The truth about tech startup failures in Nigeria

Every other day in Nigeria, a new startup emerges, promising to solve everyday problems with supposed groundbreaking solutions. From fintech platforms making payments seamless to agritech startups revolutionising farming, the energy in the ecosystem is somewhat electric.Yet, for every Flutterwave or Paystack or Moniepoint, there are dozens, if not hundreds, of startups that never make it past their first few years.

Some disappear quietly; others burn through millions in funding before crashing. So, you will find that the Nigerian startup graveyard is vast, filled with ambitious ideas that never took off, founders who miscalculated their market, and ventures that simply ran out of steam.In data presented by Startup Graveyard, the most startups that have shut down entered the e-commerce space (20.



3%), followed by fintech (15.6%) and Blockchain (10.9%).

Interestingly, the data points to e-commerce as the most-funded: 34.1%.Why do so many promising startups fail? Is it funding? Poor leadership? Government red tape? Or are we building solutions that no one needs?In this article, I explore some of the most preferred reasons for startup failures:A.

Difficulty in securing adequate investment Investors are not exactly throwing money around, especially if you consider recent funding stories. While global venture capital flows into African tech have increased, Nigeria’s volatile economy, shifting government policies, and currency fluctuations make investors more cautious. Startups struggle to convince local and international investors that they have a solid business model, a scalable product, and the ability to survive long-term.

A major challenge is the “copy-paste” syndrome – too many startups building similar solutions with no real differentiation. Investors, possibly overwhelmed with identical pitches, hesitate to commit funds. And when they do invest, it’s often in later-stage startups with proven traction rather than early-stage founders with just an idea.

Also, many Nigerian founders face a lack of investor networks. Unlike in Silicon Valley, where warm introductions and accelerators make fundraising smoother, Nigerian founders often have to cold-pitch without strong connections, reducing their chances of securing capital.Speaking on funding, Omoruyi Edoigiawerie, a tech startup lawyer who has worked with over 300 startups, said, “The Nigerian government, and even local investors, are far removed from the tech ecosystem, so the needed support in terms of funding and favourable policies is not available.

“Often, they resort to seeking funding from foreign investors, albeit with its challenges. This reliance on external funding puts them in a precarious position, akin to begging for sustenance rather than having a place at the decision-making table.”B.

Mismanagement of funds once secured For those who secure investment, the battle isn’t over. Poor financial management has killed many promising startups. Some founders, suddenly flush with cash, make reckless hiring decisions, overspend on branding and office space, or fail to track their runway properly.

The lack of financial discipline, proper bookkeeping, and a clear growth strategy often leads to a situation where startups run out of money before they reach sustainability, forcing them to shut down or resort to desperate funding rounds that dilute ownership.No doubt, in Nigeria’s tech ecosystem, enthusiasm often runs high. Innovators brim with ideas, eager to introduce solutions they believe will revolutionise daily life.

If you attend a hackathon, you’ll see this. However, a recurring pitfall is the misalignment between these solutions and the actual needs of the market, a misstep that has led many startups to falter.A common misjudgment among startups is the overestimation of market demand.

Founders, driven by personal convictions or observed trends elsewhere, sometimes introduce products without validating their relevance to the local context. This approach can result in offerings that, while innovative, fail to resonate with potential users.Meanwhile, the foundation of any successful product is a deep understanding of its intended users.

In Nigeria, some startups have bypassed comprehensive market research, leading to products that miss the mark. Without insights into consumer behaviour, preferences, and pain points, products risk being developed in a vacuum, detached from the realities of their target audience.Lessons from the fieldEfritin.

com: Launched as a marketplace for used goods, Efritin ceased operations after two years. The company attributed its closure to challenges such as poor internet penetration and high data costs, which hindered user adoption.“We have a long list of KPIs to evaluate how things are performing.

Compared to other markets, we didn’t see the same progress in Nigeria,” Nils Hammer, CEO of Saltside Technologies (the Swedish-based parent company to Efritin) said.Spire: This customer feedback and user research platform shut down due to insufficient sustainable usage and traction, highlighting the consequences of not achieving product-market fit. According to its CEO, it shut down due to its failure to garner “enough sustainable usage or traction to reach product-market fit.

”OkadaBooks: a Nigerian digital publishing platform, shut down due to unspecified “insurmountable challenges.”Thepeer: shut down after three years due to compliance and acceptance of the product. The founders, Michael Okoh and Chike Ononye, were embroiled in an audit issue with some of the investors at the time.

