Capital can be raised for a business via several means, to wit: personal funding, funding from relations, crowdfunding and loans from banks and private individuals among other channels.


5/24/20225 min read



One of the main challenges faced by startups in Nigeria is raising or accessing capital to fund their business.Capital is the term used for any financial resources, funds or assets owned by a business that is utilised for the promotion and development of any business association. Capital can be raised for a business via several means, to wit: personal funding, funding from relations, crowdfunding and loans from banks and private individuals among other channels.Crowdfunding as a means of raising capital for a business is the subject matter of the article.


Crowdfunding has been defined as a method in which companies and individuals raise funds from the general public through an online platform to finance a particular project or company. It involves raising capital for a business by pooling together small amounts of money from a large number of people instead of raising funds from few investors.


The fundamental elements of crowdfunding are as follows;

a) It must be hosted via a website/online platform;

b) It must be an offer open to the general public to finance or sponsor a particular project or business venture;

c) The funding rounding must be approved by the Securities and Exchange Commission;

d) Crowdfunding must be conducted by a corporation registered with the Commission as an operator.


There are mainly four types of crowdfunding. However, due to the flexibility of the internet means, crowdfunding could take on other forms or a combination of the four. The types include:

1. Donation-Based Crowdfunding: Donation-Based Crowdfunding is a form of campaign where people give money to a particular project for nothing in return. This can be done via social media applications like Twitter, Facebook or dedicated crowdfunding applications like GoFundMe, Kickstarter or Donate-ng.

2. Loan-based Crowdfunding: This form is also known as Peer to Peer lending, it has to do with individuals lending money to other individuals or entities for interest or return on their investment. It gives room for lending money without going through banks and other financial institutions. Piggyvest and Farmcrowdy are examples of Nigerian businesses popularising this funding technique as they have investment features on their Apps.

3. Reward-based Crowdfunding: Using this kind of crowdfunding, individuals donate to a project or venture in exchange for a reward or gift which is usually dependent on the amount donated.

4. Equity Crowdfunding: Under equity crowdfunding, the donors receive equity in the project or venture as a reward. Investors contribute funds in exchange of funds or a small stake in the business or project. This is however risky, especially to the populace who are not sophisticated investors with investors with experience and knowledge of the capital markets.


Sequel to the provisions of Section 67(1) of the Investment and Securities Act, 2007 and Section 22(5) of the Companies and Allied Matters Act, 2020, only public companies whether quoted or unquoted can invite the public to acquire or dispose of their securities. Private Companies are expressly excluded from engaging in crowdfunding in Nigeria as it has been expressly stated that they should not involve in equity crowdfunding which revolves around inviting the members of the public to donate funds in return for a stake in the company.

As entrusted by the Investment and Securities Act, 2007, the regulator of the Capital Market, including crowdfunding is the Securities and Exchange Commission and they shall make regulations to that effect. On 21st January 2021, the Commission issues rules in relation to only investment-based crowdfunding. Defining Investment-based funding, the rules state that it is the process of raising funds from the public through an online portal in exchange for shares, debt securities or other investment instruments approved by the commission.

The key entities as far as crowdfunding is concerned are four. According to the rules, they include: Crowdfunding intermediary, Fundraiser or issuer, crowdfunding portal and Investors. Crowdfunding intermediary is an entity organised and registered as a corporation to facilitate transactions involving the offer of securities or investment instruments through a crowdfunding portal.

Fundraiser refers to the originator and maker of the investment instrument to be issued. Crowdfunding portal is the website, platform or application that facilitates interactions between fundraisers and the investing public. Some of such websites include GoFundMe, PorkMoney, Kickstarter, Farmcrowdy, Lending Club, ThriveAgric among others. An investor is any person who seeks to make or has made an investment in an investment vehicle.

Notably, the rules provide that all crowdfunding platforms must be regulated by the Securities and Exchange Commission. Rule 6 and 7 of the Rules on Crowdfunding, 2021 provide for the requirements and criteria for registering a crowdfunding intermediary. The fees to be paid are stipulated in the schedule of the Rules.


1. To disclose and display the relevant information relating to the portal and its use;

2. To carry out investor education programme;

3. To verify the accuracy of the disclosure document lodged by each fundraiser and make such accessible on the portal;

4. To carry due diligence on prospective fundraisers;

5. To monitor and report the conduct of the fundraisers and take necessary actions against misconduct;

6. To protect the users’ data and their privacy;

7. To issue publications and acknowledge warning statements;

8. To implement policies in relation to the operation of the portal.


An investor has three major rights under the Rules on Crowdfunding, 2021. They include:

1. Right to a cooling-off period within which investors may withdraw their investment. This period spans from the time of investment till 48 hours to the close of the offer.

2. Where proceeds have not been transferred to the fundraiser and there is a material adverse charge affecting the project or the fundraiser, the investor can within seven (7) days from the date material adverse change becomes public, rescind the investment.

3. Where an investor cancels the offer or agreement to purchase securities, all funds must be refunded or released to the investor within 48hours of the request to cancel.


It is essential to note that some entities are prohibited from raising funds through a fundraising portal. They include:

1. Complex structures;

2. Public listed companies and their subsidiaries;

3. Companies with no specific business plan or a blind spot;

4. Companies that propose to use the funds raised to provide loans or invest in other entities;

5. Other entities as may be specified by the Securities and Exchange Commission.


Funding is generally essential for the establishment and administration of businesses, and ultimately for economic development in any country. Crowdfunding is an alternative mode of financing business and its effectiveness in raising capital for startups cannot be overemphasised. Hence, it is pertinent for the government and regulatory agencies to create a robust legal and regulatory framework to legislate and regulate the operation of crowdfunding in Nigeria without discouraging issuers and investors. This will further make investors trust the system and ensure they are protected from fraud or theft.

NB: This article is not a legal advice, and under no circumstance should you take it as such. All information provided are for general purpose only. For information, please contact chamanlawfirm@gmail.com


EMAIL: chamanlawfirm@gmail.com

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