At the heart of Africa’s digital revolution, tech startups are growing exponentially, attracting the attention of investors around the world. In this era of the digital economy, many tech unicorns are choosing to stay in the private equity stage longer, delaying their IPOs. Part of the reason for this trend is the increased access to private funding. However, there is another, perhaps less obvious, factor: raising private capital (and achieving unicorn status before going public) allows tech startups to raise huge private equity rounds in the late stage, pushing valuations to higher levels.
Isaac Oyegbade, a seasoned economic consultant with extensive experience in capital markets in Africa, the UK and the US, offers critical advice to African tech startup founders looking to achieve higher share prices when they go public. Oyegbade provides economic and financial expertise to companies of all sizes, with a focus on strategies for initial public offerings (IPOs), debt offerings, corporate and growth strategy, and turnaround and restructuring transactions. He highlights the critical considerations that tech startup founders must take into account when deciding when to take their company public, including the risk of increased scrutiny and investor fatigue, particularly among late-stage private tech companies.
In 2016, there were 145 private companies valued at more than $1 billion. By 2024, that number has grown by nearly 750%, to over 1,200. This growth has led to increased scrutiny from regulators and investors for unicorns when they go public. Uber is a good example; having raised $15 billion in private capital markets to reach a valuation of nearly $120 billion, then making history with the largest dollar loss on a first day of trading in the United States, and eventually losing nearly 20% of its market value in its IPO in its first two months on the stock market, largely due to investor distrust of its business model.
Special Purpose Acquisition Companies (SPACs) effectively allow private companies to go public by merging with pre-existing “shell” public companies formed for the sole purpose of raising funds through an IPO to finance the acquisition of private companies. Although they have become less popular in recent years due to their poor post-merger performance, they remain a widely used vehicle and offer a viable alternative to African tech startup founders looking to achieve high market valuations without risking a share price crash in an eventual IPO.