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Entering Nigeria’s Venture Capital Market: Regulatory Clarity, Capital Thresholds, and Structuring Pathways for Investors

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By Aderonke Alex-Adedipe and Mark Imonitie

Introduction

Nigeria’s venture capital (VC) sector has evolved from an informal, relationship-based market into a structured ecosystem shaped by various laws and regulatory requirements including regulations provided by the Securities and Exchange Commission (SEC).

As local and international VCs provide capital to high-growth businesses, VC firms must adeptly navigate Nigeria’s dynamic regulatory landscape which governs capital raising, fund structuring, portfolio management, and exits.

In this newsletter, we examine some key aspects of the SEC regulations for VC firms in Nigeria, highlighting recent registration and compliance amendments essential to the operations of VC firms amid evolving capital requirements.

SEC’s Registration Requirements

The SEC registration threshold for full registration of VC funds was raised from ₦1 billion to ₦5 billion in April, 2025. Consequently, while VCs with a target fund size of ₦5 billion or less are exempt from full registration, they are required to file governing documents and obtain a “no objection” certificate from the SEC.

Additionally, the SEC’s 2025 Ease of Doing Business guide mandates smaller funds to provide a notarized compliance checklist duly executed by the boards of both the fund manager and sponsor, containing various details including, the investment policy and objectives of the funds, profile of the Fund Manager and its experience, material risks of investing in the fund, duration of the fund and provisions for extension of the fund.

By reducing the registration threshold, the SEC aims to reduce the regulatory burden on smaller funds.

For funds above the ₦5 billion threshold, the documentation requirements include the information memorandum, partnership agreements amongst many others.

Minimum Capital Updates

The SEC in its circular of January 16 2026, raised the minimum share capital for VC fund managers from twenty million naira (N20,000,000) to two hundred million naira (N200,000,000). Existing fund managers of VCs, are required to increase their share capital to meet the minimum requirement of N200,000,000 on or before June 30, 2027.

The primary goal of the increase in the capital requirement is to enhance market stability, protect investors, and align regulations with global standards by ensuring that only VC managers with sufficient capital to handle operational risks are licensed to operate, thereby deterring unqualified entrants.

Practical Compliance Touchpoints for VC Firms

In practice, VC firms in Nigeria need to navigate both fund‑level regulation and deal‑level compliance. Some practical touchpoints include:

  • Fund formation: VC firms are advised to critically select an appropriate vehicle (Limited Partnership, Limited Liability Partnership or company), and ensure that its agreements are robust and align with SEC rules on the operations of VC funds.
  • Licensing and filings: VC firms are required to determine whether the manager or adviser requires SEC registration, whether the fund must register or only submit documents for “no‑objection”.  They are also required to keep up with exposure drafts and guidance notes released by the SEC from time to time, in respect of their operations.
  • Investor protection and disclosures: VC firms are to ensure that they adhere to valuation policies, fee and expense disclosures, and conflict‑of‑interest management in their operations.
  • Exit planning: In exit planning, VC investors must carefully consider initial public offerings, secondary sales, or buybacks within Nigeria’s corporate, securities, and tax frameworks, alongside exchange control regulations applicable to foreign investors, to secure optimal returns on their investments.

Conclusion

The recent amendments to the SEC rules and regulatory framework for venture capital firms mark a coming‑of‑age moment for Nigeria’s VC ecosystem, signaling a more mature, transparent and investor‑friendly environment for capital formation. For VC firms, smart legal and regulatory planning is no longer just a compliance chore, it has become a strategic edge that builds trust and unlocks opportunities.

NIGERIA’S CROWDFUNDING REGULATIONS; IMPACT ON FUNDRAISING

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By Aderonke Alex-Adedipe and Praise Adetunmibi

 

Introduction

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 reported[i] 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 article[2], 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.

 

[i] https://www.statista.com/statistics/1078273/global-crowdfunding-market-size/

[2] https://pavestoneslegal.com/review-of-the-crowdfunding-rules-proposed-by-sec-nigeria/

The Central Bank Of Nigeria’s Regulatory Sandbox Operations Framework

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by Seun Timi-Koleolu and Olawale Atanda

 

In July 2020, the Central Bank of Nigeria (CBN)[1] released a draft Framework for Regulatory Sandbox Operations[2] aimed at establishing a controlled environment where disruptive technology in the financial services can be tested under the supervision of the CBN.

