Was Paystack Overvalued at 200 million US Dollars?

Was Paystack Overvalued at 200 million US Dollars?

Paystack, a five (5) year old Nigerian fintech startup was acquired by Stripe an American financial services and software company for over 200 million US dollars (76.6 billion naira) making it the biggest Nigerian startup acquisition

Paystack regularly described itself as “Stripe for Africa” and Stripe led 8 million US dollars (3 billion naira) Series A funding   for Paystack in 2018. Both Stripe and Paystack are solving the same problem: payment; they also have similar missions. Paystack's mission is "to help businesses in Africa become profitable, envied, and loved". Stripe wants to "increase the GDP [Gross Domestic Product] of the internet".

A couple of people are of the opinion that Paystack was overvalued for its acquisition amount considering it is only available in three African countries namely Nigeria, Ghana and South Africa with just over 60000 customers although businesses and individuals who use Paystack can receive money from anywhere in the world. A friend was of the opinion that it would have been better to acquire a bank for that amount rather than a startup like Paystack although recent findings seem to differ. It is reported that the value of Paystack as at the time of acquisition is more than the value of three bank combined in Nigeria. The banks were FCMB, Wema bank and Unity bank.

FCMB worth’s 44.8bilion naira, Wema bank worth’s 21billion naira, Unity bank worth’s 6.6billion naira while the estimated worth of Paystack in naira is 76.6billion naira

This estimation has shown how valuable a fintech company can be and how worthy they are.

FCMB was established on the 20th of April, 1982. Wema bank was established on the 2nd of May, 1945. Unity bank was established in 2006 but all the three banks with 38years of operation, 75years of operation and 14years of operation respectively could not meet up the acquisition cost of a fintech company that started five years ago.   Access Bank Plc is a leading full-service commercial bank operating since 1989 and the biggest in Nigeria operating through a network of more than 600 branches and service outlets, spanning three(3) continents, 12 countries and 31 million customers and was not acquired for that amount during five years of its operations.

We cannot accurately compare a traditional bank and a fintech tech startup together because the operational cost of running a bank considering the amount of physical branches, they have across different locations is far higher than a startup that operates a lean business model. The Gross Merchandize Value (GMV) of Paystack is also important in measuring how successful Paystack is and this varies from a traditional Bank.

The revenue of Paystack interestingly was just 1300 US dollars (500,000 naira then) when Y combinator a US based accelerator accepted it and gave it about 120000 US dollars for 7 percent equity which is estimated to be at least 12 million US dollars presently  after Paystack exited at 200 million US dollars This  further validates the fact that Africa specifically Nigeria is a land of limitless potentials and should be considered as a profitable land by more investors.

According to SaaStr rule of startup success “Just multiply the amount of venture capital raised times 10. That is what you must sell or IPO (Initial Public Offer) for. In this case, Paystack raised a total of 11.7 million US dollars according to Crunchbase and exited for at least 200 million US dollars (More than ten times what it raised) making it a successful exit. According to CB insights, 48% of exits in venture- backed tech companies globally occurred after the company raised seed or Series A funding.  An imminent question in the minds of many is how much the co-founders Shola Akinlade (CEO) and Ezra Olubi (CTO) get from the deal.  To properly answer that question, we must realize that the biggest gainers are the cofounders but the size of their gain depends on how much equity they have given to their 40 investors. The financial statement of Paystack is not disclosed to the public because it is a private company making it difficult to know how much investor put in Paystack and their return on investment. However, deductions can be made from the size of cheques and equity some investors cut and take.

Paystack CEO shola revealed in an interview that a local investor had offered him 20million naira for about 60 percent equity it was accepted into Yc accerator which invested 120000 US dollars for 7% equity as stated earlier

In addition to YC, other early investors in Paystack include:

 

Dr Ola Brown, Director at Greentree Investment;

Kola Aina, Founding Partner at Ventures Platform Fund (invests between $20k and $200k);

Maya Horgan Famodu, Partner at Ingressive Capital (used to invest between $50k and $100k but now invests between $200k and $400k for 10% equity);

Olumide Soyombo, Managing Director at LeadPath (invests between $25k and $100k);

Leonard Stiegeler, Founder of LS;

Comcast Ventures;

Singularity Investments;

Tencent Holdings

Other investors in Paystack, who likely joined in the Series A, include:

 

Jason Njoku, CEO of irokotv and Partner at Spark

Oo Nwoye, Board Member at Ventures Platform

Lauren Cochran, Managing Director at Blue Haven Initiative

Sudeep Ramnani, CEO at Sporty Internet Group

Tom Stafford, Managing Partner at DST Global

Gbenga Oyebode, Founding Partner at Aluko & Oyebode

Nedu Ottih, Principal at Apax Partners

Lexi Novitske, Managing Partner at Acuity Venture Partners

Dale Mathias, Co-Founder at Innovation Partners Africa

 

Bastian Gotter, Co-Founder at irokotv

Wale Ayeni, Investor

Paystack was definitely not overvalued and there is enormous potential for expansion and growth for the Startup and the African tech ecosystem at large

By: Owen Obozokhae

Source@ BenjaminDadaBlog