In June 2020, I wrote about some Nigerian companies that were offering eye-catching returns to investors. Although a few of these companies called themselves “agritech” startups, it is more accurate to call them crowdfunding companies.
While the returns they offered - some as high as 40% in three months - grabbed my attention, I knew that investors were at risk of losing their money with such outsized returns. A few people lost their money at the time, and one Nairaland thread shows the number of such agritech companies that have defaulted on payments to investors.
I argued in my article that it was time for the Securities and Exchange Commission to regulate the crowdfunding sector. The failure of yet another crowdfunding company, MBA Forex, has sent even more shockwaves.
So it feels like perfect timing that the SEC has finally released guidelines for crowdfunding businesses after over five years of discussing a regulatory framework.
As part of the new rules, all crowdfunding intermediaries must be registered with the SEC and have a minimum paid-up capital of N100 million. The new regulations raise some critical issues and will definitely have a number of startups calling their lawyers.
There’s a lot to unpack in the regulations and you can look out for my analysis of the new rules later in the week.