Nigerian Startups Face a Missing Middle as Growth Capital Becomes Harder to Secure

Nigerian startups face a difficult transition between securing early funding and attracting the larger amounts of capital needed to expand, as investors increasingly demand evidence that businesses can generate sustainable revenue and grow efficiently.

Temitope Runsewe, managing director and chief executive of Sage Grey Finance Limited, has warned of a potential “missing middle” in which businesses may be able to secure small seed investments but struggle to obtain the patient capital required to move into their next stage of growth.

In comments to Nairametrics, Runsewe said investors were placing greater emphasis on product-market fit, revenue growth, unit economics and a credible route to profitability. He argued that entrepreneurs needed to build viable businesses rather than rely primarily on fundraising to sustain expansion.

The warning comes as access to finance remains a wider challenge for Nigerian businesses, including smaller firms that need longer-term funding to invest in equipment, people, technology and new markets.

Funding is returning, but access remains uneven

Nigeria remains an important market for African technology investment, but headline funding totals do not tell the whole story.

Disrupt Africa’s African Tech Startups Funding Report 2025 recorded approximately $464.8 million raised by Nigerian ventures in its dataset during 2025. The report counted 25 Nigerian startups receiving funding, illustrating how investment totals can be concentrated among a relatively small number of companies.

The figures relate to the report’s tracked technology-startup funding activity. They do not represent all financing available to Nigerian companies, and the number of businesses receiving funding may differ across datasets depending on definitions, disclosure and coverage.

Nevertheless, the concentration raises a central question for founders and investors: what happens to businesses that have moved beyond the idea stage but have not yet reached the scale, financial maturity or risk profile that attracts larger cheques?

For these companies, a promising product may not be enough. They may need to demonstrate that customers are willing to pay, that they can retain those customers, that sales can grow without costs rising even faster, and that the business can operate without depending entirely on its founder.

The funding challenge is therefore not simply about the total amount of money available. It is also about whether the right type of capital reaches a business at the right stage.

Why the transition from seed to scale can be difficult

Early-stage capital can help a founder test an idea, develop a product, hire an initial team or establish whether a market exists.

Scaling requires a different set of resources. A business may need to expand distribution, increase production, invest in technology, recruit experienced managers, improve compliance or finance a longer period between spending money and receiving payment from customers.

The risks also change. An investor considering a young company may initially be backing a hypothesis. At a later stage, the investor is expected to assess evidence: the size of the market, customer demand, revenue quality, operating costs, management capacity and the likely return on the additional capital.

Runsewe said investors increasingly wanted evidence rather than projections. He also noted that a company did not necessarily have to be profitable before raising investment, provided it could show a credible path towards sustainable growth.

That distinction matters. Requiring every young business to be profitable before it can raise capital would exclude many legitimate growth opportunities. But a business that has not established who will pay for its product, how much customers will pay or how it can serve them economically may struggle to justify a large investment.

The gap between those two positions—demanding proof without expecting a fully mature business—is where founders, investors and financing institutions need to find workable solutions.

A good product is not the same as an investable business

A product can solve a genuine problem and still fail commercially.

A company may struggle because it cannot reach customers at an affordable cost, has weak distribution, loses customers after their first purchase or charges too little to cover its operating expenses. It may also have poor financial reporting or rely on informal processes that make it difficult for an outside investor to assess performance.

For investors, these weaknesses affect more than presentation. They make it harder to determine how additional capital will be used and whether it can produce measurable results.

Founders preparing for a funding round should therefore be able to explain:

• Customer demand: Who uses the product, who pays for it and why they choose it.
• Revenue quality: Whether income is recurring, repeatable or dependent on a small number of customers.
• Unit economics: What it costs to acquire and serve a customer compared with the revenue and margin that customer generates.
• Distribution: How the business will reach more customers without allowing acquisition costs to rise uncontrollably.
• Governance: Whether accounts, ownership records, contracts and decision-making processes can withstand investor scrutiny.
• Use of funds: What specific milestones the next investment is expected to achieve.

These measures do not guarantee funding. They can, however, help founders identify weaknesses before approaching investors and make it easier to explain why additional capital is necessary.

