Paystack’s Exit, Good Thing or Bad Thing?
The recent acquisition of Paystack by Stripe made me ask myself if this acquisition was good for Nigeria or the African tech ecosystem at large.
There has been a long-running debate about exits in the African tech ecosystem so what’s my issue you may ask?
My initial questions were:
Why did Paystack need to sell?
Why couldn’t Paystack IPO and become a big company?
First, let’s consider the reasons why this exit and similar exits are good:
1/ It creates the signal and validation for foreign investors to invest in Nigeria and Africa at large.
Africa’s share of global VC investment is tiny compared to most regions of the world, therefore such exits are likely to increase the overall inflow of VC investments.
With an increase in VC investment inflows, Africa is more likely to see bigger startups, more successful startups, rich founders etc thus feeding back into the ecosystem.
2/ It creates a signal for local investors.
There has been a question around where the African big money people are investing.
It is my contention that with a lot more of such exits, those who have made money in non-tech sectors will see the potential returns in tech and thereby start investing in tech.
If more money comes into the tech sector, it benefits everyone.
3/ It adds a variable for “pattern matching” African founders.
Since most investors like to ‘pattern match’ to determine who to fund, by having successful African founders exit their companies, the pattern starts to include African founders for funders to use as their baseline for decision making.
Thus, more money could potentially flow into the ecosystem.
4/ It creates a new class of wealthy entrepreneurs.
By exiting at this stage: with some actual money: around $200 million, it is my hope that the founders have made enough money left for themselves.
So that the founders can go on to start or invest in other companies.
Whilst all the above reasons provide a compelling argument to celebrate this exit, I am also concerned that:
5/ It creates a feeder effect.
I believe one of the reasons the US is the largest recipients of VC investments is the ability of US companies to grow into big companies: ahem, Stripe.
Take Israel for example, whilst it is the envy of most countries in terms of its share of VC investments, it has become a bit of a feeder eco-system for other countries, predominantly the US.
Most Israeli companies end up getting acquired by foreign companies.
The problem with feeder eco-systems is that you may end up with companies getting acquired before you see their full potential.
6/ It potentially kills eaglets before they can turn into eagles.
Imagine, Intel was acquired by some nameless company in the 1960s. Do you think it would still be the Intel it is today? No.
It would have been merged into some company no one knows of.
This is exactly what happened to those MEST Ghana companies which exited too soon.
How many of those companies were killed before they could turn into eagles?
How many could have turned into big companies?
What would have been of the Ghanaian tech ecosystem if these companies were allowed to grow?
To conclude, I believe founders should make decisions based on their personal situation.
That said, founders should ask themselves what type of company they want to create early on and strive to get there.
Africa needs big companies for the growth of the continent.
About the author:
Prince Appah
2x Founder and 2x Head of Marketing.
A Ghanaian with a passion for Africa, startups, economic development, innovation, entrepreneurship and business.
Currently running Soroni.co.uk: a B2B Marketing Agency for Tech Companies.
Twitter: @repislike
