Nigerian startups borrow $415 million in 10 years as equity funding falters

Startups in the Nigerian technology ecosystem borrowed over $415 million out of $2.1 billion funding accessed by African startups in the last 10 years. Briter Bridges revealed this in its report on ‘debt financing in Africa’s innovative ecosystem’, saying the money helped to bridge the widening funding gap.

The $415 million borrowed by Nigerian startups came as the second highest on the continent in the period. According to the report, the amount came in over 40 deals.

The big four countries in terms of startups in Africa – Nigeria, Kenya, Egypt and South Africa – accounted for over 75 per cent of the volume of total debt funding received by African startups.

The report explained that debt financing in the African startup ecosystem had grown over the last five years due to a decline in equity funding, noting that from 2019 to H1 2023, debt as a share of the total volume of funding to ventures, increased from four to 26 per cent.

It said: “While debt is certainly playing a role in Africa’s startup ecosystem and innovations on the financing side making it more accessible, one of the biggest drivers of debt’s rise in Africa’s startup ecosystems may be the dramatic fall in equity funding, which fell from $2.6 billion in 2022 to $1.4 billion in 2023.

“Over the past 10 years, more than $2 billion in disclosed debt funding has been raised by digital, technology-enabled, and green companies in Africa from more than 140 funders for a total of more than 200 deals.”

The report stated that Kenya raised over $800 million in debt financing to the table, while South Africa raised over $280 million and Egypt over $190 million emerged third and fourth respectively.

Briter Bridges explained that, unlike equity, most of the debt funding is flowing to companies with collateral with nearly 75 per cent of debt funding going to asset-heavy businesses in cleantech, mobility, agriculture and logistics.

It noted that nearly half of all disclosed debt funding went to cleantech companies and around 20 per cent went to fintechs.It stated: “The majority of this went into digital lending products where startups can use their existing loan books as collateral.”

Already, the Federal Government has announced plans to help startups raise a total of $5 billion in funding rounds by 2027. The Minister of Communications, Innovation and Digital Economy, Dr Bosun Tijani, disclosed the plan in a document released last October.

Tijani said the primary objective of the ministry is to stimulate the growth and sustainability of startups, with a specific focus on those developing innovative solutions for critical sectors of the economy.

“Recognising the critical role of patient capital in the growth of startups, we are committed to increasing the local availability of patient capital. We intend to create an environment for startups to raise the funding they require to thrive locally and promote the domiciliation of startups within our nation,” Tijani said.

Tijani stated that the ministry will also establish an active sandbox environment to encourage and empower innovators and entrepreneurs to develop unique solutions for sectors considered to have limited exposure to technological innovation.

The minister also noted that the country is hoping to increase the domiciliation of local technology startups from < 1 per cent to 25 per cent by 2027, increasing their benefits to the economy. Tijani added that innovation, entrepreneurship, and access to capital are critical components of a strong digital economy and that the “intersection of a strong digital economy and our innovative and youthful population presents us with a unique opportunity to chart a course towards prosperity, inclusion and global relevance.”