Nigerian startups trail peers as funding tickets extend decline

Funding activity for African startups continued to fall in October. Countries such as Nigeria saw some of the biggest drops. Data from Africa: The Big Deal showed that funding has fallen across different metrics, with Nigeria, which used to be a frontrunner, falling way behind its peers.

Startups on the continent raised $69 million equity last month which was a 12 percent month-on-month increase compared to September at $61 million. Adding debt and grants bring the total funding raised in October to $148 million, representing 20 percent growth month-on-month.

The $148 million however is 23 percent lower than the $193 million raised in October 2022. The $69 million in equity raised in October 2023 is also a huge drop from the $169 million raised a year earlier. The report also notes that between 2021 and 2022, startups in Africa raised an average of $330 million in equity funding each month, which rises to $376 million when debt and grants are added.

The total amount raised in equity funding so far in 2023 is now $1.4 billion, or $2.4 billion if debt and grants are included. The total is well behind the amounts raised in 2021 and 2022. According to the data, startups raised about $2.4 billion as early as April in 2022, before the funding winter started.

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Kenya takes the largest share of the $67 million in funding announced in October. Kenya’s M-Kopa secured 98 per cent ($65 million) of loans from the International Finance Corporation (IFC). Kenyan startups Maisha Meds and One Acre Fund also secured all of the $12.5 million in startup grants announced on the continent in October. This puts the country in the lead in terms of equity, debt and grants, controlling 53 per cent ($79 million) of the funding raised. South Africa secured 25 per cent of the funding to take second place, Nigeria is a distant third with just 10 percent of the total amount raised, while Egypt could only manage one per cent of the funding.

The African: Big Deal report aligns with the findings of other reports. Factors responsible for the decline include the global economic downturn and continuous inflation across the globe. However, the economies of many countries are beginning to improve, leading to an increase in employment. The funding winter, which started in the middle of 2022 and has lasted till 2023, saw massive layoffs in the global tech ecosystem. But as things improve, companies mostly outside the continent are starting to recruit new workers.

In Nigeria, the economic downturn shows no signs of abating. A number of tech companies have already shut down their operations due to lack of funding. The startup situation in Nigeria is made precarious by the twin problems of soaring inflation and highly volatile foreign exchange system. Hence, apart from not being able to access foreign exchange, startups are saddled with high prices of goods and consumers with weaker purchasing power.

Experts have however said that the funding winter also benefitted the ecosystem on the continent. According to them, it helped in reducing the speculative tendency in the venture capital ecosystem. At a point, investors were seen to be investing in the startup ecosystem basically for the fear of missing out due to the hype that was created as a result of the high funding activities in 2021.

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Some of the startups that became the most attractive in the African tech ecosystem stumbled when funding sources were no longer easily accessible. Companies like 54gene and Dash,.which raised huge amounts of funding, have shut down, leading some to question whether the most important growth factor for the startups was money.

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“What African startups need is not more funding but guidance, structure, and the environment to grow without undue pressure. But we keep throwing more money at the problems, hoping that the problems will go away. It won’t,” said Dami Mogarji, a brand communications expert.

Other experts say funded factors should be more oversight-conscious once they receive investors’ funding. Regulators can also tighten the ecosystem.

“Bankers lost a whole lot more before regulation was tightened and licensing was made harder. As much as they blame regulators for being behind times, they have their uses. Naive investors forget about oversight and shit happens,” said Osaretin Victor Asemota, a tech startup investor and consultant.