The CBN has now issued an approved Framework for Regulatory Sandbox Operations in Nigeria (the “Framework”). The CBN has now issued an approved Framework for Regulatory Sandbox Operations in Nigeria (the “Framework”). The Framework is expected to give eligible fintech innovators an opportunity to test their products, services, or solutions without the need to acquire a CBN license.

What is the scope of the Framework?

The Framework is targeted at innovations that can improve the Nigerian payments system. It applies to proposed products, services or solutions that are either not contemplated under the prevailing laws and regulations, or do not precisely align with existing regulations.

Eligibility of Sandbox Participants

The Framework allows for CBN licensees and local companies (including financial sector companies and telecom companies) to participate in the sandbox operations. Innovators whose proposed payment solution involves technologies that are currently not covered under existing CBN regulations are also welcome to participate.

Entities that apply to participate in the sandbox operations must show evidence that the product, service or solution is innovative, useful and functional; and associated risks have been identified. The entities should also have a business plan to show that the product, service or solution can be successfully deployed after they exit the sandbox.

Application Requirements and Approval Process

When the CBN is ready to receive applications, it will place an invitation on its website and local newspapers. Once the invitation is placed, applications are to be sent to the CBN’s official email address – sandbox@cbn.gov.ng.

Applications should be submitted with a cover letter signed by an authorized signatory of the applying entity and addressed to the Director, Payments System Management Department, Central Bank of Nigeria, Abuja. The applicants are to state the initial timeline (in months) for the proposed test of the product, service, or solution.

Applicants will be informed of the CBN’s approval to participate in the sandbox, 45 working days after the closure of the application window.

Sandbox Cohorts

The Sandbox will consist of Cohorts (which are groups of innovators that share the characteristic of having been allowed to enter the sandbox at the same time for the same period).

There will be one Cohort per year. Upon the completion of the sandbox test, the CBN will decide whether the product, service or solution should be introduced into the market.

Conclusion

The Framework is a plus for innovation in Nigeria. It signals that regulators are willing to better understand and develop more suitable regulations for innovations in the fintech space. The success of the sandbox can only be determined over time as implementation will be a key factor.

 

[1] Pavestones has written several articles on CBN regulations and licenses. You can view them at https://pavestoneslegal.com/tag/cbn/

[2] You can read our analysis of the draft framework here https://pavestoneslegal.com/fintech-regulatory-update-the-central-bank-of-nigeria-regulatory-sandbox/

Setting Up a Venture Capital Company for Startup Investment in Nigeria

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By Seun Timi-Koleolu and Olawale Atanda

Startups require funding for their operations and to scale.[i] This is where venture capital companies (VCs) come in. VCs (as a subset of private equity) provide early or late stage financing to startups. VC funding is booming in Nigeria and has led to startups receiving increased financing year-on-year. Nigeria attracted $747 million in VC funding in 2019 with a majority of investments going to fintech companies. Although, a large number of these VCs are foreign, there is an increasing number of local VCs such as Ventures Platform, EchoVC, and Microtraction which invest in Nigerian startups. In this article, we list important points to consider when setting up a VC fund in Nigeria.

 

Company Structure

In Nigeria, VCs may be registered[ii] as a Limited Liability Partnership or a Limited Liability Company under the Companies and Allied Matters Act 2020.[iii] VCs may also register as limited partnerships under the Partnership Law of Lagos State but would however need to register as business names by the Corporate Affairs Commission to operate outside the state.

 

Regulation

The Securities and Exchange Commission (SEC) mandates private equity funds (such as VCs) to register with the commission where investor funds are above ₦1 billion. Registered VCs are prevented from soliciting funds from the public and may only privately source funds from qualified investors. They may also not invest more than 30% of their assets in a single investment. Under SEC regulations, the fund manager of a registered private equity fund must have a minimum paid-up capital of ₦20,000,000.00.

 

Raising Funds

VCs raise funds from a variety of sources which consist of banks and other financial institutions, insurance companies, pension funds, (“institutional investors”) high net worth individuals, etc. However, regulations that cover institutional investors may restrict the extent to which they may invest in VCs. For example, the Banks and Other Financial Institutions Act limits investments to the extent that such investment does not at any time exceed 10% of the bank’s shareholders funds and not more than 40% of the investee company’s paid up share capital. Foreign VCs who bring in funds into the country are guaranteed the transferability of interests on dividends and repatriation of investments in startups. Funds should be brought in through authorized dealers (usually banks) who then issue a Certificate of Capital Importation (CCI) as proof of the importation of capital. The CCI allows foreign VCs to repatriate funds without restriction.

