Legal Considerations For Private Equity And Venture Capital Investments In Nigerian Startups

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Nigeria is a popular investment destination in Africa due to its large economy and population size, which has led to a vast number of businesses operating in the country. In recent years, Nigeria has witnessed a boom...
Nigeria Corporate/Commercial Law
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Nigeria is a popular investment destination in Africa due to its large economy and population size, which has led to a vast number of businesses operating in the country.

In recent years, Nigeria has witnessed a boom in private equity (PE) investments. In the African Private Equity and Venture Capital Association's (AVCA's) '2020 Annual African Private Equity Data Tracker', Nigeria is reported to have struck 50 percent of PE deals in West Africa between 2015 and 2020. Several players have taken advantage of Nigeria's potential to invest across different sectors. 1


Private equity firms buy companies and overhaul them to earn a profit when the business is sold again.2Venture Capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture Capital generally comes from well-off investors, investment banks, and other financial institutions. A venture capital firm is a company or organization that invests in and mentors new, early-stage, and growth-stage companies. It plays a crucial role in fostering innovation and supporting entrepreneurship in the country.3


There are various laws that regulate both private equity and venture capital investment in Nigeria. Some of the key legislations and regulations include the Companies and Allied Matters Act (CAMA), the Investment and Securities Act (ISA), and National Office Technology Acquisition and Promotion (NOTAP), etc. However, one of the major agencies regulating private equity investment and venture capitalist investment is the Securities and Exchange Commission. The Securities and Exchange Commission's primary duty with regard to venture capital transactions in Nigeria hinges on the importance of regulating the involvement and operations of individual and corporate investors in venture capital transactions in Nigeria.

In addition to the SEC Rules, an additional rule (Rule 249D) was issued and made effective on the 28th of February 2013 to regulate the activities of private equity firms with a minimum commitment of 1 (one) Billion Naira Investment funds. Rule 249D (3) expressly provides that

a private equity fund shall not:

1. Solicits funds from the general public but shall privately source funds from qualified investors alone;

2. Invest more than 30% of the Fund's assets in a single investment


There are some considerations that must be taken into account when a startup in Nigeria seeks investment from venture capitalists and private equity firms such as

1. CORPORATE STRUCTURE: Investors looking to establish Private Equity funds for startups, need to consider the available corporate structures for such investments. In terms of corporate structure, under the laws in Nigeria, investors can adopt different investment vehicles including (i) a limited partnership registered under the Companies and Allied Matters Act (CAMA) or under the partnership laws of various states; or (ii) a private limited liability under CAMA. A review of market practices reveals that the vehicle most commonly utilized by investors is the limited partnership, due to the perception that it is tax-efficient and allows investors to participate in the funds as limited partners (LPs) or limited liability partners4.

2. DUE DILLIGENCE: Investors must conduct due diligence on Nigerian startups so as to mitigate risks and make informed investment decisions. This will enable investors to conduct due diligence to assess the financial and legal health of a company before committing funds. Nigerian startups should be prepared to provide comprehensive and accurate records of financial statements, legal contracts, tax documents, and potential legal disputes.

3. THE TYPE OF AGREEMENT: Venture capitalists when seeking to invest in a Nigerian Startup must ensure that every important agreement should be executed such as the investor term sheet, a share purchase agreement, and a shareholders agreement, etc.5

4. REGULATORY COMPLIANCE: Venture capitalists and private equity firms should ensure that in making investments, the Nigerian startup must be diligent about regulatory compliance. Securities laws and financial regulations may vary based on the funding source and jurisdiction. Failure to comply with these laws could lead to severe penalties, legal disputes, or even the loss of funding for start-ups. Also review for mention local content, code of governance as well as restriction on foreign ownership in certain sectors.

5. SECURITIES AND FINANCING LAW: Startups in post-revenue/money fundraising have to pay close attention to the securities and financing laws within the jurisdiction of their operations. For instance, in Nigeria, the relevant provisions of the Startup Act, the Securities and Exchange Commission Rules as well as the Anti-Money Laundering laws and impacts have to be considered.


While investing in startups poses a high degree of risk, it also presents potential opportunities for immense rewards. It is important that startups engage the services of professionals including lawyers, accountants, and financial advisers at every stage of financing to ensure that the investments are adequately negotiated, and the rights and obligations of the parties are clearly expressed.


1 Anu Balogun, "Legal and regulatory framework for private equity in Nigeria", <>, accessed on February 29, 2024

2 James Chen,"Private Equity Explained With Examples and Ways to Invest", ">, accessed on February 29, 2024

3 Adam Hayes, "Venture Capital: What is VC and How Does It Work?",>, accessed on February 29, 2024

4 Supra

5 Adedolapo Arisoyin, " Stages in Startup Financing, Legal Considerations", <>, accessed on February 29, 2024

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.

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