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Nigeria’s tech ecosystem has celebrated a record number of unicorns —companies valued at over $1 billion —over recent years. Companies like Flutterwave (<a href="https://technext24.com/2022/02/16/flutterwave-raises-250m-in-series-d-funding-triples-valuation-t0-3bn/">$3 billion, 2023</a>), Interswitch (<a href="https://techcrunch.com/2019/11/11/nigerias-interswitch-confirms-1b-valuation-after-visa-investment/?guccounter=1&amp;guce_referrer=aHR0cHM6Ly90ZWNoY2FiYWwuY29tLw&amp;guce_referrer_sig=AQAAADFKFa7htb2hO8p2iq9K0c1LHFKLLig0A1FUNUBn--_UtHlMWapUAnguVoaB3-IBO2SEM0IVy8rvWhiHmz-_Azd7QkVjGUIzqprOcXxWfcTuCmEe4SSLWbbW_Y9Yb2MlJ8tW6_MMEF4Zt94T0pqH1VjrOM3EtVCRqFn0YhOC4U4P" target="_blank" rel="noopener">$1 billion, 2019</a>), and OPay (<a href="https://technext24.com/2021/08/23/opay-raises-400m-to-become-nigerias-newest-unicorn-in-funding-round-led-by-softbank/">$2 billion, 2021</a>). 
However, in light of the recent naira devaluation, a crucial question has arisen: Can these companies retain their unicorn status when much of their revenue and operational expenditure (OPEX) are in a currency that’s losing its purchasing power?&nbsp; 
Since the start of the year, <a href="https://www.dataphyte.com/latest-reports/currency-woes-the-nairas-nadir/#:~:text=Within%20the%20last%2010%20months,taking%20office%20in%20May%202023." target="_blank" rel="noopener">Nigeria’s currency has experienced significant depreciation against the USD</a>. When companies are initially valued, their worth is calculated in USD. However, for companies operating primarily in Nigeria and transacting mostly in naira, this valuation may not accurately represent their actual market strength or purchasing power within their own economy. 
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As the naira depreciates, the effective USD-based valuation of these companies may also shrink if we adjust for local economic realities. 
<a href="https://ng.linkedin.com/in/basamta" target="_blank" rel="noopener">Lanre Basamta, co-founder of Optimus AI</a>, however, has a different opinion. These startups aren’t billion-dollar giants in local terms. 
“We must start with the basis of the valuation. There’s no unicorn in Nigeria that is a unicorn in naira denomination. Every unicorn in Nigeria is a unicorn based on their valuation in USD and I think it’s important to start from there. While naira devaluation affects revenues and profits, it doesn’t significantly impact their unicorn status. The valuation process considers several metrics beyond revenue—segment, business model, customer growth, and revenue sources,” Basamta said.&nbsp; 
According to him, the valuations of the unicorns rest on a model more suitable for stable economies, often overlooking currency volatility.&nbsp; 
“For companies in fintech or SaaS, valuations hover around 10x revenue,” he explains. “This means a company valued at $1 billion might be pulling in about $100 million annually—but even companies making $20-30 million can reach unicorn status if the growth prospects are there.” 
But that’s where the naira’s troubles come in. If the currency depreciates by 20% – or over 80% as with the naira’s story, the unicorns’ earnings, when converted to dollars, drop correspondingly. 
Nathaniel Luz, founder of Flincap, however, does not think valuation adjustments should be made based on the naira’s troubles.&nbsp; 
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“One good thing with devaluation is that the Naira is now cheaper, so people can move from dollars to Naira, keep their costs low, and build their products,” he says. 
“This does not erase the downside of earning naira from Nigerian users. Notwithstanding, they can quickly scale the product internationally and begin to earn in dollars. For example, <a href="https://www.atlashxm.com/resources/developing-international-operations-moniepoint-and-atlas" target="_blank" rel="noopener">Moniepoint has currently scaled across Africa</a>. <a href="https://technext24.com/2023/12/08/flutterwave-money-transfer-licenses/">Flutterwave has also done the same</a>. A number of Nigerian fintech companies have also scaled across multiple African countries and Europe. Companies such as Bolt which originated from Estonia, are used in many countries of the world today, giving them the ability to earn revenue in multiple currencies,” he added. 
<h4 id="the-real-cost-of-currency-volatility" class="wp-block-heading">The real cost of currency volatility</h4> 
Currency volatility in Nigeria has become a defining challenge for businesses, especially in the tech sector. As the naira fluctuates, companies find their financial stability tested, often at the cost of local operations and market confidence. 
Leaders and analysts in the industry offer insights into how companies are grappling with this instability, with many looking for ways to earn in stable currencies while keeping their costs anchored in naira. 
