Nigeria's tech startups are facing reluctance from investors, stemming from the shutdown of some prominent young companies last year.
Kingsley Eze co-runs Nairaxi, an e-Commerce, on-demand logistics startup in Abuja, Nigeria's capital. Despite its record of handling tens of thousands of successful requests, the firm has been largely funded by Eze, as well as family and friends.
Eze told VOA that even though he is ready for expansion, it has been difficult to secure financing amid the tales of failing startups in the country.
"It's been very difficult to raise funds. Investors are cautious, the interest rate hikes in the Western economy is also a contributing factor to that, coupled with a lot of disappointing or not-so-good outings for a few startups that were like a beacon of hope for the Nigerian startup ecosystem," said Eze.
Nigeria has been leading growth in African startups. Nevertheless, the sector faced a significant blow in 2023. Prominent startups such as 54Gene, Lazerpay, Vibra, Payday and Hytch went out of business — largely over their inability to raise more capital to keep the companies running — losing more than $70 million of foreign investors' funds.
Abuja-based economist and investment expert Paul Alaje told VOA he blames the collapses on neglect of business principles.
"Assumption is the major bane to startup development in Africa, especially Nigeria," said Alaje. "That the idea worked at first and is technology-driven does not mean the fundamentals of traditional business or a growing business, economic principles behind traditional business, should be neglected when it comes to startups."
A recent report by Briter Bridges, a London-based business intelligence and research firm, showed a 54% drop in funding for startups between January and October of last year in Africa compared to the same period in 2022.
Eze said he believes this will make it even harder to navigate the funding terrain.
"The last statistics we had projected a 60% failure rate for Nigerian startup companies which is not a good bet for most investors," said Eze. "When everyone is succeeding in the market, it encourages more investors."
Alaje said Nigeria's business ecosystem needs an overhaul.
"Change policy, bring new policies that make it difficult for people who don't have an idea regarding how business should be properly run," said Alaje. "Two, show examples of people who got it correctly, including Paystack. We need to become more deliberate at all levels."
Paystack, a successful Nigerian payment processing company, was acquired by an Irish-American company for $200 million in 2020.
According to venture capitalists in Nigeria, poor infrastructure, lack of accountability by business owners, and the foreign exchange crisis aided the collapse of many startups.
For his part, Eze said he will continue to build his business from the revenues it generates.