Taxes

Taxes payable by VCs are dependent on the structure of the fund. Where a VC is registered as a Limited Liability Company, the company will be liable to pay income tax on its profits as provided under the Company Income Tax Act (CITA). Funds registered as business names will not subject to corporate income tax, instead, each partner would be taxed based on its individual income from the business. The investee company is however required by the CITA to withhold 10% of the interest on dividends due to investors. Where a VC is a resident of a country that Nigeria has a double tax agreement with, the withholding tax rate is pegged at 7.5%.

 

Conclusion

Nigeria is a profitable market for VC funds which is evidenced by the impressive growth of startups and tech companies over the years. VCs who intend to set up shop in Nigeria or as foreign VCs, invest in Nigerian startups must be conversant with the rules on investing in Nigeria. This is important to ensure adherence with regulatory rules and conformity to proper business and corporate governance procedures.

[i] You can access our article on startup funding here https://pavestoneslegal.com/startup-funding-raising-capital-as-a-startup-in-nigeria/

[ii] Although, the Companies and Allied Matters Act 2020 has been passed into law, the Corporate Affairs Commission is yet to begin the registration of Limited Liability Partnerships.

[iii] You can read our analysis on the Companies and Allied Matters Act 2020 here    https://pavestoneslegal.com/tag/cama-2020/

Startup Funding: Raising Capital as a Startup in Nigeria

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Lack of financing is a major constraint which businesses experience at the startup phase. Seed capital is required for startups to fund their operations and scale, thereby returning profits to founders and investors.

A major indicator that a startup may thrive is the availability of capital. Where capital is low or inadequate, the business operations will be impacted and the startup will likely fail. Research conducted on small businesses in the U.S. indicates that 79% of businesses fail because they start out with too little money and are unable to fund their operations.

It is therefore essential that founders are familiar with the several ways in which capital may be raised and identify the funding path that is best suited for the startup. Below are several funding sources that founders should consider when seeking capital.

  1. Crowdfunding

The proliferation of technology has seen the emergence of digital solutions aimed at solving every day problems. An example of this is the growth of crowdfunding sites which enable founders raise funds from the public. Crowdfunding[i] entails pitching the business idea of a startup to willing investors via an online platform. Investors may receive equity in exchange or a percentage of interest over a period of time. Crowdfunding is particularly advantageous to founders because they can decide the terms of the investment and easily retain control of their company.

  1. Incubators and Accelerators

Incubators and accelerators nurture and prepare startups to scale. Incubators are focused on startups  at the conception stage while accelerators target startups that are viable and ready to scale. Startups who successfully pass through incubators or accelerators typically receive a seed investment at the end of their program from the incubators/accelerators or investors/mentors introduced to the startups in exchange for nominal equity.

  1. Business Loans

Although, not typical, startups may apply for loans from banks or microlending companies. These may however attract high interest rates. Startups therefore must consider their revenue flow and ability to repay loans obtained from banks and other lending institutions.

  1. Angel Investors and Venture Capital Funding

Angel or seed investors typically fund startups at the beginning of their lifecycle while venture capital firms usually provide funds to startups that are viable with a recognized customer base and established revenue stream. These funding sources provide much needed capital in exchange for equity in the startup. The terms of the funding and equity participation are contained in agreements such as Simple Agreement for Future Equity and convertible loan agreements.

  1. Bootstrapping

Bootstrapping means growing a startup without external funding. Startups would have to rely on funding from its founders to operate and rely on revenue from sales. Bootstrapping is perhaps the toughest method of funding startups as it means that growth might be stifled or delayed due to the absence of funds required to scale their operations. However, where founders subsequently decide to receive external funding, it portrays a sense of seriousness to investors that the startup depended on the sweat and faith of its founders to grow and generate revenue. With bootstrapping, founders are also assured of absolute creative and operational control of the startup.

Conclusion

Although there are several sources of funding which startups can take advantage of, startups must consider which funding source is most suitable by weighing the pros and cons of the funding options available to them.

 

[i] Equity-based crowdfunding in Nigeria is potentially regulated by the Securities and Exchange Commission (SEC). Please find our article on the crowdfunding rules proposed by SEC here https://pavestoneslegal.com/review-of-the-crowdfunding-rules-proposed-by-sec-nigeria/

You can also watch a brief analysis of the crowdfunding rules by our Partner, Aderonke Alex-Adedipe, here https://furtherafrica.com/2020/05/05/insights-funding-startups-in-nigeria-video/