In an actual sense, achieving product-market fit requires more than intuition; it demands rigorous validation. This is why some ideas spend up to six months or one year in the testing phase – engaging directly with potential users, conducting pilot tests, and being willing to pivot based on feedback are essential steps.C.

Regulatory challengesNavigating Nigeria’s tech startup landscape is akin to traversing a maze laden with bureaucratic intricacies and shifting regulatory sands. Just like Gbenga Sesan, Nigeria technology expert, commentator, and ICT for Development (ICT4D) consultant said, “The biggest challenges include policy, actual capacity, connecting ideas to resources, and starting ages.”While the nation brims with entrepreneurial energy, the path to establishing and scaling a startup is often obstructed by regulatory challenges that can stifle innovation and deter investment.

One of the initial hurdles entrepreneurs face is the convoluted process of business registration and licensure.Startups are typically required to engage with multiple agencies, including the Corporate Affairs Commission (CAC), the Federal Inland Revenue Service (FIRS), and various state-level authorities. This multi-agency involvement not only prolongs the registration timeline but also escalates costs, which is a significant burden for ventures operating on limited capital.

The opacity of these procedures can lead to confusion, and any misstep might result in legal repercussions or operational delays.For instance, while the CAC aims to process registrations within 14 days, entrepreneurs often report longer waiting periods, contrasting starkly with countries like Rwanda, where business registration can be completed in as little as six hours.Beyond the registration bottleneck, startups must grapple with overlapping and sometimes contradictory regulations from various governmental bodies.

A pertinent example is the fintech sector, where the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC) have, at times, issued conflicting directives.The CBN’s 2021 prohibition on cryptocurrency transactions disrupted numerous fintech operations, causing uncertainty and necessitating abrupt business model adjustments. Such regulatory unpredictability not only hampers day-to-day operations but also erodes investor confidence, making the prospect of securing funding even more daunting.

The financial obligations tied to compliance further exacerbate the challenges. High compliance costs, encompassing licensing fees and mandatory capital reserves, can be overwhelming for startups. For instance, the stipulation of a minimum paid-up capital that is often beyond the reach of smaller startups effectively creates a barrier to entry and limits competition.

Besides, sector-specific regulations add another layer of complexity. Startups in the energy domain, for instance, must navigate the mandates of the Nigerian Electricity Regulatory Commission (NERC) and adhere to environmental guidelines set by the Federal Ministry of Environment. The cumulative effect of complying with these diverse regulations can be both financially and operationally taxing.

In response to these challenges, there have been calls for the establishment of regulatory sandboxes, controlled environments where startups can test innovative products and services without the immediate burden of full regulatory compliance. Sesan says that “Policy environment is getting better for tech, but getting a startup moving isn’t helped by structural policy challenges around bank financing, multiple interactions with government agencies, etc.“The path isn’t as clear as it should be.

A mapping exercise that would allow each young person or startup enthusiast to know where and who to go to for various stages would be extremely helpful.” D. The talent conversationIn Nigeria’s tech sector, attracting and retaining skilled talent is a formidable challenge that significantly impacts startup growth and operational stability.

The aesthetics of international opportunities has led to a notable exodus of tech professionals, a phenomenon locally termed the “Japa Syndrome.”The current net migration rate for Nigeria in 2025 is -0.261 per 1000 population, a 2.

25% decline from 2024. – MacrotrendsThis talent drain poses a critical threat to the sustainability of Nigerian startups, which often struggle to fill vacancies with qualified individuals. The departure of experienced professionals not only depletes the local talent pool but also hampers innovation and growth within the sector.

Samiu Salisu gives an example: “A fintech startup in Kano, despite having a promising business model, couldn’t keep up with the salary demands of its software engineers. The constant turnover of technical staff delayed product development and led to missed opportunities, ultimately causing the startup to fold.”To mitigate this issue, some startups are investing in remote work infrastructure to tap into global talent pools, offering competitive salaries and providing stock options to retain employees.

Leadership challenges further exacerbate the situation. A 2022 report by the Second Chance Care Foundation reveals that over 60% of Nigerian startups fail within their first two years, primarily due to poor leadership. The absence of effective leadership creates an environment that is hostile to growth and investment, hindering the development of a robust startup ecosystem.

E. InfrastructureOperating a tech startup in Nigeria often feels like trying to build a skyscraper on shifting sands, with infrastructure challenges undermining even the most promising ventures.The unpredictability of power supply is a daily struggle; businesses find themselves investing heavily in power generators to keep the lights on, diverting funds that could have fuelled innovation and growth.

