WITH the success rate of startups reaching their crowd-funding goal put at around 22.4 per cent, finance and economic experts have frowned at its low level of development.
Experts describe crowd-funding as the practice of collecting money from multiple individuals or sources in order to finance a new project. Often, crowd-funders turn to social media to share their platform or idea with the purpose of inspiring others to contribute to the crowd-funding campaign.
Specifically, Proshare analysts are worried about the future of crowd-funding in Nigeria. According to them, whereas there has been relative success in countries like the United Kingdom, North America, Europe, and Asia showing impressive growth, African countries appear to be lagging. This is attributable to weak regulations, lack of awareness of fraud, and corruption.
However, the Securities and Exchange Commission (SEC) has issued a warning to investors against unregistered investment crowd-funding platforms.
In a secular dated August 3, 2022, SEC stated that it has observed with concern the fraudulent activities of some unregistered crowd-funding investment platforms and advised the public against such platforms.
It had in January 2021, published its crowding funding rules, and requested well intended crowd-funding platforms to register with the commission and comply with the rules.
What crowd-funding essentially does is eliminate the back and forth between entrepreneurs and investors.
Instead of waiting for an opportunity to pitch their product idea to a team of investors, entrepreneurs can take their offer directly to the public to seek financial support from people who are interested.
According to the SEC circular, members of the public are further advised to confirm the registration status of any entity soliciting their participation in any investment scheme by contacting the Commission through its website.
A proposed rule has been developed to provide a regulatory framework permitting private companies with the required structure and mechanism in place to raise capital from the public through crowd-funding.
It noted that Micro, Small and Medium Enterprises (MSMEs) incorporated as a company in Nigeria with a minimum of two years operating track record should be eligible to raise funds through a crowd-funding portal registered by the commission.
The Commission noted that the maximum amount which might be raised by a medium enterprise shall not exceed N100 million.
“The maximum amount which may be raised by a small enterprise shall not exceed N70 million and the maximum amount which may be raised by a micro enterprise shall not exceed N50 million.
“The limits set forth above shall not apply to MSMEs operating as digital commodities investment platforms or such other MSMEs as may be designated by the commission from time to time,” it said.
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