A couple weeks ago, Silicon Valley’s attention turned to Social Capital Hedosophia, a new public company focused on providing liquidity to startups that cross the $1B valuation mark and earn unicorn status.
This new company is a combination between venture capital firms Social Capital and Hedosophia. They formed a special purpose acquisition company that essentially gets a blank check from its investors to acquire companies as they see fit. Chamath Palihapitiya, founder of Social Capital and his partner at Hedosophia believe this structure will enable them to cut down the process of taking companies public, enable them to focus on building their business, while also positioning these companies to pay their employees.
This new holding company, Social Capital Hedosophia, can’t acquire a company until October 1, so the question is who should Social Capital Hedosophia acquire?
My vote goes to Jumia Group for a number of reasons. Jumia Group meets the criteria. Social Capital Hedosophia is looking to acquire a unicorn that meets the reporting requirements of a publicly traded company. Jumia Group reached unicorn status in 2016 and is not new to the game of reporting to the public having been incubated by German publicly traded venture studio Rocket Internet, and also having raised institutional money from firms like Goldman Sachs and AXA.
Why should Social Capital Hedosophia acquire Jumia Group?
When unicorns emerge, the next conversation topic is typically what is your exit going to be? Are you going public? Are you selling to another company? Listing on the public markets is a pretty onerous task. For a company whose entire business is on the African continent, looking to list on a Western exchange has got to be magnitudes of order more difficult. Several years ago now, Aliko Dangote, Chairman of the Dangote Group, one of the largest commodity conglomerates in Africa, started talking about listing on the London Stock Exchange years ago, but seems to have let that idea go.
Impact of Social Capital Acquiring Jumia
Social Capital Hedosophia acquiring Jumia Group could make a huge statement in Silicon Valley by expanding Silicon Valley’s horizon beyond its traditional models and worldview on where world-changing companies are built.
On the other side of the deal, a liquidity event like this could create some space for African entrepreneurs to take a step back in order to identify even more authentic ways to build companies that take over the world. For several years now, Africa’s startup ecosystems have been trying to figure out how to replicate Silicon Valley’s by building variants and developing these venture capital firms. This could mitigate the propensity to do that.
Social Capital Hedosophia could catalyze the creation of a critical mass of angel investors dependent on how much equity early employees at the company were given. There hasn’t been a huge exit in the African startup ecosystem, creating the kind of independent capital that can seed African startups. To date, entrepreneurs have been left to pursuing funding through the programs ited to international finance organization pitch competitions that have more of a philanthropic feel than an effort to build massive companies that add value to people’s lives across Africa and the world, and create a significant amount of wealth.
Why Could This Not Work?
There is an unlikely chance that Jumia Group doesn’t have the reporting systems that would make it game ready for delivering quarterly reports on the New York Stock Exchange, since the company has been incubated within Rocket Internet, a publicly traded company on the Frankfurt Stock Exchange. In the small chance Jumia Group doesn’t have solid reporting, then the deal couldn’t work. A key part of Social Capital Hedosophia’s business model is being able to conduct the vetting and decision process in a much shorter time period.
So far, Social Capital Hedosophia has focused on talking about changing the way things work in Silicon Valley, and effects outside of that ecosystem seem to be peripheral. So, it may be unlikely to expect an African unicorn to be the first investment, especially looking at the directors of the firm all being well embedded into the Silicon Valley ecosystem. That’s an unfortunate reality of the situation, but Chamath is a maverick and may be willing to make a move like this.
If Social Capital Hedosophia really wants to change the game, it should go all the way in changing the game. Acquiring a unicorn on another continent - a developing one at that - would force Silicon Valley and Wall Street to expand its purview to what’s possible in supporting the next wave of technology startups around the world.