The Great Reset: How Nigeria’s Tech Ecosystem Is Adapting and Growing Stronger Amid Global VC Slowdown

You have seen a tale of two eras if you have been following the Nigerian tech scene in recent years. First, the dizzying highs of 2021–2022, which were marked by record-breaking funding rounds, rapid scaling, and a “unicorn or bust” mentality that characterized the period of inexpensive capital. The shift then began. While the global venture capital taps remained open, they started to flow much more cautiously.

What really changed, is the party over?

The strategy was straightforward for a while: burn capital to gain market share, show quick growth (topline revenue was king!), and acquire users. “Future Us” struggled with profitability. Rich investors who were looking for large returns were willing to comply.

This paradigm was destroyed by the global macro-economic environment, which included rising interest rates, soaring inflation, and geopolitical tensions. Investors were suddenly demanding proof rather than placing bets on potential. Evidence of unit economics that work, a route to profitability, and the ability of a company to thrive without a constant stream of outside funding.

What explains this downturn in fortune?

As a result of the current global macroeconomic environment, which is marked by rising inflation, rising interest rates, and geopolitical tensions, investors are moving away from high-risk assets particularly tech startups and toward safer investments. Due to the freezing of crucial funding sources, this change has had a major effect on Nigerian startups.

Additionally, there is opposition to the prior approach of using venture capital funds to aggressively acquire users without focusing on immediate profitability. By concentrating on unit economics and actual revenue rather than just user growth, investors are now calling for accountability.

In today’s market, overvalued startups that were previously evaluated based on their potential for growth are undergoing significant valuation corrections, which makes new fundraising difficult and frequently leads to “down rounds.” These conditions result in diluted equity for founders and current investors, which has a negative impact on morale.

A triangle of regulatory issues

The scene was set by global trends, but domestic regulatory issues have pumped up the flames and created an atmosphere of uncertainty that makes investors even more wary.

The forex mysteries of the Central Bank of Nigeria (CBN): The delicate world of foreign exchange, or forex, continues to be a major source of trouble.

The challenge of obtaining forex and managing the various exchange rates is a significant turnoff for venture capitalists who invest in dollars and startups that must repatriate money or pay for overseas services. It casts doubt on operational stability and returns.

The path ahead

The Nigerian tech industry has not been destroyed by the global venture capital slowdown; rather, it is being transformed into something more robust, long lasting, and, eventually, more reputable internationally. The chance to make a real, long-lasting difference is now more important than ever, but the easy money is gone.

An era of spectacle is giving way to one of substance. And that is a future worth creating for an ecosystem with Nigeria’s talent, ambition, and inventiveness.

A way out?

Though difficult, the situation is by no means hopeless. In actuality, this downturn may serve as a spur for the development of a more robust, developed, and eventually prosperous ecosystem. There is a way out, but it will take a coordinated effort from the government, investors, and founders.

• For founders and startup:

It advocates for cutting unnecessary costs, streamlining operations, and optimizing efficiency, alongside finding effective revenue models in the present rather than speculative futures. Fiscal discipline is important; businesses should aim to operate leanly, extending their financial runway and focusing on revenue generation while exploring paths to profitability, including bootstrapping in certain areas.

Additionally, it highlights the importance of addressing critical, urgent problems that customers are willing to pay for, suggesting that depth in solutions is more advantageous than a wide range of superficial offerings.

• For the government and regulators:

By enacting clear, consistent, and innovative policies and having productive conversations with ecosystem participants, the government can change its perception from one of a hindrance to one of an active facilitator in order to bring about regulatory clarity and stability. Despite the difficulty of putting a complete solution in place, businesses’ liquidity and the forex system’s simplicity would also boost the confidence of foreign investors.

Also, encouraging regional institutional investors like insurance companies and pension funds to contribute a portion of their capital to venture capital can create a vital domestic funding source, fortifying the ecosystem against shocks to the world economy.

The new playbook: Survival of the fittest

A significant change in approach is not only recommended in this new setting, but necessary for survival. Nigerian startups that have accepted this new reality are not only surviving but also getting ready to prosper.

The “growth at all costs” tyranny is no longer in place.

The motto has changed from “scale first, monetize later” to “efficiency first.” These days, startups are brutally focused on their main selling point. They pose important queries, such as: Are we helping our clients with a genuine, excruciating issue? Are we operating at a lower cost than we bring in? Previously optional operational discipline is now required as a result of this change.

The new unicorn is huge profits.

Over the past ten years, becoming a billion-dollar company has been the goal. Amassing huge profits or having a clear, short-term route to it is now the ultimate badge of honour. These days, investors carefully examine balance sheets in search of businesses with high gross margins and tightly managed operating costs. It’s very clear: If you can make a naira, I’ll believe you can make billions later.

Formerly Africa’s hub for venture capital funding, Nigeria is lagging behind the continent’s other major markets in terms of investment attraction.

Conclusion

By establishing clear, consistent, and innovative policies and having productive conversations with ecosystem participants, the government can change its perception from one of a hindrance to one of an active facilitator in order to bring about regulatory clarity and stability. Despite the difficulty of putting a complete solution in place, businesses’ liquidity and the forex system’s simplicity would also boost the confidence of foreign investors. Additionally, encouraging regional institutional investors like insurance companies and pension funds to contribute a portion of their capital to venture capital can create a vital domestic funding source, fortifying the ecosystem against shocks to the world economy.

For starters, the government has asserted that Nigeria has taken its “bitter medicine” and is now past the worst of its economic instability. Tinubu recently stated in an Abuja speech that “the economy is stabilised […] the bleeding has stopped, haemorrhage is gone; the patient is alive.” Since the 2023 devaluation, the naira has regained roughly 15% of its value, which may indicate that more stable macroeconomic conditions are on the horizon.