A Guide to the SEC’s New CrowdFunding Guideline (Nigeria).

Nigeria’s Securities and exchange commission (SEC) has drawn out new guidelines for raising debt or equity via crowdfunding ranging from definitions to delineation of players and rules.

Enough has been said on crowdfunding and many platforms have emerged as instruments of this new way of financing startup companies. As a result, on January 21st 2021, the Securities and Exchange Commission, SEC, released updated guidelines for CrowdFunding in Nigeria. This comes as the SEC tries to push for heightened transparency around crowdfunding.

In this article, we are highlighting what you need to know about these new SEC regulations.

But first,

Equity crowdfunding vs. VC funding

VCs invest in high potential startups using funds raised by limited partners such as pension funds, endowments, and high net worth individuals. They bring a significant amount of knowledge and experience to the companies they invest in. On the other hand, Crowdfunding allows ‘the public’ to invest capital through an online platform, in exchange for equity. As opposed to a single investor, or a small group of investors.

Other areas in which they differ include: the level of investor involvement i.e smart money vs spectator money, the amount that can be invested; Investment terms and valuation outcomes and so much more, all of which would be written on in a subsequent article.

The Key Highlights of the new SEC regulations

Who is Qualified to “Participate” According to New SEC Guidelines

The Mechanism of Fundraising

Concluding Note

With the introduction of these regulations, fundraisers will need to provide increased levels of assurance with regards to the use of funds and intermediaries will be keen to conduct due diligence to protect their reputation and prevent censure from the SEC. All in all, this is a welcome improvement. If you agree or disagree, let us know why on Twitter, Instagram or LinkedIN

Gloss:

According to SMEDAN

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