Nigeria’s wider SME financing problem

The funding gap extends beyond venture-backed technology companies.

In December 2025, the World Bank announced approval of a $500 million financing package for Nigeria’s Fostering Inclusive Finance for MSMEs project, known as FINCLUDE. The programme is intended to expand access to finance for micro, small and medium-sized enterprises through the Development Bank of Nigeria and credit guarantees delivered through its subsidiary, Impact Credit Guarantee Limited.

The World Bank said fewer than one in twenty Nigerian MSMEs had access to bank credit, while many faced costly short-term loans and collateral requirements that could exclude otherwise viable businesses.

The programme is designed to support larger loans with more reasonable repayment periods and to encourage lenders to serve businesses they might otherwise regard as too risky. Its announced targets include expanding debt financing to 250,000 MSMEs and issuing up to $800 million in guarantees to catalyse lending.

The approval of the programme does not mean the full amount has already been disbursed. Its impact will depend on implementation, lender participation, the quality of businesses seeking finance and whether eligible firms can meet the requirements.

The initiative nevertheless highlights a financing challenge that is distinct from venture capital. Many established businesses need money for working capital, equipment, inventory or expansion rather than the high-growth equity investment commonly associated with technology startups.

A single financing model will not suit every company. Businesses with uncertain future revenues may need equity or risk-sharing arrangements, while firms with predictable cash flows may be better suited to appropriately structured debt.

What founders can do before seeking growth capital

For founders approaching a larger funding round, preparation should begin before the pitch deck.

1. Establish reliable financial records. Keep business and personal transactions separate, maintain accurate accounts and understand the company’s cash position, liabilities and margins.

2. Demonstrate real customer demand. Show evidence that customers are paying, returning and recommending the product. Large registration numbers or downloads are less persuasive when they do not translate into active use or revenue.

3. Explain the economics of growth. Founders should know whether serving additional customers improves margins or creates new losses. If the business is currently loss-making, it should be able to explain what drives those losses and how the economics are expected to improve.

4. Tie capital to milestones. Rather than simply stating how much money is needed, explain what the funding will pay for, what measurable progress it should deliver and how that progress will affect the business.

5. Build systems that can scale. Stronger reporting, documented processes, clear responsibilities and governance can reduce dependence on the founder and make the business easier to assess.

6. Consider more than one type of financing. Depending on the business model and cash flow, options may include equity, commercial loans, private credit, strategic investment, development finance or other structured facilities. Each comes with different costs, risks and obligations.

Investors and local capital providers also have a role

The responsibility does not rest entirely with founders.

Runsewe identified local venture capital funds, private equity firms, family offices, development finance institutions and financial institutions as potential sources of the patient capital needed to help promising businesses move beyond their early stages.

Those providers still need to assess risk carefully. But financing structures that reflect the realities of different sectors and business stages may help address gaps that conventional lending or standard venture-capital rounds cannot fill alone.

Guarantees, co-investment arrangements, longer repayment periods and specialised financing vehicles can potentially help lenders and investors support viable businesses while managing risk. Such mechanisms must be designed and implemented carefully; they cannot make an unviable business viable simply by making money available.

The World Bank’s FINCLUDE programme is one example of an effort to expand MSME financing through lending support and credit guarantees. Whether similar approaches can meaningfully reach businesses between early traction and institutional scale will depend on how products are structured and how effectively capital is deployed.

The next phase of growth requires proof and appropriate capital

Nigeria’s startup funding challenge should not be reduced to a choice between demanding more evidence from founders and asking investors to take greater risks.

Businesses need to demonstrate that they understand their customers, can manage costs and have a credible plan for using capital. Investors and financial institutions, in turn, need financing products suited to the risks and cash-flow patterns of the businesses they want to support.

The distinction is important because a funding round is not the same as a successful business. Capital can accelerate a sound model, but it cannot permanently compensate for weak demand, poor financial controls or an unsustainable cost structure.

For Nigerian startups caught between seed funding and larger growth investments, the central task is to prove that the business can work at a larger scale and to find capital whose structure matches what the company is trying to achieve.