Nigeria’s Startup Failure Rate Tops African Peers at 61%

The rate of Nigerian startup failure is at 61.07 percent, the highest among the top three biggest tech ecosystems and investment destinations in Africa.

Weetracker’s study, in collaboration with the GreenTec Capital Africa Foundation, ranked. Nigeria seventh on the continent in the top ten countries with the most number of startup shutdowns.

Ethiopia and Rwanda shared the top two rankings, each responsible for 75% of shutdowns. Ghana, Zimbabwe, the DRC and Tanzania were 73.91 per cent, 66.67 per cent, 66.67 per cent and 62.50 per cent, respectively, ahead of Nigeria.

While South Africa, Kenya, and Nigeria have shared the top three spots in terms of investments and size of the ecosystem on the continent, more start-ups in Nigeria have failed compared to its peers. Kenya and South Africa have seen 58.73 percent and 54.39 start-ups fail.

Generally, the African continent has a shutdown rate of 54.20. Globally, it is estimated that 137,000 businesses are born every day or 50 million a year. According to Failory, 90 percent of these fail.

Although financing is crucial to the survival of the project, the Weetracker report revealed that there were other factors involved. The overall shutdown rate of supported start-ups during the study period was 20.30 per cent. Countries like Ethiopia, Kenya, Kenya, Zimbabwe and Morocco, among others, with the highest start-up shutdown levels, were mainly companies that were not externally financed. In fact, most of them died because of a lack of external support.

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However, South Africa, which led the continent in terms of investment in start-ups, also had the highest rate of start-up shutdowns after funding, with almost half of the supported start-ups shutting down. Nigeria also faced a similar scenario, with a shutdown rate of 32.76 per cent among supported startups.

Even when they get external funding, the report shows that the majority of startups face casualty after the seed stage amounting to 69.09 percent. Startups that also received grants and non-equity assistance also faced shutdowns. The shutdown rate of startups in these categories was at 10.91 percent of overall funded shutdown startups.

What Caused the Shutdown

The report refers to the state of the economy where the start-ups are based. The rate of Nigeria startup failure started to intensify after 2014, as the country experienced a boom in the economy.

The industry where start-ups have played a role in their demise. For example, the most fatality rate was among startups building social networking platforms. The failure of start-ups to deliver digital services on a par with global brands such as Facebook, Instagram, Twitter, LinkedIn, and others, may have accelerated their demise. The shutdown rate for these start-ups was 95.65 percent.

E-commerce, which opened lucrative opportunities for companies like Jumia, Konga, OLX, etc., has now been a pitfall for most of them, as much as 76.19 per cent.

Other sectors which witnessed the most shutdowns include Analytics (75%); Media and Entertainment (68.42%); Marketplace (68.18%); Adtech (66.67%); Real Estate (60.87%); Manufacturing (55.56%); and Hightech (47.37%).