Slow funding, cost issues spark failure concerns for Nigerian startups

After years of boom that saw billions of dollars being poured into startups, there are now serious concerns that many more young tech companies may pack up soon in Nigeria.

According to sources in the ecosystem, a number of Nigerian startups, including those that have raised funds before, are desperately looking for funding as their runway limit approaches.

To stay afloat, some are quietly laying off staff while hoping that the needed investments will come before things get worse.

With the current situation, industry experts observe that many more startups may fold up in the coming months if they fail to adjust to the realities of the funding landscape.

But more importantly, they said the startup founders would also need to be more efficient in managing their costs to survive as funding would no longer come as it used to be.

While noting that startups are folding up globally, and not only in Nigeria due to several factors, the Chief Executive Officer of Sycamore, a fintech startup, Babatunde Akin-Moses, said it is becoming more challenging for African and Nigerian startups because funding is drying up.

According to him, the key surviving strategy for startups now is to manage their costs efficiently, bearing in mind that funding is not coming from anywhere.

Founder and CEO of Kippa Africa, Kennedy Ekezie, corroborated this, noting that Nigerian and by extension, African startups will now have to look inward for funding.

In April this year, Nigerian crypto payment startup, Lazerpay, shut down its business because it was unable to raise funds to sustain its operations. Lazerpay, which laid off some of its staff last November to extend its runway, said it came to the end of the road as the expected funding was not coming.

Earlier in February, Nigerian logistics startup, Hytch, also shut down barely nine months after it commenced operations as it was unable to raise funds.

But the problem is not just the lack of funding as the case of 54gene would prove. The genomics startup co-founded by Abasi Ene-Obong, has initiated the folding up of its operations after securing $45 million in funding.

This was a fallout of multiple controversies that saw the company having three CEOs in the last year. The last CEO of the company, Ron Chiarello, confirmed the financial struggles that led to the company’s winding down, stating that 54gene could not continue to operate financially, and it began to wind down in July.

Meanwhile, Teresia Bost, the company’s former legal counsel and one-time interim CEO, has sued 54gene, alleging discriminatory behaviour and a hostile work environment. These legal issues, along with claims of unpaid creditors.

Outside the funding drought, allegations of misappropriation of fund by founders is now rife in the startup ecosystem.

Just recently fingers were pointing at another fintech company, Payday, which is now seeking buyers barely 6 months after raising $3 million in in a seed round led by Moniepoint.

The company’s founder and CEO, Favour Ori, was alleged to be paying himself a monthly salary of $15,000 at the expense of the company’s survival while employees were made to take pay cuts.

The company had also faced serious allegations of fraud from customers as their accounts were restricted without any explanation until they cried out on social media.

Elsewhere in Ghana, Dash, a fintech startup that had raised over $86 million in 5 years of its operations shut down last week.

The company claimed to have handled $1 billion in transactions and added a million users from Ghana, Nigeria, and Kenya. In five months, those figures showed a 5x increase in users.

However, internal Dash data audits showed that the company’s founder Boakye Boampong lied and inflated the number of users. Soon, he was let go.

When Kenneth Kinshua eventually replaced him, it was already too late to save the company. A second audit of the business’s financial records found an unreported shortfall of at least $25 million. Boampong reportedly earned $50,000 monthly and allegedly diverted at least $8 million.

According to Akin-Moses, startups that want to succeed will have to be cautious of their salary payouts as this constitutes a large chunk of their payout.

On his part, Ekezie noted that many factors can lead to the failure of a startup, but it is very important to have a product that the market needs.