The Nigerian startup ecosystem, once celebrated as a beacon of innovation in Africa, is now confronting significant challenges, with only a small fraction of companies achieving notable financial success.
A report titled “A Decade of the Nigerian Venture Ecosystem 2024—Numbers, Insights & Stories,” by TLP Advisory, paints a stark picture of a sector grappling with limited funding, high operational costs, and systemic barriers that threaten its growth and sustainability.
The report reveals that only 15% of Nigerian startups earn over N250 million ($149,000) annually, while nearly half (49%) report revenues below N10 million. Moreover, 51% of startups are not yet profitable, a situation attributed to the high cost of doing business.
Femi Longe, co-founder and non-executive director at CcHUB, contextualized the financial strain by saying, “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 percent.”
The report highlights that 54% of startups have not raised any capital, with the majority citing limited access to investors and inadequate funding information as significant hurdles. High interest rates and economic instability further compound the problem, deterring potential investors.
According to the report, the most common funding sources, which account for 43 percent of all funds raised, were angel investors, including friends and family.
“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 said.
Systemic Barriers and Policy Challenges
Beyond financial constraints, startups face other systemic issues. The report identifies poor infrastructure, unreliable power supply, and restrictive government policies as recurring obstacles. About 15% of respondents flagged unfavorable policies as a significant barrier to growth.
“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.
Longe also pointed to the broader economic challenges: “Even with a strong business model, navigating Nigeria’s economic headwinds is incredibly challenging,” he said.
A Shift in Africa’s Startup Powerhouse Status
This development has been pointed out as the major reason for the recent decline in investment in Nigerian startups.
Nigeria, which once led Africa in attracting startup investments, lost its top position to Kenya in 2023. Kenyan startups raised $800 million that year, almost double Nigeria’s $410 million. In 2024, Kenya maintained its lead, securing 32% of Africa’s startup funding in the first half, compared to Nigeria’s 22%. Egypt took a share of $101 million, and South Africa secured $85 million.
This shift highlights the country’s waning influence as a startup powerhouse and the growing appeal of other African ecosystems.
Despite these challenges, the report reveals that 80% of startup founders emphasize cultivating strong company cultures, with collaboration, innovation, and open communication identified as key to sustaining their businesses.
The report also noted the urgent need for systemic reforms to revive Nigeria’s startup ecosystem. Addressing access to finance, streamlining regulatory processes, and improving infrastructure are critical to ensuring long-term growth and sustainability.
