Nigeria, once a leading destination for venture capital in Africa, is now trailing behind its peers as funding activity for tech startups continues to decline. According to a report by Africa: The Big Deal, a data platform that tracks funding deals on the continent, Nigerian startups secured only 10 per cent of the total funding raised by African startups in October 2023, compared to 25 per cent for South Africa and 53 per cent for Kenya.
The report shows that funding has fallen across different metrics, with the total amount raised in equity funding by African startups in 2023 standing at $1.4 billion, well below the $6.5 billion raised in 2022. The number of deals has also dropped significantly, from 175 in the first quarter of 2022 to 87 in 2023.
The decline in funding is a major concern for the Nigerian tech ecosystem, which has produced some of the most successful and innovative startups in Africa, such as Flutterwave, Paystack, Andela, and Kobo360. These startups have attracted global investors and partners, such as Stripe, Visa, Mastercard, Google, and Facebook, and have expanded their operations to other markets in Africa and beyond.
However, the funding drought has also affected some of the high-profile startups in Nigeria, forcing them to scale back their operations, lay off staff, or shut down completely. For instance, 54gene, a genomics startup that raised $25 million in 2022, announced in June 2023 that it was closing its Nigeria office and relocating to the US. Dash, a fintech startup that raised $14 million in 2022, also ceased its operations in Nigeria in July 2023, citing regulatory and operational challenges.
Experts have attributed the decline in funding for African startups to various factors, such as the global economic downturn, investor caution, and a lack of viable business models. Some have also pointed out the impact of the COVID-19 pandemic, which disrupted the travel and mobility of investors and entrepreneurs and increased the uncertainty and risk in the market.
However, some analysts have also argued that the decline in funding could have some positive effects on the ecosystem, such as reducing speculative and hype-driven investments and encouraging more focus on building sustainable and scalable businesses. They have also highlighted the potential for alternative funding sources, such as crowdfunding, angel networks, and local investors, to fill the gap left by foreign investors.
Despite the challenges, some Nigerian startups have raised significant funding in 2023, such as Lendigo, a digital lending platform that raised $40 million in September, and Field Intelligence, a health-tech startup that raised $30 million in October. These startups have demonstrated their ability to solve real problems, create value, and generate revenue in the Nigerian market.
The Nigerian tech ecosystem remains one of the most vibrant and dynamic in Africa, with a large pool of talent, innovation, and opportunity. However, to overcome the funding crisis and achieve its full potential, the ecosystem will need more support from the government, the private sector, and society to create a more conducive and enabling environment for startups to thrive.
Source: Biz Community
