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

Oui Capital
4 min readFeb 16, 2021


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
  1. The new rules restrict the amount retail investors can invest to just 10% of their net annual income. This law, nonetheless, excludes High Net worth Individuals and Qualified Institutional Investors, who are free to invest at their discretion
  2. The rules are however not explicit about investor protection in the event of registered entities failing.
  3. They also specify the classes of participants in any crowdfunding activity.
    - Fundraiser: an entity that serves as the author/originator of the investment instrument to be dispensed.
    - Investors: are any person or other entity (of which the SEC differentiates as High-net-worth individuals, Retail Investors, and Qualified Institutional Investors.) who commits capital with the expectation of receiving financial returns.
    - Custodians: are the banks who will hold the capital raised for the duration of the fund-raising.
    - Crowdfunding Intermediary (CFI): An entity organised and listed as a corporation to facilitate transactions concerning the offer or sale of securities or investment instruments.
  4. The introduction of these CFIs means anyone seeking to raise capital through crowdfunding will have to go through such an Intermediary.
  5. The four categories of participants stipulated in the rule are also required to register with the SEC for purposes of taking part in Crowd Funding activities

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

  1. Fundraisers must be incorporated in Nigeria and operational for at least two years. Or have partners who meet the 2-year operating requirement.
  2. Some entities are prohibited from raising funds through CFIs. These include:
    Entities without adequate clarity about its ownership or control
    - Publicly listed companies and their subsidiaries;
    - Entities with no specific business plan;
    - Businesses that propose to use the funds raised to provide loans or invest in other entities.
    - Fundraisers are not allowed to run concurrent fundraising projects

The Mechanism of Fundraising

  1. The rules restrict the amount a business can raise yearly.
    - A Medium enterprise shall not exceed N100 Million;
    - A Small enterprise shall not exceed N70 Million;
    - And N50 Million for Very small enterprises.
  2. For digital platforms that extend agricultural projects such as Agro Partnerships or Crowdyvest, the limit is N1bn, which may be increased with approval from SEC.
  3. Investors retain the right to withdraw up to 48 hours after the closing date stated in the startup’s offering documents.
  4. For an offer to be concluded, the least amount indicated must be adequate to fulfil the fundraiser’s objectives.
  5. Where the minimum threshold is not met, the CFI shall effect a refund to all investors within 48 hours. Basically like Kickstarter :)
  6. In a case where the amount raised meets the minimum amount but falls short of the target amount, the fundraiser has to provide a revised plan for the intended use of funds to the investors and the CFI.
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


According to SMEDAN

  • Micro Enterprises in Nigeria are classified as businesses whose total assets (excluding land and buildings) are less than Ten Million Naira with a workforce of fewer than ten employees.
  • Small Enterprises are businesses whose total assets (excluding land and buildings) are between Ten Million Naira and One Hundred Million Naira with a workforce of between ten, and forty-nine employees.
  • Medium Enterprises have assets (excluding land and buildings) between Fifty Million Naira and One Billion Naira with a total workforce of anywhere between 50 to 199.



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