Legal Essentials For Agri-Tech Startups: Regulatory Compliance, Funding Strategies, And Intellectual Property Protection

Introduction

Agri-tech startups are innovative companies that integrate technology with agriculture to tackle food security issues, enhance productivity, promote sustainability, and streamline farming operations. As the agri-tech sector in Nigeria expands, new companies like AFEX, Crop2Cash, Farmcrowdy, and BeatDone are entering the market, making the legal and regulatory environment increasingly complex. This article provides an essential guide to the key legal frameworks affecting agri-tech startups, focusing on how founders and investors can secure funding, protect their innovations, and comply with regulations.

Legal and Regulatory Framework for Agri-Tech Startups in Nigeria

Agri-tech startups in Nigeria operate within a diverse legal framework that includes aspects of company incorporation, taxation, technology use, environmental impact, and data protection. The Nigeria Startup Act, 2022, serves as a significant legislative measure designed to foster the growth of the startup ecosystem by empowering regulatory bodies to offer more robust support to emerging companies.¹ Under the Companies and Allied Matters Act (CAMA) 2020, agri-tech startups must register with the Corporate Affairs Commission (CAC) and comply with annual returns filings, submitting audited accounts, and holding Annual General Meetings (AGMs).

Additionally, agri-tech startups must register with the Federal Inland Revenue Service (FIRS) or the relevant state tax authority to manage remittances for Companies Income Tax and Value Added Tax (VAT). Notably, the Startup Act offers tech startups incentives such as pioneer status and employee benefits upon registration.² If foreign technology is involved, all related contracts must be registered with the National Office for Technology Acquisition and Promotion (NOTAP), with regular returns filed as required.³

Compliance with the Nigeria Data Protection Act (NDPA) is also necessary for protecting personal data, implementing security measures, and reporting breaches promptly.⁴ Additionally, their technological solutions and agricultural processes must align with the Environmental Impact Assessment (EIA) Act and regulations from the National Environmental Standards and Regulations Enforcement Agency (NESREA).

For product quality, agri-tech startups must meet standards set by the National Agency for Food and Drug Administration and Control (NAFDAC), the Standard Organization Nigeria (SON) and the Nigerian Agricultural Quarantine Service (NAQS) Act 2018, which regulate the safety, quality, production, importation, and distribution of food and agricultural products.

Strategies for Navigating Regulatory Frameworks and Staying Compliant

1. Comprehensive Documentation and Compliance Manuals: Maintain accurate records of all regulatory submissions, approvals, and compliance-related activities. Regularly update manuals detailing relevant requirements and compliance procedures.
2. Legal and Regulatory Compliance Team: Engage legal experts in agri-tech, environmental law, and data protection, and appoint internal compliance officers to ensure adherence to relevant laws and regulations.
3. Environmental and Social Responsibility: Adopt sustainable practices to comply with environmental regulations and engage local communities to ensure that agri-tech innovations are both socially responsible and compliant with local norms.
4. Data Protection and Cybersecurity Measures: Adhere to NDPA standards for data protection and use digital rights management tools and non-disclosure agreements (NDAs) to protect proprietary information and prevent unauthorized access.
5. Stay Informed and Updated: Monitor changes in agricultural, technology, environmental, and data protection regulations and adjust operations accordingly.
6. Engagement with Regulatory Authorities: Maintain open communication with regulatory bodies to clarify requirements and stay updated on new regulations.

Financing Solutions for Agri-tech Startups

Funding options range from traditional funding rounds involving venture capital and angel investments, to alternatives such as bootstrapping and crowdfunding.⁵

Traditional Funding Rounds

• Pre-Seed Funding: Startups typically begin their funding journey with personal savings or resources (including loans) from friends and family to develop a concept or Minimum Viable Product (MVP). This stage is vital for building a team and exploring the agri-tech landscape.
• Seed Funding: As the startup matures, external equity funding is needed to refine its product and develop go-to-market strategies. This step is key for launching innovative agricultural technologies.
• Series A Financing: Once a startup achieves developed products and consistent revenue, Series A funding provides larger investments to scale operations and boost market penetration. A clear path to profitability is vital to attract venture capital at this stage.
• Series B and Series C Financing: These rounds involve significant investments from venture capitalists and private equity firms, supporting market expansion, operational optimization, and preparation for exits. They target startups with significant user base and revenue growth.

Alternatives to Traditional Funding

• Bootstrapping: Some agri-tech entrepreneurs utilize personal finances and operational cash flow to grow their businesses, allowing them to maintain full control without equity dilution or investor pressures. Though growth may be slower, this method is feasible where advancements can be tested gradually without large capital injections.
• Crowdfunding: Crowdfunding allows agri-tech startups to raise funds directly from a broad audience through online platforms, without significant equity dilution. Startups can offer incentives like exclusive product previews or small equity shares.6 This method suits ventures with compelling stories or products that resonate with people passionate about sustainability and agricultural innovation.

Legal Considerations for Funding Agri-Tech Startups

Every funding option comes with its own legal intricacies, making it essential for agri-tech startups to seek legal expertise to navigate the funding landscape successfully.

