Throughout 2023, Nigerian startups faced significant challenges securing funding from investors, leading to closures for many ventures. Foreign investors exhibited caution in bankrolling operations, resulting in fewer funds available for emerging enterprises in various sectors.
Reasons Behind Funding Setbacks:
Foreign investors’ reluctance to invest was multifaceted, causing a decrease in funding for African startups by 54%, amounting to $2.5 billion between January and October 2023 compared to the same period in 2022. Several notable startups, including 54Gene, Pivo, Bundle, Vibra, and others, ceased operations due to challenges securing necessary funding.
A shift in Investment Focus:
To adapt to changing investor preferences, startup founders are now looking into areas such as Artificial Intelligence, big data, cybersecurity, automation, and blockchain. Investors are gravitating toward startups with viable revenue models, emphasizing profitability, and demonstrating prudent resource management.
Challenges and Key Learnings:
The startup failure rate in Nigeria stands at 61.07%, the highest among prominent tech ecosystems in Africa. Challenges such as mismanagement of funds, allegations of fraud, and sustainability concerns have made foreign investors wary of funding new startups.
Investment Recommendations:
Business leaders advise startups to establish realistic budgets, prioritize needs over wants, adopt viable revenue models, and maintain lean and efficient operations. They emphasize the importance of managing resources wisely and avoiding unnecessary debts.
Focus Areas for Investors:
Investors are now exploring other sectors such as energy, agriculture, health, and mobility, recognizing their potential. They prioritize startups with signs of revenue growth or paths to profitability while steering away from unprofitable transactions.
Government Initiatives:
The Nigerian government plans to facilitate an environment for startups to raise funding locally, aiming to elevate the country as a global leader in technology and innovation. Efforts are focused on increasing local availability of patient capital.
Prospects and Challenges:
Despite the challenges, Nigerian startups attracted over $1.2 billion in funding in 2023. However, fintech, once a robust investment area, experienced a decline in investments, which experts predict may persist into 2024.
While global headwinds impact investment, there’s optimism for sectors like payments, insurtech, and wealth tech. Investors foresee a potential resurgence in funding as market conditions stabilize, although not reaching the record levels observed in 2021.
