By Juliet Umeh

As venture capital funding across Africa remains low, Nigerian startups are now turning to borrowing to stay afloat and support growth in a tighter investment environment.

Latest data from Africa: The Big Deal shows that startups across the continent raised $135 million in May 2026 through 37 deals, an improvement from April’s $110 million but still significantly below the 12-month monthly average of about $255 million.

While the funding environment remains subdued, Nigeria continues to stand out as a key driver of activity on the continent. The country accounted for about 64 percent of all equity funding raised in Africa during the month, reinforcing its position as one of the region’s most attractive startup ecosystems despite broader capital constraints.

However, behind the resilience lies a deeper structural shift in how startups are financed. Debt is no longer a secondary option in Nigeria’s startup ecosystem that is now becoming central to survival and expansion strategies.

For instance, in May, debt financing slightly overtook equity across Africa, with $68 million raised through debt instruments compared to $65 million in equity, signalling a notable change in investor behaviour and startup funding models. Grants accounted for a small portion of the remaining capital.

Analysts say this shift is particularly important for Nigerian startups, many of which are now operating in an environment where equity investors are more cautious, valuations are tighter, and capital is harder to secure at early stages.

Fintech companies continue to dominate funding activity, with startups such as LemFi and Nala securing significant deals, reflecting sustained investor confidence in digital financial services. However, even within this strong sector, the structure of deals is evolving, with more hybrid financing arrangements combining equity and credit facilities.

Industry observers note that debt financing is providing a critical lifeline for startups that would otherwise struggle to raise equity without excessive dilution. It also allows founders to maintain control while accessing working capital needed for expansion, customer acquisition, and operational scaling.

At the same time, the broader ecosystem is beginning to adjust to what appears to be a “new normal” in startup funding. Between January and May 2026, African startups raised about $843 million across 160 deals, with funding almost evenly split between debt and equity. This marks a clear departure from previous years when equity funding dominated the landscape.

For Nigerian founders, the shift is forcing a rethink of growth strategies. Instead of relying heavily on venture capital-driven expansion, more startups are now focusing on cash flow discipline, revenue generation, and structured financing options.

Experts believe this evolution, while challenging in the short term, may ultimately strengthen the ecosystem by pushing startups to build more sustainable business models.

As funding conditions remain uncertain, Nigeria’s ability to attract a large share of equity investment while simultaneously embracing debt financing suggests a more adaptive and resilient startup environment.

In a market defined by tighter capital and higher investor scrutiny, debt is no longer just a fallback option; it is fast becoming a key engine for continuity and growth in Nigeria’s startup ecosystem.