Nigerian startups raise fewer dollars amid funding drought

Nigerian startups raised $123 million in the first two months of 2024, underscoring the slowdown in funding on the African continent.

Startups on the continent raised about $300 million in the period, lower than what was raised at the same time of the year in the past four years, according to data from Africa: The Big Deal, a data insight firm that tracks deals above $100,000.

Read also: UK invites African startups to apply for global award

February was a better month than January, though. Only $77 million was raised in the first month of the year as against $217 million ($156 million in equity and $59 million in debt) in February. The most significant contributor (51 percent of the total) was Nigerian transport tech Moove.

Eighty startups have raised at least $100,000 in 2024, with 38 raising at least $1 million. The Big Four have claimed 86 percent of all funding so far, “with Nigeria (42 percent, $123 million inc. $110 million from Moove alone) and Kenya (27 percent, $81 million) in the lead, and Egypt (10 percent, $28 million) and South Africa (7 percent, $22 million) quite far behind.”

From a sector point of view, logistics and transport represented nearly half of all the funding, followed by healthcare, fintech, and energy. However, regarding the number of individual start-ups raised, fintech came first (18 out of 80, 23 percent).

The slowdown in funding in 2024 continues the theme from last year when funding to the continent fell drastically to $2.9 billion from $4.85 billion in 2022.

“What could it mean for 2024 as a whole? It’s obviously too early to tell, but here is some maths, for what it’s worth: in an optimistic scenario…, start-ups in Africa could raise $3.2 billion this year; in an ‘average’ scenario…, we’d be looking at only $1.4 billion; we’d rather not discuss a pessimistic scenario…” the firm said of Africa’s funding situation.

It added that the growth in funding value will depend on mega deals, which have yet to happen in 2024. External funding is crucial to startups’ operations, and many grapple with low revenue and high costs. To mitigate this slowdown in funding, startups have resorted to debt financing. African startups borrowed $1.1 billion in 2023, and according to Stears, it will help many startups navigate 2024.

Read also: inDrive to invest in local startups primed for global expansion — Smit

In its 2024 outlook, the data insight firm said: “Debt financing will continue to grow. As monetary tightening in the West cools, currency volatility in markets like Nigeria will remain a concern for investors. Equity flows may not make a swift recovery, so debt will plug the funding gaps. To a lesser degree, other funding options like crowdfunding and diaspora funding will also pick up.”