• Sunday, May 26, 2024
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At 61%, Nigeria’s startup failure rate tops African peers

At 61%, Nigeria’s startup failure rate tops African peers

The rate of startup failure in Nigeria is at 61.07 percent, the highest among the top three biggest tech ecosystems and investment destinations in Africa.

A report by Weetracker in collaboration with GreenTec Capital Africa Foundation ranked

Nigeria seventh on the continent in the top ten countries with the most number of startup shutdowns.

Ethiopia and Rwanda shared the top two positions accounting for 75 percent shutdowns each. Ghana, Zimbabwe, DRC, and Tanzania ranked ahead of Nigeria with 73.91 percent, 66.67 percent, 66.67 percent, and 62.50 percent respectively.

While South Africa, Kenya, and Nigeria have shared the top three spots in terms of investments and size of the ecosystem on the continent, more start-ups in Nigeria have failed compared to its peers. Kenya and South Africa have seen 58.73 percent and 54.39 start-ups fail.

Generally,  the African continent has a startup shutdown rate of 54.20. Globally it is estimated that 137,000 businesses are given birth to every day or 50 million per year. Out of this 90 percent of them fail according to Failory.

While funding is critical to the survival of a startup, the Weetracker report showed that there were other factors. The overall shutdown rate of funded startups during the analysis period stood at 20.30 percent. Countries like Ethiopia, Rwanda, Rwanda, Zimbabwe, and Morocco, etc with the highest startup shutdown rates involved mostly companies that were not externally funded. In essence, most of them died for a lack of external funding.

However, South Africa which has led the continent in terms of investment in startups also had the highest rate of startup shutdowns post-funding with nearly half of the funded startups closing shop. Nigeria also faced a similar situation with 32.76 percent shutdown rate amongst funded startups.

Even when they get external funding, the report shows that the majority of startups face casualty after the seed stage amounting to 69.09 percent. Startups that also received grants and non-equity assistance also faced shutdowns. The shutdown rate of startups in these categories was at 10.91 percent of overall funded shutdown startups.

What led to the shutdown?

The report points to the health of the economy where the startups are located. In the case of Nigeria, shutdowns began to climb after 2014 when the country experienced a boom in the economy.

The industry where the startups were also played a role in their demise. For instance, the most casualty rate was among startups building social networking platforms. The inability of the startups to offer consumers services at par with global brands like Facebook, Instagram, Twitter, LinkedIn among others may have accelerated the demise. The shutdown rates for these startups were at 95.65 percent.

E-commerce which was the playground of companies like Jumia, Konga, OLX, etc also became a pitfall for most of them, seeing as much as 76.19 percent.

Other sectors which say the most shutdowns include Analytics (75%); Media and Entertainment (68.42%); Marketplace (68.18%); Adtech (66.67%); Real Estate (60.87%); Manufacturing (55.56%); and Hightech (47.37%).