IP now valid as collateral in Nigeria

One of the most difficult issues confronting Nigerian startups is a lack of funding. The Startup Investment Fund has now been established thanks to the Act and early-stage fundraisers will be able to raise more money during the pre-seed and seed stages through the Fund. The Credit Guarantee Scheme also allows credit to be extended to startups in the country with startups able to obtain loans by providing sufficient collateral in the form of intellectual property.

Oyindolapo Olusesi, a lawyer and fintech expert noted that, “the most interesting thing of the provision on the CGS is that IP is now to be regarded as valid collateral, depending on its value. It makes sense, because already one very valid component of tech founders’ claim to equity is the quality of their product.” However, it remains to be seen how the government intends to finance the Fund itself.

Speaking of the regulatory promises, Olusesi cited the establishment of the National Council for Digital Innovation and Entrepreneurship. “The Act gives the council some huge powers in relation to formulation of legislation relating to startups. Also, they can review policies and directives of ministries, departments and agencies which may affect the operation, establishment and investment in startups.” Olusesi is of the view that the harmonisation of laws and regulations alone will solve 30% of the existing problems, and that implementation of the laws will be the baby steps toward fulfilment.

Technology Development Zones have also been created to promote the growth and development of startups, incubators and other businesses. Startups located in these zones will be eligible for incentives under the Nigeria Export Processing Zones Act, including tax exemption for life and duty exemption. Similarly, Angel investors, accelerators and venture capitalists are entitled to an investment tax credit equivalent to 30% of their investment in a startup. This credit will be applied to any gains on investment, which are subject to tax.

Jesutooni Ajiboye, a regulatory and compliance analyst at Banwo & Ighodalo, reiterates that the Startup Act is a good innovation as it demonstrates Nigeria’s willingness to engage with digital innovation and tech-based solutions towards the finance of startups. “It also encourages collaborations between various stakeholders to encourage startups to thrive under the Nigerian system,” he added.

He noted that the startup portal is one of the things that stands out for him. “It will encourage investment into the startup ecosystem by providing accurate information about incentives for startups. It encourages inward investment, and that’s a good thing.” However, his concern with lofty Nigerian legislative reforms such as this lies in its implementation. Ajiboye feels that without proper political will to implement the provisions, it will most likely “die a natural death”.

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