Nathaniel Luz, an industry expert, explains, “Currency and volatility affect a lot. You can understand that a lot of companies are shifting. A lot of brands are building B2B versions of their products so that they can sell to the global market and earn in dollars. With naira-denominated expenses, I believe the approach is quite simple. It used to be earn in naira and spend in naira, but it has now shifted to earn in naira, dollars, and whatever other currencies you can while keeping most of your cost in naira. For these companies, diversifying income streams and reducing foreign exchange exposure is becoming a survival tactic, rather than a mere business strategy.” 
Lanre Basamta also shared insights on how companies are increasingly sourcing local alternatives to essential resources as part of this adaptation.&nbsp; 
“The first [strategy] is to de-risk your Nigerian business. Expand into other markets. Number two is many of these companies are looking at local or indigenous alternatives,” he says, citing recent moves by Nigerian banks.&nbsp; 
“This year, Sterling Bank, for the first time in a long time, decided to use a Nigerian-based core banking system… If a Nigerian bank can go ahead and say they’re going to use a Nigerian-made, Nigerian-based core banking solution, then it means that people are thinking about their FX exposures.” 
These adjustments extend beyond banking, with even major players like Paystack rethinking their operations.&nbsp; 
“<a href="https://bitcoinke.io/2023/11/paystack-reduces-operations-outside-of-africa/" target="_blank" rel="noopener">Paystack let go of their engineering team</a> last year…their growing exposure in Forex to continue to pay this engineering team wasn’t sustainable, vis-a-vis the revenues they were making in naira,” Basamta adds. 
This trend highlights a more complex and risk-averse approach to expansion, where companies reconsider international teams and refocus on reducing foreign currency risks. 
An analyst (who asked not to be named) also points out that while many Nigerian tech unicorns are growing at a rate that outpaces currency devaluation, the inherent volatility still erodes value.&nbsp; 
“The interesting thing is most tech companies [unicorn] are growing at a rate that’s beating the currency devaluation. But, even if you’re valued in some way last year, this year, it’ll change because conversion diminishes the value,” he explains.&nbsp; 
This depreciation is significant from an investor perspective, where the discrepancy between naira and dollar valuations is glaring.&nbsp; 
“If you calculate your revenue to be ₦1 trillion and it’s converted to dollar terms, likely, it’s not up to $1 billion, which makes all of it insignificant…investors will consider using only the dollar to calculate all of the yardsticks,” he notes, highlighting how currency conversion challenges affect growth metrics and valuation. 
<h4 id="alternative-valuation-models" class="wp-block-heading">Alternative valuation models</h4> 
The <a href="https://aventis-advisors.com/tech-company-valuations/" target="_blank" rel="noopener">valuation models</a> widely used today, based on U.S. or European market standards, don’t entirely capture the unique challenges faced by Nigerian companies. You may want to argue for a region-specific approach, perhaps a locally adjusted valuation that could include purchasing power parity or inflation adjustment.&nbsp;&nbsp; 
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For instance, Tech Journalist, Samuel Olomu, says “These current valuations may not be realistic due to the prevailing economic conditions, especially within the local context where there is a strong tendency of valuations being driven by market and geographic trends devoid of the underlying economic fundamentals.” 
He adds, “For companies that operate in naira, the unicorn status pegged in USD can be both beneficial and misleading.”&nbsp; 
“On one hand, it is a powerful marketing strategy that enhances a company, attracting foreign funds and projecting growth to prospective investors who may not know the country’s economy. This would also foster a sense of self-worth among local entrepreneurs and healthy competition that inspires innovation and ambition in the well-being of the IT sector. 
“Conversely, the designation can lead to some dissonance with the market environment within which these firms operate. Valuations quoted in USD do not contain local realities like inflation and exchange rate fluctuations, and this can exaggerate perceptions of stability and profitability, leading to distortion in investment decisions and overestimation of growth.” 
Basamta remains sceptical about local valuation adjustments.&nbsp; 
“Today, valuation plays a role. What it does is that it helps to reflect the value of a business. Now, in a privately held company, the set of people who are concerned about valuation are the investors, the shareholders, and then potential investors, people who have value in that enterprise. And so, in the valuation game locally, the only use of local adjustment of valuation would be if you are trying to attract local investment. The only way to attract local investment in a highly competitive market is to attract it at international benchmarks. That’s the only way. There’s no organisation, there’s no company that will locally set themselves up at a valuation game knowing that the local benchmark, which is Naira, is very subservient to countless influences. And so, this whole talk about local adjustment for valuation is not to anybody’s advantage, except for intellectual conversations like this – academic experimentation, educational purposes, and informing and educating the masses.”&nbsp; 
Yet, Luz points to an upside in international expansion that, in effect, creates a buffer.&nbsp; 
“They [tech companies] can quickly scale the product internationally and begin to earn in dollars. For example, Moniepoint has currently scaled across Africa. Flutterwave has also done the same. Many Nigerian fintechs have also scaled across multiple African countries and Europe. Companies such as Bolt which originated from Estonia, are used in many countries of the world today, giving them the ability to earn revenue in multiple currencies.“ 
<h4 id="investor-sentiment-amid-economic-volatility" class="wp-block-heading">Investor sentiment amid economic volatility</h4> 
The naira’s challenges mirror those faced in emerging markets worldwide, especially in Africa. However, investor sentiment has shifted significantly.&nbsp; 
“Everyone’s more cautious now, and it’s not just Nigeria,” Basamta says. “The geopolitical landscape has been chaotic since February 2022—between the Ukraine-Russia war, inflation in major economies, and the devaluation of currencies worldwide. Even in top economies like Japan, Germany, and the U.K., inflation is impacting investor confidence.” 
