposite.

We need more bold founders, long term investors and active corporates leading M&A deals. That is how to create value and attract the best minds to build innovative companies.

But the founder need to value her company appropriately.

Whist startup valuation is more of art than science, It’s better to start with a reasonable valuation you can grow into, than PR inspired numbers.

To participate in African tech ventures, it’s better to play chess and not checkers.
#buildthefuture