Startups must apply the “Africa discount” when raising funds – Helium Health
Fundraising startups should apply a haircut to their valuation to account for being based in Africa, according to the CEO of the recently funded Nigerian e-health company Helium Health.
Founded in 2016, Helium Health Instantly digitizes hospitals and clinics with its flagship product of Electronic Medical Records / Hospital Management Information System (EMR / HMIS), currently used by over 300 healthcare facilities in West Africa.
The company this month announced completion a US $ 10 million Series A funding round led by Global Ventures and Asia Africa Investment & Consulting (AAIC); with the participation of Tencent, Ohara Pharmaceutical Co, HOF Capital, Y Combinator, VentureSouq, Chrysalis Capital, Kairos Angels and Flying Doctors Healthcare Investment Company.
Talk to Pause the podcast, CEO Adegoke Olubusi explained that in preparing to raise funds, the startup wanted to avoid “random evaluation like most startups do,” rather by creating a “scientific” evaluation model – of around 40 pages – to arrive at a three-level system assessment offering a best, middle and worst case rating.
“The first thing we did was establish what our assumptions were. What price assumptions, what sales assumptions were driving the numbers behind the financial model – things like “this is the average amount we were going to charge per hospital”, “this is how many hospitals we are going to get” – because these assumptions determine the content of the financial model, ”said Olubusi.
The startup also created a comparable analysis of similar companies in other markets, what were their multiples at acquisition or IPO, estimated the weighted cost of capital … and applied a discount due to ‘be an African company.
“We know there are many mitigating circumstances in this market that make it more difficult to use the same multiples as you would in other markets. Things like currency fluctuations, political instability, all of those factors, and we decided to take that into account and discount accordingly. In this way, investors would also be comfortable with us taking these risks into consideration, as these risks are significantly higher than in other markets, ”said Olubusi.
“I also feel like one of the reasons we did this – we had to do it – is that we know it’s going to be a topic of conversation with all investors, so we might as well take some ‘go ahead and have a plan around that. Essentially it was a form of discount for Africa, it’s something we don’t like, but it’s something we unfortunately have to live with in the near future as a way to mitigate risk when you bring it to investors, especially when the investors are mostly international or not local in Africa.
Olubusi believes that African startups will need to offer an “African discount” in their reviews until there are enough local businesses – and they are successful – to be able to compare the African market; with enough competition to be able to measure startups in a meaningful way against each other. The “Africa handover,” he says, is only being offered because there is not yet enough evidence of exits.
“If my benchmarking in my valuation model used other African companies in the same market, the discount would not be necessary. The problem is, all the other companies you can compare yourself to are in the US or European markets, or in different parts of Asia, and that’s a real problem, so as more and more companies like Helium are increasingly successful, there will be less of a need for it.
Once the Series A round is obtained, Helium Health intends to use the funds for its expansion across the continent – in North, East and Francophone Africa. Kenya, Egypt and Morocco are the three main target markets for the startup to tackle next.
The company has also built a suite of new products that it will continue to work on and launch in the months to come. These include a teleclinic product for hospitals, launched last month, which has seen 300 new hospitals sign up in just three weeks.
“Lockdown forces everyone to start seeing patients virtually, and they need software to facilitate that. Everything from planning to payments, to communication, to the actual consultation – all of this, our platform does, so we’re very happy to see this scale, ”Olubusi said.
A credit product is also under development, offering instant loans to healthcare providers. The solution will establish hospital credit scores based on a machine learning model using data entered by the facility when using Helium’s EMR system.
Finally, the startup is working on software for the public sector, particularly around the automation of workflows and emergency interventions.
“We believe this will be a big problem in the future, especially with the rise of COVID and the need to contain epidemics like Ebola and Lassa fever in Nigeria and other parts of Africa,” said Olubusi.
There is a lot to do for the 104 people who currently make up the Helium Health team. But they are in no hurry. Olubusi says the startup is playing a game for the long haul and expects it to take 10 to 20 years to get to “where we need to be.”
To learn more about Helium Health’s interview with Disrupt Africa, tune in to episode two by Disrupt Podcast, available now via Sound cloud, Spotify, Apple podcasts, and all other podcasting platforms.