Introduction
VENTURE CAPITAL IN NIGERIA
WHO IS A VENTURE CAPITAL MANAGER
Venture capital is a private equity and finance services firm that helps startup companies and small businesses to realize their long-term growth potentials through funding, planning, marketing and other necessary support in exchange for equity stake in the business.
The investors who provide the funding are called the venture capitalists whilst the middlemen or fund managers who manage the investments of the investors in the startups are called venture capital managers. This distinction is fluid as the two roles may be merged in one company depending on the terms of engagement between a startup company and the investors and/or venture capital manager.
Venture capital managers identify investment opportunities and innovative businesses with potential to generate high returns on investment. The monies invested in startups by a venture capitalist is usually referred to as “risk capital” because such investment is one with highly uncertain chance of success as well as an equally high potential to make huge returns from a successful investee.
The Corporate Affairs Commission (“CAC”) must incorporate the venture capital promoters as a private limited liability company with shares before granting them a Securities and Exchange Commission (“SEC”) licence as venture capital managers. This licence is granted after the venture capital promoters have submitted three (3) qualified sponsored individuals and the necessary paperwork, paid the necessary fees, and met all other licencing requirements.
SHARE CAPITAL REQUIREMENT FOR SETTING VENTURE CAPITAL FIRM IN NIGERIA
YA venture capital business must register with CAC and have N20,000,000 to do so in Nigeria (Twenty Million Share Capital). Additionally, the applicant business must demonstrate to the SEC that its shareholders have paid up the necessary minimum share capital of N20,000,000 (Twenty Million Naira) (i.e. through its Bank balances, fixed asset or investment in quoted securities).
SPONSORED INDIVIDUAL FOR LICENCE APPLICATION TO SEC
Sponsored Individuals are officers of an applicant company for an SEC licence who are in charge of adhering to the law governing the business activities of an SEC-licensed firm and may be held liable by the SEC for doing so.
Every applicant company for SEC licence or registration is required to have at least three (3) sponsored individuals, one of whom should be the managing director, and another who will be in charge of ensuring that all notifications, guidelines, instructions, etc. issued by the SEC or the Federal Government are followed. This Compliance Officer will also be in charge of overseeing compliance with the Investment and Securities Act and the SEC’s rules and regulations.
All sponsored individuals must have a minimum of four (4) years post-graduation experience to perform their functions as stipulated by the SEC Rules and Regulations.
Please note that individuals who have been previously sponsored by a SEC-licensed company may with notice to SEC be transferred as sponsored individuals to a new company seeking SEC licence or registration.
Additionally, certain people may be exempt from taking qualifying examinations administered by the SEC if the SEC determines from their work experience, professional backgrounds, or academic credentials that the people possess sufficient knowledge of the capital market to perform their duties in the applicant company.
WHAT ARE THE COSTS FOR SETTING UP A VENTURE CAPITAL FIRM
There are two (2) sets of costs for setting up a venture capital firm: the cost of incorporation and the cost of licensing.) CAC Incorporation Costs: The costs of incorporation of a company in Nigeria are dependent on the amount of share capital of the company. This is because the share capital of a company attracts a stamp duty payable to the Federal Inland Revenue Service (“FIRS”) in addition to the incorporation or filing fee chargeable by the CAC.
The total of incorporation cost of a venture capital company in Nigeria (i.e. a N20 Million share capital company) is about N305,000 (Three Hundred and Five Thousand Naira). The foregoing sum entails the CAC Registration Cost and Stamp Duty payable to FIRS.
The incorporation by CAC costs about N105,161.25 (i.e. this is calculated by paying N10,000 cost for the first 1 million of the 20 million share capital and, then, paying N5,000 cost for every subsequent N1million of the remaining 19 million share capital, which will then mean N5,000 multiplied by 19, plus the initial N10,000 which ultimately equals to N105,000).
Also, as already mentioned above, stamp duty of N153,050 is payable to the Federal Inland Revenue Service on the N20 million share capital (this sum is determined by multiplying 0.75% by 20,000,000).
Both payments above (to CAC and FIRS) are made using the Federal Government Remita payment platform which charges about N161 per payment. Miscellaneous expenses including post incorporation requests cannot exceed N50,000.
SEC Registration or Licensing Costs:
The costs associated with obtaining the venture capital license from the SEC is estimated at N11,250,000 (Eleven Million Two Hundred and Fifty Thousand Naira), the breakdown of which amount is as follow:
Application Fee of N100,000 (One Hundred Thousand Naira);
Processing Fee of N300,000 (Three Hundred Thousand Naira);
Registration Fee of N10,000,000 (Ten Million Naira);
Sponsored Individual Fee of N100,000 (One Hundred Thousand Naira) for each sponsored individual. Please note that the applicant company is required to sponsor three (3) individuals (so, the sum is multiplied by 3);
Miscellaneous cost is estimated at N450,000 (Two Hundred and Fifty Thousand Naira) to cover flight tickets, taxi fares, printing, courier, calls, internet data, etc.
NB: This article is not a legal advice, and under no circumstance should you take it as such. All information provided are for general purpose only.
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