I’ve watched many startups close seed or Series A rounds, but not long after, they hit a wall; investors pull back, valuations stagnate, growth slows–what people call the “Series B cliff” is real, especially in 2025.
Some unique deals still happen. LemFi, for example, raised $53 million in Series B early in 2025, its biggest round so far. But they are exceptions. Most startups in Nigeria do not manage to clear this gap, and I believe this lack of late-stage funding is one of the biggest risks to our tech sector’s sustainability.
What We Mean by the “Series B Cliff”
Series B is not about “more money.” It is a change in expectations. A startup at Series A is proving its product works, acquiring customers and showing early traction. By Series B, investors expect evidence of scale: solid unit economics, growth across markets, usually profitability or a clear path to it.
In Nigeria, many startups do prove traction. But moving to that next level, expanding nationally or regionally, improving margins, handling regulatory and foreign exchange risks, is much harder. The cliff appears when the risk of scale is too great, when external factors stack up, and when investors become sceptical.
Structural Challenges Holding Us Back
There are multiple structural problems. Some are external. Some within our control. Together, they make the Series B stage difficult to cross.
- Risk Aversion & Global Investor Doubt
Many foreign investors now demand stronger proof of stability before committing late-stage capital. Macroeconomic instability (inflation, currency fluctuations) makes projections unreliable. Investors see higher risk in Nigerian startups compared to similar ones elsewhere in Africa or globally, and they price that risk either by demanding more control or by withdrawing entirely. - Weak Exit Opportunities
For Series B to make sense, there must be credible exit routes such as acquisitions, IPOs, or secondary markets. In Nigeria, large exits are still rare. When exits don’t happen, investors find it hard to justify taking big risks with late-stage funding. - Corporate Governance and Transparency
Many startups at seed or Series A have minimal structures: sometimes weak financial reporting, limited board oversight, and loose cost controls. Late-stage investors demand maturity: audited accounts, clear governance, accountability. When those aren’t in place, deals stall or valuations suffer. - Capital Scarcity for Growth Rounds
While seed and A-round funding have grown thanks to angel investors, incubators, and early-stage funds, there are comparatively few growth funds in Nigeria willing to lead or participate in large B rounds. Local LPs (pension funds, mutual funds) are careful; regulatory friction around foreign capital complicates large inflows. - Macro Instability & Currency Risk
The naira’s instability, difficulty obtaining foreign exchange, and inflation make cost structures unpredictable. For businesses that depend on imported inputs, software subscriptions in foreign currency, or paying overseas partners, this risk can incapacitate margins when scaling. - Market and Infrastructure Barriers
Scaling requires infrastructure: reliable power, logistics, and internet latency. In many parts of Nigeria, local infrastructure is weak. Operational costs rise, and unpredictable outages happen. These extra burdens make scaling beyond Lagos expensive and risky.
The Cost of Hitting the Cliff
When startups cannot secure Series B or late-stage backing:
- Growth slows. They may lay off staff, reduce marketing spend, or halt plans to expand into new regions or countries.
- Innovation is stunted. Features, talent hires, R&D often are deferred or dropped.
- Talent may leave. When funding is uncertain, senior hires often prefer safer roles or move abroad.
- Ecosystem morale suffers. When founders and VCs see many good companies stagnate, fewer entrepreneurs attempt ambitious scale-ups.
Examples:
- LemFi’s success is the positive side.
- Arnergy, in the renewables sector, raised $18 million Series B in 2025, but employees pointed out how difficult it was to get liquidity until after that round. The gap in cash between rounds creates real hardship.
How We Can Fix This: Mitigation & Path Forward
I believe there are concrete, actionable ways the ecosystem can reduce the gap. Some require policy changes. Others are internal to startups or investors. All must happen together.
- Grow Local Growth Funds
We need more funds based in Nigeria (or managed by Africans) that understand the risk profile here. These growth-stage funds must have patience, take larger checks, and bear risk that foreign investors avoid. - Policy Stability & Regulatory Certainty
Clear rules for foreign investment, stable regulation, easier repatriation of profits, sensible taxation on startups. When policies flip frequently, investors pull back. Government must show it understands growth-stage needs. - Strengthen Corporate Governance
Startups must prepare earlier: audited financial reports, boards that include independent members, clearer financial controls. That builds trust for late-stage backers. - Encourage Exit Market Development
Stock exchanges need to streamline IPOs for tech companies. Secondary markets for private shares would allow founders and early investors liquidity without waiting for acquisition or IPO. - Leverage Alternative Financing Structures
Hybrid structures (debt + equity), revenue-based financing, and convertible notes could help bridge rounds. These structures distribute risk differently and may attract investors unwilling to lead a pure equity round. - Manage Cost & Efficiency Early
Founders should build for profitability early: unit economics must be straightforward, margins tracked, and customer retention high. Scaling quickly without sustainable cost base is dangerous. - Matchmake Corporate Partnerships
Strategic corporate investors (local or multinational) can provide revenue contracts, distribution channels, and infrastructure support. Working relationships with corporates reduce risk and may be stepping stones to larger funding.
Looking Beyond the Cliff
The Series B cliff is not inevitable for startups. I don’t believe we’re stuck. We have proof of concept in LemFi, Arnergy and a few others that some Nigerian startups can break through. But to shift from a handful of wins to widespread scale, we need maturation in investment behaviour, stronger governance, more stable macro conditions, and growth-stage financing infrastructure.
If I were advising policymakers, I’d push for reforms now. If I were advising founders, I’d urge planning for the scale hurdle from day one. Crossing the cliff will demand discipline, transparency, and patience. But once we do, Nigeria’s startup ecosystem will compete globally.
