Understanding the Draft Crowdfunding Rules Published by the Securities and Exchange Commission

Posted on Apr 25, 2020

Startups, particularly tech startups, have experienced an exponential year-on-year increase in capital investments over the last three to four years, but the investment gap, especially in developing countries like Nigeria remains huge. Small and Medium Scale Enterprises still find it relatively difficult to raise capital to finance their businesses, especially at the early stages of their lifecycle. Globally, entrepreneurs and regulators are therefore focusing attention on the potentials of crowdfunding.

Crowdfunding is the aggregation of small amounts of capital from many individuals or persons to finance a purpose. The purpose could be commercial or humanitarian. So far, crowdfunding has been utilized more for humanitarian purposes in developing countries. But the prospects transcend saving lives and financing academic careers. Observations from other jurisdictions show how valuable crowdfunding could help startups in raising capital, companies in the United States raised about $738.9 billion in crowdfunding in 2016. In 2019, Wefunders and StartEngine both raised more than $100 million in capital for startups. The relative ease of accessing capital through crowdfunding and the decentralized nature of the process, bolsters its potentialities. Interestingly, this is also one of the reasons it is so distrusted in certain jurisdictions – including Nigeria.

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