This reliance on alternative power sources inflates operational costs and hampers the ability to scale efficiently.Internet connectivity, the lifeblood of any tech enterprise, is another area where expectations often clash with reality. Startups frequently battle with slow speeds, frequent outages, and limited access to high-quality bandwidth.

This digital instability disrupts workflows, delays project timelines, and erodes client trust, making it challenging to maintain a competitive edge in a fast-paced market.Logistics infrastructure, encompassing transportation and delivery networks, further complicates the operational landscape. Inconsistent road conditions, traffic congestion, and unreliable delivery services pose significant hurdles for businesses relying on timely product distribution.

These logistical inefficiencies not only delay service delivery but also escalate costs, affecting the bottom line and customer satisfaction.The cumulative effect of these infrastructure deficits is a substantial increase in operational expenses and a stifling of growth potential. Startups are caught in a cycle where essential resources are syphoned off to address infrastructural shortcomings, leaving little room for strategic investments or expansion initiatives.

This environment creates a paradox: a burgeoning tech scene brimming with potential, yet consistently thwarted by the very foundations that should support its ascent.On infrastructure, Emeka Ajene, Managing Director, Africreate said, “Africa’s entrepreneurs also contend with unreliable infrastructure, a dearth of capital and the absence of a common currency and single market. The African Continental Free Trade Area agreement offers hope, but if innovation and tech entrepreneurship are among the key levers that drive economic and social progress, then it is imperative to take coordinated action to unleash Africa’s innovation ecosystem.

“F. The issues with scalingTransitioning from a small-scale operation to a larger enterprise is a pivotal milestone for Nigerian startups, yet it is fraught with challenges that can impede growth if not strategically managed.One of the foremost hurdles is the absence of robust corporate governance and business management expertise.

Founders with strong technical backgrounds may lack the necessary business acumen, leading to decisions that can hinder scalability. Establishing clear governance structures and investing in leadership development are essential to navigate this phase successfully.Effective resource allocation also plays a critical role in scaling operations.

With limited funding, startups must adopt lean and agile methodologies, focusing on iterative product development and strategic partnerships to maximise efficiency. Utilising technology for automation and embracing flexible work models can further support growth without proportionally increasing overhead costs.Scaling necessitates a deep understanding of the target market and customer base.

Implementing customer-centric growth strategies, such as targeted marketing and continuous feedback loops, ensures that the product or service evolves in alignment with market demands, fostering customer loyalty and driving sustainable growth.Building a strong, cohesive team is equally vital. Rapid expansion can lead to challenges in onboarding and integrating new employees.

Prioritising effective onboarding processes and maintaining a company culture that aligns with the startup’s vision can mitigate these issues, ensuring that all team members are aligned and motivated.In essence, scaling a startup in Nigeria requires a multifaceted approach that combines strategic planning, resource optimisation, market insight, and team cohesion. By addressing these areas proactively, startups can navigate the complexities of growth and position themselves for long-term success.

G. On competitionIn Nigeria, startups often find themselves navigating a sea of competitors offering similar solutions, intensifying the battle for market share. This overcrowding necessitates a keen focus on differentiation and innovation to stand out amidst the noise.

However, the challenges don’t end with local competition; the entry of larger, more established players adds another layer of complexity. These industry giants, equipped with substantial resources and expansive networks, can overshadow smaller startups, making it difficult to capture and retain customer attention.A pertinent example is the experience of Jumia, an African e-commerce retailer operating across nine countries, including Nigeria.

Despite its current success, Jumia now faces stiff competition from global e-commerce platforms like Temu, which entered the Nigerian market in December 2024. Temu’s aggressive investment strategies and expansive product offerings challenge Jumia’s market position, prompting the company to possibly reevaluate its strategies to maintain its customer base.To thrive in this competitive environment, Nigerian startups must prioritise understanding and responding to the unique needs of their target market.

Emphasising cultural relevance, building trust, and offering tailored solutions can create a competitive edge. For instance, local ride-hailing services have successfully competed with global giants like Uber by adapting their services to align with Nigerian consumers’ preferences, such as offering cash payment options and understanding local traffic patterns.Fostering innovation and continuously enhancing user experience are crucial strategies.

Startups that leverage technology to offer unique features or superior service delivery can carve out niche markets. However, it’s essential to balance innovation with practicality, ensuring that solutions are not only novel but also address real, pressing problems faced by the target audience..