As of 2022, Nigeria boasted approximately 3,360 startups, the highest number in Africa, with Lagos alone accounting for over 88% of them, says a new report marking 10 years of venture activity in the west African nation.
Despite the impressive figure, Nigeria also recorded the highest percentage of startup shutdowns in Africa over the last decade, with 47% of closures, capital being one of the most common reasons for these closures.
Local VCs attributed some of the blame to international investors like Y Combinator who do not always provide all the funds announced in raises.
“We were pre-seed investors at a company called MarketForce before they got into YC. They announced a USD 40 million raise, but USD 8 million never showed up. All the documents were signed, but the money was never funded.
That happens more often than people think.” said Eghosa Omoghui, Founder and Managing Partner, Echo VC.
Y Combinator to Decrease Late-Stage Investing Focus and Cuts 17 Jobs
“We think the best way we can help is by continuing to do what we’ve always done – helping founders at the earliest stages build the future.” – @ycombinator https://t.co/lem9nKuhVB pic.twitter.com/Bmm5oKmMHX
— BitKE (@BitcoinKE) March 14, 2023
According to the report, below are the main reasons founders struggle with capital:
The issue of currency fluctuation that has seen Nigerians flock to cryptocurrency solutions such as stablecoins was also one of the challenges affecting capital for local startups.
“People who raised money in U.S dollars, who are earning in Naira, and who have to report to investors who invested in U.S 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%,” said Femi Longe, Co-founder & Non-Executive Director at Nigeria’s Co-Creation Hub.
🇳🇬 REPORT | Nigeria Has Most Active Mobile Crypto Wallet Users Globally After the U.S, Says @a16zcrypto ‘State of Crypto’ Report
By September 2024, over 220 million addresses interacted with a blockchain at least once, over triple since the end of 2023https://t.co/gqGystz74z pic.twitter.com/4GRDvxX2pJ
— BitKE (@BitcoinKE) November 18, 2024
According to the report, for businesses that raised funds within the past 10 years, the findings suggest that it might be relatively easier to raise funds in the earlier years of a business as 81% of the companies
secured their funding within the first 4 years of operations, while the other 19% 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 most common sources of funding in the last 10 years were angel investors (including friends and family) with 43% of companies receiving funding from that source.
- 24% raised venture capital funding, while
- 18% secured funding through debt financing (including convertible notes), and
- 15% secured funding through grants respectively
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