Nigerian startups face funding squeeze in 2024: Early signs or long-term trend?

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The Nigerian startup ecosystem, once abuzz with investment activity, has entered 2024 facing a new reality.

January 2024 saw 42 startups raise a total of $85.6 million, marking a significant decline compared to previous years.

While the number of deals remained higher than pre-2021 levels, the funding amount pales in comparison to the $100 million+ raised in January 2023 and the staggering $400 million+ seen in 2022.

This dramatic drop raises crucial questions about the future of Nigerian startups. Is this a temporary blip caused by seasonal fluctuations or a harbinger of a longer-term funding slowdown?

Briter Bridges, a platform tracking startup investments, attributes the decline to the waning momentum of deals carried over from the previous year, typically a major source of funding in January. They further highlight the pattern of early-stage investments dominating January’s activity, suggesting a shift towards smaller, riskier ventures compared to the larger, later-stage deals that fueled previous years’ growth.

Commenting on the funding pattern, the data insight firm said, “Fintech leads the way in both funding volume and size. The sector received the most funding with 11 deals. 6 out of the 11 deals were raised by startups offering payment services.”

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Kenya continues to attract the majority (45 per cent) of the funding on the continent. It highlighted, “Aside from Kenya, the other Big 4 countries make up the top 5 funded geographies. Ethiopia joins the Big 4 in January 2024 and secures the third position. This was largely driven by a single deal made by the agritech startup, Hatch Africa.”

While the data points towards a cautious approach from investors, it’s important to avoid hasty conclusions. Analyzing data from a single month can be misleading. A broader perspective, considering the full year of 2023 and the trends leading into 2024, is crucial for a comprehensive understanding.

Several factors could potentially explain the funding slowdown:

• Global economic headwinds: Rising interest rates, inflation, and recessionary fears have dampened investor appetite globally, impacting emerging markets like Nigeria disproportionately.
• Maturing ecosystem: As the Nigerian startup ecosystem matures, investors might be adopting a more selective approach, focusing on ventures with proven traction and sustainable business models.
• Shift in investor focus: The global tech slowdown could lead investors to prioritize established sectors over riskier early-stage ventures.

Understanding the underlying reasons for the funding decline is crucial for stakeholders in the Nigerian startup ecosystem. It can inform strategic decisions by startups, investors, and policymakers alike.

While the January 2024 funding figures raise concerns, it’s too early to declare a long-term trend. Continued monitoring and analysis throughout the year will provide a clearer picture of the Nigerian startup ecosystem’s future and the opportunities and challenges it faces.