The Nigerian startup ecosystem, often hailed as one of Africa’s most vibrant tech hubs, faces significant challenges, according to a new report by TLP Advisory, a venture capital law firm. The report reveals that 49% of venture-backed Nigerian startups founded in the last decade generate less than ₦10 million (approximately $6,000) in annual revenue.
Only 15% of these startups earn above ₦250 million ($149,000) annually, shedding light on the hurdles many face in scaling their businesses.
The Challenges Behind the Numbers
Startups surveyed in the report cited four major barriers to growth:
1. Insufficient Capital: The struggle to secure funding hampers their ability to expand and innovate.
2. Poor Market Reach: Limited marketing resources restrict access to potential customers.
3. Regulatory Obstacles: Tax compliance and licensing processes remain complex and costly.
4. Flawed Revenue Models: Many founders admit their business strategies need significant refinement.
For some, the struggle is so severe that 16% of startups reported no growth in the last decade, while 8% were unsure if they had grown at all.
Capital: The Lifeblood of Startups
Securing funding remains one of the toughest challenges for Nigerian startups.
30% of founders stated it took them over four years to secure their first round of funding.
High-interest rates and complex fundraising processes deter many from seeking venture capital.
In 2024, 11% of startups relied solely on personal savings or alternative financing methods, bypassing external capital entirely.
Femi Longe, co-founder of CcHub, highlighted the added burden of currency devaluation for startups that raised money in U.S. dollars.
“If you’re earning in Naira but reporting to investors in dollars, you have to do three times the work because the currency has devalued by over 70%”, Longe said.
Alternative Funding: A Glimmer of Hope
Despite the hurdles, many startups have turned to unconventional funding sources:
43% rely on angel investors, including family and friends.
18% use debt financing.
15% secure grants to keep their operations afloat.
This shift underscores the adaptability of Nigerian founders in a challenging economic environment.
The Talent Churn Problem
While capital is critical, talent retention is another pressing issue for Nigerian startups. The report found that 20% of startups lack a defined company culture, making it harder to retain skilled employees.
Remote work and the transferability of tech skills have made job-hopping common, particularly in marketing departments, leading to stalled visibility and growth.
Tomiwa Aladekomo, CEO of Big Cabal Media, explained, “Culture is what your company rewards and punishes. Over time, this becomes the backbone of your organization.”
Looking Ahead: The Role of Policy and Innovation
Despite the challenges, optimism remains. The Nigerian Startup Act, designed to simplify regulations and promote innovation, is a beacon of hope for many founders. It aims to reduce bureaucratic hurdles, foster growth, and encourage collaboration between startups and policymakers.
Olumide Soyombo, founder of Voltron Capital, sees Nigeria’s startup ecosystem as still in its infancy, and thus there is still a long way ahead of the journey.
“It’s still day zero. When compared to markets like India and Latin America, we’re 10-15 years behind. There’s a long road ahead”, Soyombo said.
What This Means for the Nigerian Tech Ecosystem
The findings from TLP Advisory highlight a critical phase in Nigeria’s tech evolution. While the ecosystem boasts resilience and creativity, achieving sustainable growth will require better funding opportunities, regulatory clarity, and a focus on building strong company cultures.
As the journey continues, Nigerian startups will need to innovate not only in their products and services but also in how they adapt to these challenges. Only then will the sector achieve its true potential on the global stage.
