Despite a decade of innovation, Africa’s startup scene faces unprecedented setbacks, with 2024 emerging as a particularly sobering year for founders and investors alike.
A recent report on Africa’s startup graveyard in 2024 highlights a troubling trend, with eleven startups shutting down and a 25 percent decline in funding, raising concerns about long-term sustainability.
According to the report, Nigeria, once Africa’s poster child for venture capital, topped the list of countries with the highest startup shutdowns in 2024, with six startups operating in Nigeria and Kenya, followed closely, with four reportedly shutting down.
Among these startups are ThePeer (Nigeria), HerRyde (Nigeria), Chopnownow (Nigeria), Cova (Nigeria), BuyCoinsPro(Nigeria), Quizac (Nigeria), and Gro Intelligence (Kenya), among others.
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Also in 2023, Nigerian-based startups had the highest shutdown rates, with 18 startups reported and reported to have the highest decline in funding after retaining the top position as the most-funded African country in 2021 and 2022.
“This development pushed Nigeria behind Kenya, Egypt, and South Africa. In 2022, Nigerian startups raised $976 million in funding, which contrasts sharply with the figure raised in 2023 ($399 million),” the report said.
According to some experts, startup shutdowns are not new. The case of Nigeria only reflects the general market sentiments, which shows that the global tech industry is facing difficult times.
“The rush to publicly borderline celebrate or even just pontificate over the demise of startups or the failure of specific efforts by others we do not know is perhaps the most unproductive use of human capacity,” said Kola Aina, General Partner of Ventures Platform Fund.
“Most times, people who exhibit this behaviour have never actually built. When you have built and maybe blessed yourself with failure, you will reconsider before you make light of an honest effort,’ he said.
According to the Startup Graveyard report, here are some reasons startups have experienced business setbacks and why some shut down.
Unique challenges across ecosystems
Startup failure is not unique to Nigeria. The report underscores country-specific challenges that have worsened in recent years.
In South Africa, issues like monopolistic competition, gender inequality, and corporate dominance continue to choke smaller innovators. The country’s chronic load-shedding also disrupts tech development cycles and increases operational costs.
Meanwhile, Kenya’s startup scene, concentrated in urban centers, struggles with unequal funding distribution, poor risk capital availability, and a weak entrepreneurial culture. Gender disparity also remains a major concern, with male-led startups receiving the lion’s share of equity funding, while female-led ventures rely on grants and loans.
“Nairobi has potential, but it’s too centralised,” said the report. Kenya needs more grassroots innovation, not just urban hubs.
Financial challenges
According to Crunchbase, approximately 1,200 startups have achieved unicorn status globally as of 2024. Only nine of these come from Africa. This is mainly due to insufficient capital for sustainable business operations to achieve a billion-dollar valuation.
In 2023. Lazerpay, for example, said it was shutting down because it was unable to close a successful fundraising round.
“We fought hard to keep the lights on as long as possible, but unfortunately, we are now at a point where we need to shut down,” Emmanuel Njoku, founder and CEO of the company, said in April 2023.
Africa’s venture capital (VC) ecosystem is also largely unestablished, with primary concentrations in some countries with high startup activity, such as Nigeria, Kenya, South Africa, and Egypt.
“African startups receive less funding than their counterparts in developed countries because the VCs here use the same business models as those applied in Silicon Valley. While some criticism can be placed on VCs for not taking the time to understand the African landscape, they also need incentives to invest more. If startups are more likely to shut down than return profit after receiving substantial funding, venture capital will invest less,” the report said.
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The talent drain and investment drought
The continent’s brain drain continues to exacerbate the startup crisis. Talented engineers, designers, and developers are leaving for more stable economies, particularly in Europe and North America. Those who remain are either under-skilled or come at a high premium, making it difficult for cash-strapped startups to hire.
“Even if you have funding, finding the right talent locally is becoming harder,” said a tech recruiter based in Abuja.
In terms of investment, Africa still lags behind global trends. Despite a global total of 1,200 unicorn startups in 2024, only nine hail from Africa. Venture capital in the region remains fragile, often modeled after Silicon Valley frameworks that don’t suit the local context.
“VCs remain cautious, with many now demanding quicker paths to profitability and higher transparency. But with infrastructural gaps, weak support systems, and inconsistent policy environments, African startups often fall short of those expectations,” the report said.
Shortage of human capital and talent
Brain drain is a common problem experienced by developing countries. Individuals with specialised skills, training, and work experience leave their home countries in droves to seek greener pastures with better living and work conditions.
The report highlighted that there has been an ongoing mismatch between what is taught at the higher learning institutions in these countries and the actual skills needed in industries. This continued practice has led to a lack of competent workers, competition for available job slots, elevated labour costs, and difficulty in revenue streams for startups.
This directly impacts the startup ecosystem, as it presents a limited talent pool and strains its chances of employing skilled professionals who can drive innovation and growth.
“While there are job openings, businesses cannot find candidates with the right skills,” said Ope George, Lagos State’s commissioner for economic planning and budget.
The report added that a potential shortcut to this problem is hiring staff from other countries with similar workforces, such as India and China. However, this poses several problems, including long-term dependency on external expertise, increased expenses, and stunted growth of home-grown talent.
Regulation and Policies
Due to the uncertainty of current regulations, startups often try to maneuver their way out of regulatory mishaps and compliance issues. Building innovative solutions for the market becomes an afterthought, as they find it challenging to scale.
Thepeer, a Nigerian API startup specialising in digital wallet integration, shut down in 2024. Despite raising $2.1 million in seed funding, compliance issues and sluggish adoption rates hindered growth. Thepeer’s downfall highlights the critical importance of navigating regulatory landscapes and achieving product-market fit in fintech.
Despite the recent wave of bills (startup acts) passed by some African governments favouring startups, entrepreneurship, and small businesses, most have yet to impact the ecosystem.
This has slowed startup growth in their respective countries and hindered external investment, as favourable business environments attract substantial funding from diverse sources.
In Africa, the influence of government policies tends to lean more toward the negative than the positive. Nigeria’s fintech sector has witnessed an incredible downturn in recent years due to the rise of government policies.
The report said companies have either shut down or have to pay considerable fines in millions of naira.
For instance, the report said the most recent development in this regard is Opay and Moniepoint’s 1 billion naira penalty fee each due to fintech regulation by the Central Bank of Nigeria. Other examples include the cryptocurrency trading ban by the Nigerian government and the high cost of operational licenses for fintech startups.
Investment Risks
Investing in Africa carries more risk than investing in Asia and Latin America.
Investors have openly complained about the loss of liquidity after investing, stating that startups need to become profitable in record time or show signs of significant revenue streams to retain investor interest.
Davidson Oturu, a venture capitalist, said some founders started with good intentions, but along the way, the need to survive pushed them towards unethical practices.
“In the past, some investors have been careless with due diligence. Or when they see that a larger venture capital firm is investing, they get relaxed and presume the other guys have things covered. So due diligence is key,” he said.
According to Oturu, investors are bothered, but if they have overextended themselves by taking on too many portfolio companies at once, their attention can’t cover each company evenly. Once these companies present good numbers, they relax, he said.
Charles Rapulu-Udoh, a tech startup lawyer, described the African startup ecosystem as nascent, pointing to the fact that the affected startups all raised millions of dollars before their failure.
“The most obvious implication of this is that the morale of investors will be severely dampened, even more concerning, given the precarious situation in the fundraising market at the moment. So, this is making matters more difficult,” he said. “However, this will not completely destroy the confidence of investors in the ecosystem.”
