Angel Investors Prove Backbone For Nigerian Startups Amid VC Hiccups

Angel investors remain a cornerstone of funding for Nigerian startups, holding their ground despite the allure of venture capital (VC). A newly released report by startup-focused law practice TLP Advisory, “A Decade of the Nigerian Venture Ecosystem: Numbers, Insights & Stories,” reveals that 43% of Nigerian startups received their funding from angel investors, including friends and family, over the past decade.

This figure overshadows the 24% of startups funded by VCs and the 18% and 15% that secured funds through debt financing and grants, respectively.

The report, marking TLP Advisory’s 10th anniversary, paints a detailed picture of Nigeria’s tech ecosystem. It highlights its remarkable growth, systemic challenges, and the critical role of early-stage investors in sustaining the sector through turbulent times.

While VC funding brought a sense of scale and visibility to the ecosystem, angel investors have quietly remained the backbone, the report reveals, providing vital support during the industry’s lean periods.

Funding Challenges and the Angel Investor Advantage

The data is telling: Nigerian startups have faced significant funding challenges in recent years, particularly as global VC interest waned.

After a record USD 1.75 B raised in 2021, funding plummeted to USD 500 M in 2023. Startups often cite limited access to finance as a chief hurdle, with 22% pointing to it as their primary barrier to growth, ahead of inadequate marketing (18%) and revenue model challenges (15%). Additionally, 51% of startups surveyed cited difficulties in securing funding, primarily due to currency volatility and access to investors

“People who raised money in U.S. dollars, who are earning in Naira, and who have to report to investors who invested in US dollars, need to be doing almost three times more work because the currency has devalued by more than 70%,” said Femi Longe, Co-founder of CcHUB, a tech incubator that rose to prominence in Lagos before expanding to other African cities, notably co-built by Nigeria’s current tech minister, Bosun Tijani.

The volatile funding landscape has forced many startups to rely on angel investors, who not only bring capital but also mentorship, introductions to key networks, and early confidence that often catalyses further funding. Odunayo Eweniyi, co-founder of PiggyVest, credited well-known angel investor Olumide Soyombo for his support, saying, “He introduced us to the right people and allowed us to build an ecosystem around ourselves.”

While VC funding often grabs headlines, its availability has been inconsistent. A key reason is the shift in global interest rates and investor attention from emerging markets to more stable economies. “Zero interest rates and global interest have moved away from developing markets into more established markets,” noted Tomiwa Aladekomo, CEO of Big Cabal Media.

This trend has led to a slowdown in early-stage VC investments. From mid-2022, TLP Advisory observed a shift toward Series A and M&A transactions, with fewer pre-seed and seed rounds taking place. The reduced capital availability has forced startups to adapt, with some pivoting to strategic partnerships or alternative funding sources like grants and debt financing.

Talent, Regulations, and the Battle for Survival

Funding isn’t the only challenge Nigerian startups face. Talent acquisition and retention remain significant obstacles. Many founders struggle to find skilled employees who align with their business needs. Similarly, regulatory bottlenecks, cited by 30% of surveyed founders, continue to impede growth.

Founded in 2014, TLP Advisory, with offices in Lagos, London, and New York, says it has guided over 250 Nigerian tech clients through deals spanning investments, M&A, intellectual property, and expansion strategies. As one of two firms behind the 2023 Nigerian Startup Act, TLP helped shape policies supporting startups and has aided over 200,000 businesses, bolstering Nigeria’s economic growth.

The Nigeria Startup Act, co-drafted by TLP Advisory, was a major milestone designed to address some of the challenges by fostering collaboration between startups and regulators. However, many founders believe more needs to be done to create a truly enabling environment.

Eghosa Omogui, Founder of Echo VC, highlighted another persistent issue: the unreliability of funding commitments, noting one such high-profile case that became public last year. “We were pre-seed investors at a company called MarketForce before they got into YC. They announced a USD 40 M raise, but USD 8 M never showed up. That happens more often than people think.”

Despite these hurdles, the Nigerian startup ecosystem continues to show resilience and growth potential. The TLP Advisory report notes that 76% of startups reported growth in revenue, cash flow, or customer base over the past decade. Additionally, 47.5% experienced annual growth rates between 11-40%, while 26% achieved over 40%.

This optimism is also reflected in the ecosystem’s dynamism, with 26% of the surveyed companies established in the past two years. These new entrants indicate sustained interest and confidence in Nigeria’s tech sector, despite macroeconomic challenges.

What Lies Ahead?

The report calls for a renewed focus on strategic partnerships, talent development, and policy engagement. Startups are encouraged to leverage alternative funding sources while pushing for regulatory reforms that create a more supportive business environment.

While venture capital remains an important player, angel investors have proven indispensable in navigating the ecosystem’s ups and downs. Their role in providing early-stage funding and mentorship underscores the importance of a diversified funding landscape for Nigerian startups.

As Odunoluwa Longe, Co-Founder of TLP Advisory, aptly put it, “Despite the current tough macroeconomic climes, engaging with participants in this project ignited in me renewed hope and optimism for our ecosystem.”

In a landscape marked by volatility, it is this hope—and the enduring support of angel investors—that may hold the key to unlocking the next chapter of Nigeria’s startup success story.