1. Equity and Ownership: Traditional funding agreements must clearly define the equity investors receive in exchange for their capital, impacting control, decision-making, and profit-sharing.⁶ Section 32 of the Nigeria Startup Act, 2022.
2. Due Diligence: Investors typically conduct thorough due diligence, requiring startups to have complete legal documentation, including intellectual property rights, contracts, and compliance records.
3. Term Sheets and Shareholder Agreements: These documents must define investment terms, founder obligations, investor rights, governance structure, and exit strategies.
4. Compliance with Investments and Securities Laws: Agri-tech startups must adhere to securities laws regulating equity issuance. In Nigeria, this includes registering investment offers with the Securities and Exchange Commission (SEC), unless exemptions apply.
5. Anti-Dilution Provisions: Legal measures may be needed to protect founders and early investors from undue shares dilution.
6. Crowdfunding Regulations: Crowdfunding must comply with SEC registration criteria, and rules on reporting, data protection, and transaction monitoring.⁷
7. Intellectual Property: Agri-tech startups need to protect their ideas and innovations crowdfunding campaigns to prevent theft or misuse of their concepts.
8. Consumer Protection: For reward-based crowdfunding, startups must fulfill their promises to avoid legal issues, such as issues relating to false misleading or deceptive representations, under the Federal Competition and Consumer Protection Act 2018.
9. Financial and Tax Record-Keeping: Proper financial records are essential for transparency, tax compliance, and future fundraising efforts.
10. Bootstrapping Autonomy: While bootstrapping minimizes investor-related complexities, it requires a solid legal foundation for contracts, leases, and compliance to avoid future legal complications.

Safeguarding Innovations Through Intellectual Property Protections

Intellectual property (IP) is essential in the agri-tech sector for protecting innovations in biotechnology, crop improvement, livestock farming and automation. IP rights prevent unauthorized use by third parties, enabling companies to recoup investments, maintain a competitive edge and enforce legal protection against infringement. Additionally, strong IP assets enhance business value and attract investors by demonstrating ownership and the potential for market leadership. In Nigeria, early registration of IP rights is essential for establishing clear ownership and avoiding legal disputes.

Types of Intellectual Property Protection:

The primary types of IP protection for agri-tech innovations in Nigeria include patents, trademarks, and copyrights, each offering unique benefits.

• Patents: Patents grant exclusive rights to inventions, preventing others from making, using, or selling the invention for 20 years, in exchange for public disclosure.⁸ In agri tech, patents are critical for protecting innovations like genetically modified organisms (GMOs), gene editing techniques (e.g. CRISPR),⁹ hybrid seeds, agricultural chemicals,¹⁰ and machinery such as drones, harvesting robotics, and IoT devices used for precision farming and livestock monitoring.¹¹
• Trademarks: Trademarks protect names, symbols, and logos, that distinguish goods or services. In agri-tech, trademarks help build brand identity for products like seeds, fertilizers, and farming equipment, and protect the identities of agri-tech service providers.
• Copyright: Copyright protects original works of authorship, such as software, technical manuals, research papers, and educational content, typically for the life of the author.¹² In agri-tech, copyrights safeguard farm management systems, precision farming software, and marketing materials like brochures and promotional videos for agri-tech products and services.

Usually, patents, trademarks and copyrights are registered through applications to the relevant regulatory agencies. For trade secrets, confidentiality is maintained through legal agreements.

Navigating IP Challenges in the Agri-Tech Sector

The agri-tech sector faces unique intellectual property (IP) challenges, particularly in safeguarding biotechnological innovations like GMOs and gene-editing technologies. These challenges stem from the novelty of the technologies, ethical considerations, and specific legal restrictions, such as those found in Section 1(4)(a) of the Patents and Designs Act, which limits the patenting of plant and animal varieties to microbiological processes. Additionally, the sharing of proprietary information carries the risk of exposing trade secrets, and enforcing IP rights often becomes complex in markets where legal systems are not fully developed.

To navigate these hurdles, agri-tech startups should focus on identifying patentable elements within their biotechnological innovations and tailor their patent applications to these aspects. Including detailed descriptions in the applications will help underline the technical innovations and ensure they meet the criteria for novelty and utility. Keeping detailed records of innovations and collaborating with research institutions can also strengthen claims of originality and simplify the IP process.

Moreover, agri-tech startups should engage with specialized IP lawyers to effectively manage legal complexities and adhere to ethical standards. This collaboration should include drafting documentation for patent applications, conducting comprehensive searches before registering trademarks and copyrights, and creating comprehensive software and digital content. Implementing strong non-disclosure agreements (NDAs), confidentiality protocols, and data security measures is crucial to protect sensitive information and prevent accidental disclosures.

Conclusion

Establishing comprehensive frameworks for securing funding, protecting innovations, and adhering to regulatory requirements is crucial for mitigating risks and positioning agri-tech startups for sustainable growth and innovation in Nigeria's evolving sector. Effective intellectual property management, strong legal compliance, and strategic funding approaches are essential to maximize opportunities while protecting assets.

Footnotes

1 Part I of the Nigeria Startup Act, 2022.

2 Part VII of the Nigeria Startup Act, 2022.

3 Sections 5 and 14 of NOTAP Act, 2004. Section 33 of Nigeria Startup Act, 2022.

4 Section 43 of Nigeria Startup Act, 2022.

5 Alejandro Cremades, 2016, "The Art of Startup Funding" New Jersey: John Wiley & Sons, Inc., Hoboken. Chapter 6, pp.

7 SEC Rules on Crowdfunding 2021.

8 Section 7 of the Patents and Designs Act.

9 Clustered Regularly Interspaced Short Palindromic Repeats technology that allows scientists to make precise changes to the DNA of plants and other organisms.

10 Zilberman, D., Holland T.G., and Trilnick I., (2018) Agricultural GMOs—What We Know and Where Scientists Disagree, Sustainability 2018, 10, 1514; https://www.mdpi.com/2071-1050/10/5/1514. Accessed on 17th September, 2024.

11 https://www.linkedin.com/pulse/innovation-agri-tech-using-technology-transform-sudeep-chakravarty Accessed on 17th September, 2024.

12 Section 28 of the Copyright Act, 2022.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.