The Managing Director of ARM Labs Lagos Techstars Accelerator, Oyin Solebo, has said that investors are increasingly focusing on the unit economics of startups before making investment decisions.
She shared these insights during an interview with Nairametrics on the sidelines of the Accelerator’s Demo Day in Lagos on Tuesday, where 12 founders presented their ideas to investors and venture capitalists.
Solebo explained that unit economics encompass the profit a company generates after covering all variable costs, customer acquisition costs, and the lifetime value of the customers, among other factors.
These metrics are now seen as crucial indicators of a startup’s ability to build a sustainable and scalable business. According to her, this emphasis on sustainability is the reason why founders participating in the Accelerator program undergo a 13-week course aimed at helping them create more durable businesses.
From pre-seed to the next funding round
Solebo noted that the 12 startups that completed the accelerator program, having received pre-seed funding, are now poised to seek further investment to grow their operations.
- “Many of these startups are aiming for their next funding stage to elevate their businesses. This is why we equip them with resources to foster more sustainable businesses, as investors are increasingly scrutinizing unit economics during their investment evaluation process.
- “They examine the startups’ contribution margins—essentially, how much profit these companies generate after their variable costs are accounted for. Investors also evaluate the potential for margin expansion and compare the cost of acquiring a customer to the value derived from each customer,” she elaborated.
Speaking on financing options for startups, Solebo observed a trend towards more debt financing compared to equity. However, she cautioned startups to carefully consider their revenue streams before opting for debt, as debt investors tend to be more conservative and expect repayment.
- “The thing with debt is that the company needs to have a really solid understanding of their financial position, they need to be able to demonstrate that they are going to be able to pay that back because debt investors are by nature, more conservative than an equity investor.
- “When a debt investor invests, they’re investing with the assumption that every single company is going to be able to pay that debt back, whereas an equity investor is more likely to invest with the assumption that some of the companies in that portfolio may not succeed,” she explained.
What You Should Know
The ARM Labs Lagos Techstars Accelerator announced last December its intention to invest a total of $1.4 million in 12 African startups, revealing the participants of the second cohort of its pan-African accelerator program. After completing the mentorship program, these startups pitched to both local and international investors during the program’s Demo Day in Lagos.
The startups include 24Seven, BeautyHut, Eight Medical, GetEquity, Jump n Pass, One Plan, PBR Life Sciences, PressOne Africa, Rana Energy, Surge Africa, Swoove, and Veend.
In addition to the Techstars-led program, the cohort benefited from mentorship sessions with notable experts in the African tech ecosystem, receiving comprehensive guidance and specialized services to support their growth journeys.
