• Nigerian startups are facing funding challenges as the availability of international capital has decreased due to global inflation and rising interest rates.
  • Besides funding issues, startup failures in Nigeria are also attributed to mismanagement of funds by founders, allegations of fraud, salary discrepancies, and product-market fit challenges.
  • While some Nigerian startups have shut down recently, the current circumstances may lead to failure and shutdown of many others according to industry sources.

After years of boom that saw billions of dollars being poured into startups, there are now serious concerns that many more young tech companies may pack up soon in Nigeria.

According to sources in the ecosystem, a number of Nigerian startups, including those that have raised funds before, are desperately looking for funding as their runway limit approaches.

To stay afloat, some are quietly laying off staff while hoping that the needed investments will come before things get worse.

With the current situation, industry experts observe that many more startups may fold up in the coming months if they fail to adjust to the realities of the funding landscape.

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But more importantly, they said the startup founders would also need to be more efficient in managing their costs to survive as funding would no longer come as it used to be.

Funding is drying up

While noting that startups are folding up globally, and not only in Nigeria due to several factors, the Chief Executive Officer of Sycamore, a fintech startup, Babatunde Akin-Moses, said it is becoming more challenging for African and Nigerian startups because funding is drying up.

According to him, the key surviving strategy for startups now is to manage their costs efficiently, bearing in mind that funding is not coming from anywhere.

  • “Prior to 2021, international capital was cheap. This made it relatively easy to get money at very low-interest rates, and invest in high-risk endeavours like startups. Unfortunately, in 2021, global inflation spiked. Central banks raised interest rates, and capital was no longer cheap. So, investors slowed down on funding startups.
  • “Startups that are shutting down recently are the ones that are unable to generate revenue, manage costs effectively, or raise additional funding from investors especially since it’s harder to raise money now,” he said in a chat with Nairametrics.

Founder and CEO of Kippa Africa, Kennedy Ekezie, corroborated this, noting that Nigerian and by extension, African startups will now have to look inward for funding.

  • “There is a global capital meltdown happening right now, and fundraising has slowed down for startups worldwide, including in Africa. As it is now becoming harder to raise capital in the current market and external funding becomes more challenging, African startups will have to rely less on outside funding and look for more local investors,” Ekezie told Nairametrics.

Failed startups in 2023

In April this year, Nigerian crypto payment startup, Lazerpay, shut down its business because it was unable to raise funds to sustain its operations. Lazerpay, which laid off some of its staff last November to extend its runway, said it came to the end of the road as the expected funding was not coming.

Earlier in February, Nigerian logistics startup, Hytch, also shut down barely nine months after it commenced operations as it was unable to raise funds.

But the problem is not just the lack of funding as the case of 54gene would prove. The genomics startup co-founded by Abasi Ene-Obong, has initiated the folding up of its operations after securing $45 million in funding.

This was a fallout of multiple controversies that saw the company having three CEOs in the last year. The last CEO of the company, Ron Chiarello, confirmed the financial struggles that led to the company’s winding down, stating that 54gene could not continue to operate financially, and it began to wind down in July.

Meanwhile, Teresia Bost, the company’s former legal counsel and one-time interim CEO, has sued 54gene, alleging discriminatory behaviour and a hostile work environment. These legal issues, along with claims of unpaid creditors.

Misappropriation of funds

Outside the funding drought, allegations of misappropriation of fund by founders is now rife in the startup ecosystem.

Just recently fingers were pointing at another fintech company, Payday, which is now seeking buyers barely 6 months after raising $3 million in in a seed round led by Moniepoint.

The company’s founder and CEO, Favour Ori, was alleged to be paying himself a monthly salary of $15,000 at the expense of the company’s survival while employees were made to take pay cuts.

The company had also faced serious allegations of fraud from customers as their accounts were restricted without any explanation until they cried out on social media.

Elsewhere in Ghana, Dash, a fintech startup that had raised over $86 million in 5 years of its operations shut down last week.

The company claimed to have handled $1 billion in transactions and added a million users from Ghana, Nigeria, and Kenya. In five months, those figures showed a 5x increase in users.

However, internal Dash data audits showed that the company’s founder Boakye Boampong lied and inflated the number of users. Soon, he was let go.

When Kenneth Kinshua eventually replaced him, it was already too late to save the company. A second audit of the business’s financial records found an unreported shortfall of at least $25 million. Boampong reportedly earned $50,000 monthly and allegedly diverted at least $8 million.

Paths to success for startups

According to Akin-Moses, startups that want to succeed will have to be cautious of their salary payouts as this constitutes a large chunk of their payout.

  • “After raising funds, you don’t have to spend money with the mindset that you will soon go for another raise. There may not be another raise. And this is where the issue of efficient cost management comes in, especially when it has to do with salaries,” he said.

On his part, Ekezie noted that many factors can lead to the failure of a startup, but it is very important to have a product that the market needs.

  • “To achieve success, a startup needs to find product-market fit, which means aligning the founder’s vision with the market’s needs. Many factors can lead to failure, such as a lack of market fit, macroeconomic challenges, an inability to charge customers, difficulty in hiring and retaining talent, and more. In the early stages, startups face numerous challenges. All of those things are working together simultaneously all at once to try to make you feel. So you’re juggling many balls and none of them have to drop,” he said.