The size of the global crowdfunding market is steadily on a rapid increase as a large number of start-up businesses engage crowdfunding platforms for the purpose of raising capital. The value of the global crowdfunding market was reported1 to be at 13.9 billion U.S dollars in 2019 and expected to triple by 2026. Start-ups in Nigeria also use crowdfunding platforms such as Kickstarter, GofundMe, Patreon amongst others, to raise capital. Crowdfunding in Nigeria however, remained unregulated until January 2021 when the Securities and Exchange Commission (SEC) issued the SEC Rules on Crowdfunding (the "Rules").

In our previous article2 , we had provided an overview of the proposed Rules, prior to the final issuance by SEC. In today's article, we examine some of the provisions of the Rules and their impact on businesses in Nigeria.

Meaning of crowdfunding

Crowdfunding involves the use of an online web-based platform to raise funds from a large number of individuals or organizations in order to fund a project or business. It is important to note that the SEC Rules are only applicable to investment-based crowdfunding. i.e. where funds are raised in exchange for ordinary shares, plain vanilla bonds or debenture and simple investment contracts or other instruments approved by SEC. Such investment instruments can only be issued through a crowdfunding portal operated by an entity registered with SEC as a crowdfunding intermediary.

Eligibility of a fundraiser

An entity seeking to raise funds through a crowdfunding portal must be a Micro, Small and Medium Enterprises (MSME) incorporated in Nigeria and must;
(i) have been in operation for at least 2 years or;
(ii) where the entity has been in operation for less than 2 years, it must have a strong technical partner that possesses a minimum of a 2 -year operating track record or have a core investor.

How to raise funds

Funds can only be raised by an eligible fundraiser through a registered crowdfunding portal i.e. one that has been registered by SEC.

In addition, it is important to note that a crowdfunding investment offer can only remain on the portal for a period of 60 days and can be extended for a further period of 30 days after which the offering is to be withdrawn.

Where an offer has been withdrawn, a new offering cannot be made by the same fundraiser until (i) after the expiration of 30 days after the withdrawal date and (ii) after the fundraiser has updated all financial information to the satisfaction of the crowdfunding intermediary.




The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.