South Africa: Part One: Africa's Fintech Landscape - The Valuation Challenge

Last Updated: 2 August 2019
Article by Novan Maharahaje

In part one of a string of articles examining Africa's evolving Fintech landscape, Novan Maharahaje, Director of the Corporate Finance Advisory division of Ocorian AMEA, analyses the pros and cons of the approaches most commonly used when valuing an early-stage FinTech company and how there is no "one-size-fits-all" solution.

Africa is increasingly recognised as a land of opportunity for Fintech; EY's 2019 FinTechs in Sub-Saharan Africa report identified that there were more than 250 active companies in 2018 according to research1. The sector has capitalised on the digitalisation trend, favourable demographics and a talented and innovative entrepreneur base to bring banking, insurance and other financial services to an otherwise unserved and underserved population.

African Fintechs are having a direct impact on financial inclusion and positive spillover effects on other sectors such as agriculture, renewable energy and infrastructure – thereby attracting interest from a wider investor base including venture capitalists, private equity firms and development finance institutions, amongst others.

According to a report from the International Finance Corporation, more than US$50 bil-lion has been invested since 2010 in almost 2,500 Fintech companies worldwide. A somewhat similar trend was observed in Sub-Saharan Africa, where investments in this segment are on the rise in spite of a general slowdown in merger and acquisition activity in the region.

The valuation expectation gap is a key challenge during the investment process

Amidst all the global investor interest and recent launches of accelerator programs by the likes of Google, Visa and Microsoft, both entrepreneurs and investors still face some key challenges during the investment process. Amongst these, access to finance (from the perspective of entrepreneurs), access to credible targets (from the perspective of investors) and the valuation expectation gap are the most pervasive.

In this article, the first of a series delving into Africa Fintech's opportunity, we focus on the valuation challenge of early-stage Fintech companies.

How to value an early-stage Fintech company?

Early-stage Fintech companies often exhibit the following patterns, which create some practical valuation challenges:

  • Rapid growth, high uncertainty and hefty current losses;
  • Investments often expensed rather than capitalised;
  • High customer acquisition costs;
  • History of little or no revenues;
  • Economic earning potential resting on key-man and/or intangible assets;
  • Scalability at near-zero marginal cost; and
  • Low survival rate and its impact on discount rates.

Consequently, traditional valuation techniques based on forecasted cash flows, projected growth rates and discount rates may not be relevant or realistic. In practice, the commonly used valuation techniques include the venture capitalist method and the top-down and bottom-up approaches2.

No satisfactory "one-size-fits-all" approach

Simply put, the venture capitalist method involves projecting estimated revenues or earnings in a future year (usually when operations are normalised), applying a relevant multiple based on peer analysis and discounting back to present value using a targeted rate of return. However, the lack of market comparable data and industry benchmarks in Africa makes this approach arbitrary at best or unrealistic at worse, hence widening the valuation expectation gap.

The top-down valuation approach derives future cash flows by projecting revenues based on estimated market share in a future year (when the company is in a steady state), applying expected margins, deducting taxes and accounting for reinvestment needs. In the context of African Fintech, the lack of credible studies about market size and the fragmentation of product offering are practical limitations of the top-down approach. In contrast, the bottom-up approach derives the expected cash flows based on income generating capacity from investments made.

At Ocorian AMEA, the valuation approach we use depends on the age, the stage of lifecycle of the subject company and the investment cycle. For early-stage Fintech companies facing limited capital means and involving significant key-man risks, one of our favoured approaches is the bottom-up approach, backed by secured contractual commitments.

As the Fintech company builds a track record and starts earning profits, we have added visibility over its product offering and expansion strategy, hence what will drive projections. Risks are clearly identified and mitigated, influencing discount rates. In this case, we prefer to use discounted cash flows derived from contractual agreements and secured pipelines, stressed by industry and sectorial analysis, and probability weighted scenarios.

In our view, there is no "one-size-fits-all" approach when it comes to valuation. We would recommend using a primary approach crosschecked by a second one.

Ocorian AMEA offers a complete range of corporate finance advisory services, including business valuations, assistance in fund raising, M&A advisory and capital market transactions. We help our clients become investment-ready and grow their footprint by providing governance, financial and transaction advisory services. Our clients, across the Fintech spectrum, cover a wide range of solutions including money transfer, e-wallets, micro-finance, digital banking, micro-insurance, prepaid energy, energy micro-loans and digital banking platforms. Learn more about our AMEA offering here.


1. FinTechs in Sub-Saharan Africa: An overview of market developments and investment opportunities by EY

2. These valuation techniques are extensively covered by academia and valuation professionals, including Aswath Damoradan (a Professor of Finance at the Stern School of Business at New York University and widely recognised as an authority on valuation matters).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions