INTRODUCTION
Crowdfunding is not new to Nigeria. Long before formal banking took root or form, traditional practices like Esusu, Ajoo, and Adashe were heavily relied on, allowing a group of people to contribute money for rotational distribution amongst themselves. These informal systems were tilted heavily on trust, but with the expansion of the country’s economy and increased economic complexity, the need for a more structured and secure system became evident.
To modernize this already existing and longstanding resource-pool culture, the Securities and Exchange Commission (“SEC”), on 21st January 2021, issued the Rules on Crowdfunding (the Crowdfunding Rules) on 21 January 2021, derivable from its powers in the Investment and Securities Act (ISA) 2007.
These regulations make provision for a legal and structured framework for investment-based crowdfunding in Nigeria, allowing micro, small, and medium enterprises (MSMEs) and start-ups to raise capital through licensed, SEC-regulated portals, rather than using unregulated and informal online platforms with no oversight or accountability.
This framework became even more relevant following the collapse of several unregulated “investment” schemes – MMM, Ovaiza, Chinmark, and, more recently, Cybex (ST Technologies Ltd) that exploited digital platforms to solicit funds without oversight. The SEC’s intervention was thus both corrective and preventive, which is to channel innovation into a legitimate, accountable structure. For startups, this created a new, compliant way to raise funds, while for investors, it established a safer and more transparent investment route.
The significance of SEC Intervention through the Rules runs deeper than compliance. The Rules are gradually redefining how early-stage capital is formed, how investors are protected, and how venture capital itself evolves in a market where regulation and innovation often meet uneasily. This is the core of what this article seeks to examine.
A. THE FIRST LEGAL ATTEMPT AT REGULATING CROWDFUNDING IN NIGERIA – THE INVESTMENTS AND SECURITIES ACTS (ISA) OF 2007 AND 2025.
For the first time in Nigeria, crowdfunding activities were formally legalized and regulated in 2021, pursuant to section 13 of the now-repealed Investments and Securities Act (ISA) 2007. The continuing force of those Rules is preserved under the repeal and savings provisions in sections 355 and 356(2) & (3) of the ISA 2025, which sustain all valid regulations and instruments made under the previous law. Notably, the ISA 2025 reaffirms the SEC’s broad authority to regulate crowdfunding and other capital-market activities, thereby ensuring legal continuity, investor protection, and closing historical gaps that exposed investors’ funds to misuse.
B. UNDERSTANDING CROWDFUNDING
At its core, Crowdfunding involves the mobilisation or collection of relatively small sums of money from numerous investors, physically or mostly online, to fund a project, business, or loan. The process usually requires a portal that collects the funds or a broker-dealer that lists the investment opportunities, receives investors’ funds, and channels them to the approved issuers or entrepreneurs. While this system democratises access to early-stage investments, it also introduces the need for diligent oversight to protect unsophisticated investors from losing their money in the process of trying to invest in crowdfunding activities.
C. WHY DO THE SEC RULES MATTER FOR VENTURE-CAPITAL?
Venture capital (VC) is traditionally relationship-driven, and negotiated behind closed doors, term sheets, staged financing, shareholder protection, liquidation preferences, and sometimes nominee or trust arrangements are deployed where there are multiple investors. While Crowdfunding, on the other hand, is standardised, transparent, and those in such roles are expected by the regulators to play by the rules. SEC regulations have transformed what used to be bespoke venture deals into regulated public offerings. This evolution changes investor psychology and deals with mechanics. For venture capitalists, what this creates is both an opportunity on one hand, and a constraint on the other. While it widens the pool of validated, early-stage companies, it also imposes compliance expectations that VCs can no longer ignore when participating through regulated platforms. In essence, the Rules are slowly professionalising Nigeria’s early-stage finance ecosystem.
D. HOW ARE INVESTORS’ FUNDS PROTECTED?
By way of definition, a nominee simply refers to a legal entity or a company that is formed for the sole purpose of holding assets on behalf of others. A nominee structure enables one legal entity to hold shares on behalf of several beneficial owners. It simplifies administration, supports pooled ownership, and can reduce cap-table issues. They are a quiet but essential part of Nigeria’s crowdfunding framework.
Under the Companies and Allied Matters Act (CAMA) 2020, and the SEC regulations 2013 (as amended), including the SEC Sundry Amendments (April 2025), nominee structures or arrangements are not prohibited. However, they are subject to regulatory disclosures and transparency requirements, particularly when such holdings amount to a “substantial shareholding” or may influence control over the company. Nominees can also attend, vote in meetings, and act as a shadow director. See Sections 27 (3), 119, 120, 110(1)(b), 254 (1), and 270 of CAMA 2020.
In order to safeguard investors’ funds, the SEC issued regulations making it mandatory for every crowdfunding platform to be managed through a Nominee, whose roles are primarily custodial, regulatory accountability, and fiduciary obligations, as set out under the SEC Sundry Amendments for Nominees in January 2021. These regulations stipulate who may act as a nominee, the fiduciary obligations it owes to investors, and the regulatory compliance requirements for financial institutions to effectively perform the role of a nominee. This is pivotal for crowdfunding platforms as it allows hundreds of micro-investors to rally behind a single nominee holder for the protection of their funds. See Rule 61 (now updated as a comprehensive framework for “Nominee Companies”) of the SEC Consolidated Rules and Regulations 2013 (as amended).
In effect, nominee structures dictate how Nigeria’s crowdfunding platforms can safeguard investors’ funds and scale without chaos, in a compliant manner. They also represent a quiet convergence between the private structuring habits of venture funds and the compliance expectations of the public market.
E. ENFORCEMENT RISK AND MARKET REALITIES
Investment platforms that treat compliance lightly are likely to face sanctions or denial of subsequent approvals. Promoters who use nominee structures or arrangements to obscure beneficial ownership risk facing SEC penalties, investor litigation, and reputational harm. The effect of crowdfunding on Nigeria’s venture-capital sector is of two (2) folds:
a. Crowdfunding, when compliant, creates a credible and transparent pipeline for early-stage funding for entrepreneurs.
b. However, it also places a limit on the free-wheeling syndication and opaque deal structuring that once characterized some fintech and start-up funding rounds.
CONCLUSION
The SEC Rules have successfully transformed what was once an informal culture of collective investment into a regulated market for early-stage financing. For entrepreneurs, these rules open a legitimate path to capital raising without resorting to opaque or unlicensed schemes. For investors and fund managers, it may involve more documentation, yet it enhances confidence, governance, and accountability.
In view of the foregoing, strict adherence to compliance obligations is very crucial, as it tells the market that Nigerian startups and MSMEs are ready to play by global rules of governance. Crowdfunding and venture capital are no longer opposing ideas; they are points on the same continuum, linked by regulation, transparency, and trust.
If Nigeria keeps enforcing these standards while allowing room for innovation, it can finally bridge its informal culture of collective finance with a formal, credible capital-market ecosystem.
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Please do not treat the foregoing as legal advice as it only represents the public commentary views of the authors. All enquiries on this should please be directed at the authors.
