Crowdfunding, also known as “online financing,” is defined as raising funds to finance a project or business from the public using an online platform. A crowdfunding platform could be a website portal, intermediary portal, mobile application, or other similar medium of exchange employed to facilitate interaction between fundraisers and the investing public.[2]The concept of crowdfunding has deep international roots, used frequently to finance book prints in Europe in the 17th century and to raise money to hold music concerts. Crowdfunding activities are not novel in Nigeria with practices such as Esusu (Igbo); Ajoo (Yoruba), Adashi (Hausa) where a group of people contribute money to be distributed on a need or in a chronological manner. Modern day crowdfunding has, however, become an incredible force for businesses throughout the world.

Globally, crowdfunding has earned massive popularity through platforms such as Kickstarter and IndieGoGo amongst others. It typically serves as an alternative for small businesses categorized as Micro, Small and Medium Enterprises (“MSMEs”) to raise funds/capital for their business without being limited to conventional financing options, such as bootstrapping, family and friends contributions, angel investments, venture capital, government programs or bank loans. Crowdfunding provides entrepreneurs with a platform to access investors across borders and create awareness about their businesses or products.

As more countries take steps to regulate and legalize different models of crowdfunding, more investments are being made in early stage businesses across the world. Different regulators in different countries have taken different approaches to equity crowdfunding, with varying effects on the development of each of their respective financial ecosystems. Some countries have taken very liberal approaches to equity crowdsourcing, while others are very protectionist. Although crowdfunding activities have always thrived in Nigeria, through platforms such as FundAnEnterprise.org, NaijaFund.com, Piggy Vest and Farm crowdy, the Nigerian Securities and Exchange Commission (SEC), has only just recently come up with a proposed regulatory framework for crowdfunding.

This article seeks to review SEC’s proposed regulatory framework for crowdfunding in Nigeria with emphasis on the equity- based crowdfunding model because its activities have a direct impact on the capital market and therefore, requires some form of regulation…