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For the analyst, “If you’re not performing well, volatility can half your valuation. Valuation will be based on actual performance not valued based on the fact that they’re a Nigerian company.&nbsp; 
He adds that “Naira volatility is making it harder to sell the Nigerian story well. Investors can decide to invest in risk-free assets instead, especially if the currency is more stable. But, if you look at it from the angle of a lending business, the story is better because rates keep increasing. Again, many Nigerian tech companies are growing at 100% and 200% annually.” 
For Luz, “Investors are still investing, while others have found footing elsewhere. It’s a cycle. But because of the leverage of the AI wave, we are seeing a new set of investors. AI startups are raising funds in a big way and while also securing grants.” 
<h4 id="the-future-of-the-unicorn-benchmark-in-nigeria" class="wp-block-heading">The future of the Unicorn benchmark in Nigeria</h4> 
The label “unicorn” is a global benchmark for companies achieving $1 billion valuations, but does it hold relevance for Nigeria’s volatile economic environment? Basamta believes the unicorn label retains significance, “Unicorns in Nigeria mean more than a figure; they signal opportunity in Africa’s largest market. Few markets on this continent offer the scale that Nigeria does. In some ways, these unicorns tell a story of resilience.” 
Nigeria hosts nearly half of Africa’s tech unicorns, a fact Basamta sees as pivotal for the country’s image.&nbsp; 
“For investors exploring African markets, Nigeria stands out. There are four big consumer markets in Africa—Kenya, South Africa, Nigeria, and Egypt—but no one can skip Nigeria if they’re serious about scale. The unicorn status promotes Nigeria as a destination where ideas and investments grow, not die.” 
However, Basamta calls for a more nuanced measure of success beyond valuation.&nbsp; 
“Fintech companies, like Interswitch, report on transaction volumes and values to show impact. Last year, Interswitch hit one billion monthly transactions and now handles four million every minute. That’s real value. But we also need to consider what these companies contribute beyond revenue—jobs, taxes, local investments.”&nbsp; 
For Olomu, these benchmarks need to be reconsidered to align with Nigerian realities.&nbsp; 
“The benchmark may need to be reevaluated for Nigerian companies. It usually reflects valuations that are often not true, it often reflects valuations that do not account for the unique challenges of operating in a volatile economy like Nigeria,” he says.&nbsp; 
But, Luz argues that it is “really not about Nigeria.” He adds that startups don’t focus too much on the Nigerian economy. “Their concern is majorly on the economic status in their markets, and Nigeria is one out of their markets.” 
Basamta echoes that sentiment saying that “the unicorn is not necessarily for Nigerian consumption. It’s a global benchmark set for when a young company or young startup accelerates itself to a billion dollars in valuation and a lot of the time the revenue requirement varies for some people.&nbsp; 
“It’s 10% of that valuation, so you just need to arrive at the revenue benchmark of $100 million. Many companies are not even there, what they are doing is that they go to the market, they raise 10% of that in capital and then they automatically qualify as a unicorn.&nbsp; 
“I mean, Moniepoint raised $110 million. So, they raise a particular set of funds and they valuate the company 8x 5x 10x based on some critical benchmark.”&nbsp; 
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<h4 id="unicorns-and-nigerias-economic-reality" class="wp-block-heading">Unicorns and Nigeria’s economic reality</h4> 
The journey of Nigeria’s tech unicorns reflects both the country’s potential and its profound economic obstacles. Despite the challenges, companies like Flutterwave and OPay have managed to scale internationally, securing dollar-based revenue streams that stabilise their valuations even as the naira falters. 
At the same time, questions persist about the unicorn status’s relevance in Nigeria’s current economic climate. Investors and founders alike recognise the limitations of a one-size-fits-all valuation model.&nbsp; 
So, as more Nigerian companies join the billion-dollar ranks, the need for an updated standard—one that accounts for both Nigeria’s opportunities and its risks—becomes more pressing. The path forward may demand a unique benchmark that balances the global ambition of Nigeria’s startups with the reality of local economic fluctuations. 
Olomu reiterates this: “If devaluation persists, the idea of unicorns in Nigeria may shift focus towards sustainable growth measures and their ability to weather external shocks rather than valuations-based labels. This would create a more ambivalent perception of success in the tech space.”

Are Nigeria’s unicorns truly billion-dollar giants amid naira’s 82% decline?

Technext.ng

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