• Monday, December 02, 2024
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Only 15% of Nigerian startups make above N250m annually — Report

Group trains 1,500 North-Central youths as Kwara pledges start-up support

A new report by TLP Advisory, a venture capital law firm, has found that only 15 percent of Nigerian startups make above N250m ($149,000) annually.

The report, “A Decade of the Nigerian Venture Ecosystem 2024—Numbers, Insights & Stories,” further revealed that 30 percent of the startups generate between N50 million and N200 million annually, with 49 percent generating less than N10 million in the same period.

According to the report, founders have said that revenue is largely determined by the cost of doing business, which is high, as over half of the startups have said that they are currently not making a profit.

Read also: Top 10 countries leading in global startups’ acquisitions

“Fifty-one percent of startups are not making a profit, leaving 49 percent recording profitability,” the report read. In funding, the tech ecosystem has had it better with the $1.75 billion raised in 2021. However, between 2022 and 2023, it dropped from $1.2 billion to $500 million, leading to the shutdown of numerous startups.

TLP Advisory reported that access to finance is the biggest hurdle for over 20 percent of founders, with 18 percent claiming it as their main barrier.

“Limited or no access to finance is the primary barrier to business growth, with 22 percent of the founders stating it to be their chief problem, coming ahead of “inadequate marketing,” with 18 percent confirming it as their main barrier and 15 percent stating their chief problem was “business/revenue model” and “government policies” respectively,” it said.

These findings align with other research on access to finance, infrastructure and power supply, government policies, and talent acquisition and retention as the critical challenges of the Nigeria tech ecosystem.

The effect of reduced funding in the ecosystem has been felt across the board, as 54 percent of the respondents indicated that they had not raised any capital—for some of these companies, that means since inception.

Founders revealed that the top reasons for the inability to raise funds were “access to investors,” followed by “access to funding information,” and “high interest rates.”

However, many founders noted that funding was “not needed,” while others felt it was too early for their businesses to seek financing.

“People who raised money in US dollars, who are earning in naira, and who have to report to investors who invested in US dollars need to be doing almost three times more work and earning three times more income because the currency has devalued by more than 70 percent,” said Femi Longe, co-founder and non-executive director, CcHUB.

For businesses that raised funds within the past 10 years, TLPAdvisory’s findings suggest that it might be relatively easier to raise funds in the earlier years of a business as 81 percent of the companies secured their funding within the first 4 years of operations, while the other 19 percent were able to secure funding from the fifth year onward, with the number of companies able to secure funding dwindling with each passing year of their existence.

The report revealed that the most common funding sources were angel investors (including friends and family) (43 percent).

Read also: Four charts revealing African startups performance in 9 months

It read, “Forty-three percent of startups raised funds from angel investors as well as friends and family, with 24 percent raising venture capital funding while 18 percent and 15 percent secured funding through debt financing (including convertible notes) and grants, respectively.”

The report added that companies believe in having a company culture, with 80 percent of founders indicating that their firms have identifiable company cultures.

When asked about the aspects of their culture that sustain their business, “collaboration and teamwork” emerged as the most significant aspect of culture as 13 percent of respondents confirmed, followed closely by “open communication” and “innovation and creativity” with 12 percent respectively.

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