The rise of unicorns has become a global marker of entrepreneurial success. A unicorn is a privately owned startup that’s valued at over $1 billion. By country, the U.S., China, and India lead the pack. These nations produce hundreds of these high-value companies. Other emerging markets like Brazil and Nigeria, are making their mark with unicorns of their own. According to S&P Capital IQ, 1,463 unicorns now span 58 countries. The figure below highlights the top 15 countries in terms of the number of unicorns.
Despite South Africa’s sophisticated financial markets and its growing economy, the country has not been able to produce a single unicorn. This is surprising considering the government’s proactive measures, like offering tax breaks to encourage investment into the venture capital industry. It begs the question: has South Africa missed the unicorn wave, or are there more complex challenges at play?
The rapid increase in unicorns worldwide, especially in 2021, was driven by easy access to capital, low interest rates, and speculative bets in high-growth sectors like fintech and AI. However, the current global recalibration in valuations raises the question: was this a bubble? And how does South Africa fit into this narrative? Globally, over 500 startups became unicorns in 2021, but the African continent, despite its rising entrepreneurial activity, only contributed a handful. Most notably, South Africa is absent from the list.
South African Challenges
South Africa’s startup ecosystem faces unique challenges that may hinder the creation of unicorns. While there have been improvements in early-stage funding, many South African startups struggle to secure the larger, later-stage capital required to achieve unicorn status. This stands in contrast to regions like Silicon Valley or Nigeria, where companies like Flutterwave have surpassed the $1 billion valuation mark.
One key factor holding South African startups back is the country’s smaller market size. With a smaller population compared to other unicorn-producing nations, startups focusing on domestic growth often find it difficult to scale quickly enough to reach billion-dollar valuations. In contrast, countries like Nigeria and Brazil have experienced fintech booms driven by their vast unbanked populations, allowing for rapid expansion. Furthermore, South African investors tend to adopt a more conservative approach to valuations, favouring startups with stable revenue models over those with high-risk, high-growth potential. This cautious mindset differs from the approach in the U.S. and China, where venture capitalists are more willing to bet on future growth, leading to higher valuations for startups in those regions.
Countries like Brazil and Nigeria have produced multiple unicorns despite similar economic challenges. South Africa could look at what made companies like Nubank (Brazil) and Flutterwave (Nigeria) succeed:
• Fintech as a Key Driver: Fintech is Africa’s leading sector in terms of attracting venture capital. In Nigeria, fintech accounted for a large portion of all VC rounds, fuelling unicorns like Flutterwave and Opay. South Africa’s fintech sector is growing, with startups like Yoco and Lulalend leading the way, but they have yet to hit unicorn status.
• Regional Expansion: Many unicorns in Africa, such as Jumia and Interswitch, succeeded by expanding beyond their home countries. South African startups could benefit from targeting larger regional markets, particularly with the African Continental Free Trade Agreement (“AfCFTA”) reducing barriers to cross-border trade.
While the absence of unicorns might raise concerns, it’s important to recognise that not all successful startups need to reach the $1 billion mark. Many South African startups are making a significant impact by focusing on profitability, sustainability, and solving real-world problems. For example, SweepSouth, which provides on-demand home cleaning services, and Yoco, which provides point-of-sale solutions for SMEs, are growing steadily and solving critical local problems.
South Africa’s startup ecosystem is poised for growth, but it will need to overcome structural barriers to produce its first unicorn. By increasing access to later-stage capital, encouraging regional expansion, and embracing more speculative valuations in high-growth sectors like fintech and AI, South Africa could soon join the global unicorn club. However, given the current economic climate, this journey may take longer than anticipated. The challenge is to balance local realities with global ambition.