January 12, 2024/CSL Research
Foreign investments in Nigerian startups fell by 65.83% y/y to US$410m in 2023 from US$1.2bn recorded in 2022. This decline resulted in the country relinquishing its leading position in total startup investments on the continent to Kenya. In 2023, Kenyan startups raised a little under US$800m to claim the top spot in Africa.
Nigeria finished the year as number four behind Kenya, Egypt, and South Africa, according to the BigDeal Africa Research – which tracks all US$100k and above funding deals secured by startups in Africa. In 2023, the Big Four sustained their market dominance, securing 87% of the total startup funding on the continent. Overall, startup funding into Africa declined by 39% to US$2.9bn in 2023.
The BigDeal Africa Research reiterated that Nigeria is the only country among the big four where the most dramatic change happened in 2023. While the country still claimed the highest number of start-ups to raise US$100k or more (146, 29% of the continent), the amount raised only reached US$410m, compared to US$1.2bn in 2022, and US$1.7bn in 2021.
As a result, Nigeria’s share of Western African funding continued to drop to reach 68% in 2023, down from 77% in 2022 and 85% in 2021. This is the lowest regional share of any big four market since data tracking in 2019.
Despite experiencing a decline (25% y/y), Kenyan startups were able to raise just under US$800m in 2023, attracting the most funding, 28% of the continent’s total. In Egypt, 48 startups raised US$100k+ in 2023, the lowest number out of the big four but the country claimed the second spot on the continent, raising US$640m.
In South Africa, the 70 start-ups who raised US$100k or more in the country accumulated US$600m in funding i.e. 21% of the continent’s total. South Africa was the only one of the big four not to see its total funding shrink between 2022 and 2023 (+85 y/y).
As the largest economy in Africa with a dynamic and youthful population, Nigeria is rapidly evolving into a thriving tech ecosystem, emerging as a prominent hub for technology startups on the continent. In 2022, the country, according to media reports, attracted more than 20% of Africa’s total tech investment. Despite this promising growth, the landscape presents a set of challenges that impact the sustainability of startups.
Notably, Nigerian startups heavily rely on foreign investments, constituting approximately 87% of their funding. However, recent concerns have arisen due to challenges faced by investors in repatriating their funds, leading to a decline in confidence within the investment community. The long-term viability of startups in Nigeria is further hindered by inadequate infrastructure and acute shortages of foreign exchange. These issues pose significant obstacles to the seamless operation and expansion of tech ventures, impacting their ability to thrive in the competitive market. Reports put the startup failure rate in Nigeria at c.61.07%.
