STARTUPS IN NIGERIA
As of September 2022, at least 481 Tech startups were in operation across Nigeria, employing over 19,000 people between them. Fintech is the most populated sector with more than one-third of the country’s tech startups active in that vertical. Almost 50 per cent of Nigerian Tech startups have undergone some form of acceleration or incubation, though diversity is an issue as less than 15.6 per cent have a female co-founder.
These startups are also supported by a strong investment ecosystem. At least 383 individual Nigerian tech startups raised a combined US$2,068,709,445 in funding between January 2015 and August 2022, more than any other country in that period. Funding, both in terms of the number of start-ups backed and the total tally secured, has generally increased year-on-year, with total investment increasing more than four-fold between 2020 and 2021, and on course for a further big leap in 2022.
It is this backdrop that the new Act dictates and defines which businesses fall under the aegis of “Start-up”.
The new Act in Section 13, provides for a Start-up Label. This is a label issued to a Start-up by the National Information Technology Development Agency.
In order for a company to be labelled a Start-up under the Act, it must fulfil the following requirements:
- It is registered as a limited liability company under the Companies and Allied Matters Act 2020, and has been in existence for a period of not more than 10 years from the date of incorporation.
- Its objects are innovation, development, production, improvement, and commercialisation of a digital technology innovative product or process.
- It is a holder or repository of a product or process of digital technology, or the owner or author of a registered software.
- It has at least one Nigeria as a founder or Co-founder of the start-up, provided that the Nigerian founder or co-founder will share from profit or revenue from the sale of shares.
- In the case of a sole proprietorship or partnership, it satisfies the conditions set out in Paragraphs (b), (c) and (d) of this sub-section.
Accordingly, labelled Start-ups are required to carry out the following actions:
- Comply with all the extant laws governing businesses in Nigeria.
- Provide information annually on the number of human resources, and total assets.
- The annual turnover achieved from the period the Start-up label was granted.
- Maintain proper book of accounts in accordance with reporting obligations provided under extant laws and regulations.
- Provide an annual report on incentives received and advancement made by virtue of the incentives.
- Notify the Coordinator of any change in structure, composition or objects within a period of one month from the date of such change.
- Comply with the obligations set out by the Coordinator after issuance of the Start-up label.
KEY HIGHLIGHTS OF THE BILL
The notable highlights of the Bill include:
a) Nationality of the Start-up: The Bill provides that the company should be incorporated in Nigeria and have its headquarters in Nigeria.
b) Objective of the Start-up: The Bill provides a wide range of objectives which include innovation, development, production, improvement and commercialization of innovative products.
c) Life span: To qualify as a Start-up in the Bill and have access to the incentives, the company should have existed for not more than ten (10) years in Nigeria.
d) Products: The Bill targets the Tech ecosystem of Nigeria. The Bill provides that the goods and services offered by a Start-up company, should involve new technology or at the least, be technology-enabled.
The Bill also proposes that Ministries and Agencies of Government set a 15 per cent margin of preference for Start-ups, when the agencies procure technology-related products.
e) Shareholding of the company: The Bill aims to promote Nigeria’s economy by encouraging Nigerian-based Start-ups. As a result, the Bill provides that at least 51 per cent of the Start-up shares should be held by Nigerians.
This provision does not limit foreign participation. Companies in which foreign participation exceeds 49 per cent, can still qualify as a Start-up where the ultimate beneficial owners of its foreign corporate shareholders are Nigerian citizens.