How do you value a portfolio of young, fast-growing, private companies? One at a time.
There are a multitude of valuation methodologies for public companies, most of which do not work for companies with 50%+ annual growth, nor for any company that is plowing profits back into the company to keep up or speed up that growth rate. Investopedia has a good primer on valuation.
Africa Eats uses a multiple on revenues for all the companies above $100,000 in annual revenues, and the cost-to-duplicate on the few below that milestone and the same for Built Accounting. The valuations thus grow as revenues grow, and revenues have been growing at a compounded annual growth rate (CAGR) of 60%.
Using the reported annual revenues for 2021 the total valuation of the portfolio companies is estimated at $62,900,000. Africa Eats owns 10.1% of that total. Thus the value of Africa Eats’ minority stakes is estimated at $6,300,000.
In addition, Africa Eats has an estimated $1,060,000 worth of loans outstanding to the portfolio companies, plus we just closed the last of Series A and will have $1,200,000 in cash in the bank shortly from investors.
Adding those up, the total value of Africa Eats as of February 1, 2022 is approximately $8.5 million up almost three-fold from the original $3 million valuation when the holdco first launched in mid-2020.
That growth is due in part from investing the $2.6 million of capital raised between launch and the end of 2021 and in part from the growth of those investees. The goal is to continue investing in these companies, growing the ownership percentage to an average of 25%, and helping these companies reach over $100 million in aggregate revenues.
That milestone is less than a seven-fold increase, from a portfolio that has already grown more than ten-fold and which is not yet showing signs of the slowdown in annual growth that we’ve been predicting.
Using the same methodology as described above and the reported annual revenues for 2020 the total valuation of the portfolio companies was estimated at $42,400,000. Africa Eats’ ownership of that total was estimated at $3,700,000.
At that time the loan portfolio was valued at $587,000 and there was only $245,000 in cash in the bank. Adding up those values the valuation as of February 1, 2021 was approximately $4.5 million.
Africa Eats was launched in mid-2020, spinning off from the Fledge accelerator and seed fund including a portfolio of investments valued at $3 million.