Investors are hesitant to support Nigeria’s tech startups due to the closure of several notable young companies in the previous year.
Kingsley Eze is one of the co-founders of Nairaxi, a startup based in Abuja, the capital of Nigeria, that specializes in e-commerce and on-demand logistics. Despite its impressive track record of fulfilling tens of thousands of orders, the company has primarily relied on funding from Eze, as well as support from his family and friends.
According to Eze, he is prepared for growth, but obtaining funding has proven challenging due to reports of unsuccessful businesses in the country.
Eze stated that gathering funds has been a challenge due to cautious investors and increasing interest rates in the Western economy. Furthermore, several startup companies that were seen as promising for the Nigerian startup community have had disappointing performances, adding to the struggle.
Despite Nigeria’s leading role in the growth of African startups, the industry suffered a major setback in 2023. Well-known startups like 54Gene, Lazerpay, Vibra, Payday, and Hytch were forced to close their doors due to the inability to secure additional funding, resulting in a loss of over $70 million from foreign investors.
According to Paul Alaje, an economist and investment expert based in Abuja, the collapses can be attributed to a disregard for business principles.
According to Alaje, a major obstacle to startup growth in Africa, particularly in Nigeria, is the tendency to make assumptions. Just because an idea initially succeeds and is technology-focused does not mean that the basic principles of traditional or expanding businesses should be disregarded in the context of startups.
According to a new study from Briter Bridges, a company specializing in business analysis and research based in London, there was a significant decrease of 54% in startup funding in Africa during the first ten months of last year compared to the same time frame in 2022.
According to Eze, this will potentially complicate the process of securing funding.
According to Eze, our recent statistics showed a 60% likelihood of failure for Nigerian startups, making them a risky investment for most. In a thriving market, successful ventures can attract more investors.
Alaje stated that the business environment in Nigeria requires significant restructuring.
((ACT Paul Alaje, Senior Economist (Male, in English) ))
Alaje suggested implementing revised policies that would pose challenges for those lacking knowledge in proper business management. They also emphasized the importance of showcasing successful individuals, such as Paystack, as examples. Alaje believes it is crucial to be more intentional in all aspects of the business.
In 2020, an Irish-American corporation purchased Paystack, a prosperous Nigerian company that specializes in payment processing, for a total of $200 million.
According to investors in Nigeria, inadequate infrastructure, a lack of responsibility from business owners, and the foreign exchange crisis played a role in the failure of numerous startups.
Eze has stated that he will persist in growing his business through the income it generates.