Raising money is one of the most important things a startup does, and one of the easiest to get wrong. Templates written for US companies are used without adapting them to Nigerian company law. Shares are promised but never properly issued. Foreign investment arrives without a Certificate of Capital Importation. Investment is promoted on social media in a way that breaches securities law. Each of these problems surfaces at the worst possible moment: during due diligence for the next round.
We act for founders raising capital and for the angels, syndicates, accelerators and venture capital funds that invest in Nigerian startups. Our aim is to get the round closed on fair terms, quickly, with a clean cap table and documents that the next investor will accept.
Funding at each stage
| Stage | Common instruments | Key legal issues |
|---|---|---|
| Friends, family and angels | Ordinary shares, SAFEs, convertible notes | Valuation, informal promises, proper share issues |
| Pre-seed | SAFEs and convertible notes | Valuation caps, discounts, conversion under CAMA 2020 |
| Crowdfunding | Shares or debt through an SEC-registered portal | Eligibility, limits, disclosure, investor protection |
| Seed and Series A | Priced equity rounds, preference shares | Term sheet, investor rights, closing steps |
| Series B and growth | Larger priced rounds, secondaries | Governance, regulatory approvals, offshore structures |
| Bridge rounds | Convertible notes and SAFEs | Interaction with existing investor rights |
Angel and friends-and-family rounds
Many startups are first funded by angel investors, friends and family, often informally. These early rounds still create legal relationships that shape the company's future. We structure angel rounds through ordinary shares, SAFEs or convertible notes; prepare simple, investor-friendly documents; and make sure shares are properly allotted and recorded with the Corporate Affairs Commission. We also advise angel syndicates and networks on vehicles for pooling investments, and act for angels on due diligence and protecting their position in later rounds.
SAFEs and convertible notes
Simple Agreements for Future Equity (SAFEs) and convertible notes let startups raise money quickly without agreeing a valuation, by deferring it to the next priced round.
- SAFE: a contractual right to receive shares in a future equity round, usually at a discount or subject to a valuation cap. It is not debt and does not accrue interest.
- Convertible note: a loan that converts into shares on specified events, typically a qualifying financing. It accrues interest and has a maturity date, at which point repayment may be demanded if it has not converted.
Most templates were written for US companies and must be adapted when the issuer is Nigerian:
- Authority to issue shares: conversion requires the company to allot new shares in line with CAMA 2020 and its articles, which may need shareholder approval
- Pre-emption rights: existing shareholders may need to waive their right to take up new shares first
- Foreign investors: funds should come in through official channels so that a Certificate of Capital Importation can be issued
- Tax and stamp duty: interest on convertible notes may attract withholding tax, and share issues may attract stamp duty
- Regulated companies: a conversion that changes control may need regulatory approval
We advise on valuation caps, discounts, most-favoured-nation clauses and pro rata rights, prepare the resolutions that authorise issues and conversions, and model the effect on the cap table so founders understand their dilution before they sign.
Crowdfunding
The Securities and Exchange Commission's crowdfunding rules allow eligible micro, small and medium enterprises to raise limited amounts from the public through SEC-registered crowdfunding portals, with limits on how much can be raised and invested, disclosure obligations and investor protections. We advise businesses on eligibility, disclosures and campaign documents, advise crowdfunding portals on SEC registration and compliance, and advise investors on their rights.
Avoiding unlawful public offers
Founders sometimes promote investment opportunities widely on social media or in WhatsApp groups without realising that this may amount to a public offer regulated by the SEC. We advise on raising funds lawfully, through private placements, registered crowdfunding portals or other permitted routes.
Venture capital rounds
A priced venture round involves more than signing documents. The company must have authority to issue new shares, existing shareholders must waive or exercise pre-emption rights, foreign investment must be imported correctly, and the results must be filed with the Corporate Affairs Commission.
The process
- Term sheet: negotiating valuation and the key terms before money is spent on documents; see term sheet review
- Due diligence: preparing a data room and fixing problems in ownership, IP and compliance before investors find them; see corporate due diligence
- Documents: share subscription agreement, shareholders' agreement with investor protections, amended articles of association, disclosure letter and resolutions
- Closing: issuing shares, filing the return of allotment with the CAC, paying stamp duties and, for foreign investors, obtaining a Certificate of Capital Importation
- After closing: updating registers, issuing share certificates and setting up investor reporting
Key terms we negotiate
Valuation, liquidation preferences, anti-dilution protection, board composition, reserved matters, information rights, pre-emption and pro rata rights, drag-along and tag-along rights, founder vesting, warranties, and the size of the employee share option pool. Our aim is to protect our client's position while keeping the round on track.
Foreign investors and offshore structures
Many international investors prefer to invest through a holding company in Delaware, the UK, Mauritius or another jurisdiction. We advise on whether a holding company or Delaware flip is needed, and on bringing foreign investment into a Nigerian company so that dividends and sale proceeds can later be repatriated through the official foreign exchange market.
Startups in regulated sectors
Investments in fintechs and other licensed startups can require regulatory approval, for example from the Central Bank of Nigeria for a change in significant shareholding. We build these approvals into the timetable; see our fintech lawyers service.
For investors
We act for angels, syndicates, accelerators and venture capital funds investing in Nigerian startups. We carry out legal due diligence focused on ownership, founder arrangements, IP, licences and compliance, negotiate investor protections, and structure investments so that returns can be repatriated.
How we help
- choosing the right instrument for each stage of fundraising
- adapting SAFE and convertible note templates to Nigerian law
- reviewing and negotiating term sheets
- preparing investment documents and corporate approvals
- crowdfunding and private placement compliance
- closing steps with the CAC, stamp duty and capital importation
- keeping the cap table clean from the first angel round to Series A and beyond
Our startup lawyers in Lagos and Abuja work with founders and investors across Nigeria. To discuss your round, contact us.
