A Guide To Setting Up Venture Capital Firms in Nigeria

Venture capital firms in Nigeria are gradually becoming a regular part of the startup conversation. In the last 3 years, we have witnessed an increased activity of local and international VC firms in Nigeria and across the African continent and there is an advocacy for the rise of more homegrown VCs who will be instrumental in the growth and scale of current and upcoming homegrown solutions to some of Africa’s problems. This article attempts to explain the steps involved in setting up a Venture Capital firm in Nigeria. 



What is a Venture Capital Firm?

Venture Capital (VC) is a type of modern financing where high net worth investors (HNIs) pool together to provide capital (funds) to startups and small businesses possessing long-term growth potential and scalability. 


A VC firm is essentially an investment firm that supports and incubates  early-stage or growth-stage companies and startups, through capital raised from its limited partners. To simplify this picture, a VC firm is a professional money management firm of sorts providing funding with the aim to assist and aid the company to grow and become sustainable /impact worthy. That’s the easy part, the tricky part is qualifying for investment funding and aligning with what VC firms tend to expect.  Some would say there is a method to the VC madness,  based on research we can identify some discernible trends/patterns:


1) Investment pattern; It could be based on a particular investment stage and/or a particular industry. This simply means that VC firms usually have a scope/focus with respect to the startups they invest in. While the investment could be focused on a particular industry. 

2) it could also be based on a particular investment stage (seed, series A-C, etc), location or market vertical. 


Venture capital activity has evolved from a little known niche area into a fast-paced, highly sophisticated industry with multiple players and stakeholders all contributing to innovation in entrepreneurship, science and tech and countless other domains. 



Structure of a Venture Capital Firm in Nigeria

VC firms are typically structured (registered) as limited partnerships  where the firm serves as the general partner, and the investors serve as limited partners. All the partners have an ownership stake in the funds of the firm, and profits generated from the investment of the VC are shared amongst them.


The limited partners usually contribute a larger chunk of the funds while the general partners provide the remainder of the funds and invest it in a portfolio of companies over a period of 7 to 10 years. VC firms ideally raise multiple funds with each one looking to be bigger than the previous funding round. The ultimate goal of the VC is to exit successfully from their position in a startup through private sale of the investee company or further investment rounds (if the VC, in particular, is focused on early-stage companies)or if the company goes to an initial public offering stage.


The successful acquisition of Paystack, a startup born out of Lagos, Nigeria which provides a user-friendly way to integrate payments services into an online or offline transaction by way of an API by Stripe, a US-based payments company is a typical example of an outcome any VC would hope for.


It is important to state that the limited partnership, between the general and limited partners, usually contains some agreements to ensure the general managers maximize investors’ return through the VC investment. For example, some agreements could restrict the level of investment into a single startup. Some could prohibit investment in certain categories of startups or investment types.



Requirements for Setting Up a Venture Capital Firm in Nigeria

There has been a steady increase in venture capital activity and investment in Nigeria and Africa. Within the first 6 months of 2021, the value of transactions undertaken by startups on the continent reached an eye-watering $1.19 billion,  with deals worth $1 million and above accounting for about 95% ($1.14 bn) of these.


Nigeria and South Africa lead the pack, each accounting for 28% of the startups that raised funds in the bubbly African tech ecosystem. However, whilst a fraction of VC investments can be attributed to indigenous firms, the majority still come from foreign VC firms and investors.


To set up a VC firm in Nigeria, there are various legal, regulatory and compliance requirements to consider; While some are general compliance requirements stipulated by the Corporate Affairs Commission (CAC) for company incorporation, others are peculiar to the VC firm structure based on its nature and operations.  


We shall focus on the requirements peculiar to VC firms:



Before the amendment of the Companies and Allied Matters Act (CAMA) in 2020, VC firms in Nigeria could be registered as a Limited Liability Company. In Lagos State, a VC firm could choose to register as a Limited Partnership under the Partnership Law of Lagos State and as a business name under CAMA for it to operate outside Lagos State.


However, following the passing of CAMA 2020 , the CAC on the 31st of August 2021 announced the commencement of registration of Limited Liability Partnerships – LLPs; which means that  VC firms can now also register as an LLP. A VC firm in Nigeria now has the option to register either as a Limited Liability Company or as a Limited Liability Partnership.


Additionally, VC firms along with private equity and other classes of investment firms are also required to be registered with the Security and Exchange Commission (SEC) if their investor fund exceeds 1 billion. Registration of a VC firm with SEC requires the fulfilment of certain conditions. Some of these conditions include payment of  fees, evidence of minimum paid-up capital, the profile of the company, current fidelity insurance bond, etc.        




There are several means by which a venture capital firm raises its funds. These include banks and other financial institutions, insurance companies, pension funds, (“institutional investors”) high net worth individuals, etc. However, there could be some form of restrictions with regard to institutional investment in VC firms. For example, a bank cannot invest more than 40% of the VC firm’s paid-up share capital.


Registered VCs are also not permitted to solicit or raise funds from the general public but may only privately source funds from qualified investors which could be individual or institutional. 




Tax payable by a VC firm in Nigeria depends on the structure of the VC fund. If the VC is registered as a limited liability company, it would be required to pay Companies Income Tax. However, where a VC is registered as an LLP, each partner investor would be liable to individual income tax from the business.


In such a situation, the investee company/startup is however required by the Company Income Tax Act to withhold 10% of the interest on dividends due to the VC investors.



Final Take

We have taken a cursory look at the legal requirements but of course, there remain other factors to be considered when starting a VC firm in Nigeria. Consideration relating to the operational day-to-day running of the firm such as; structure of governance, model of investment,  etc.


DISCLAIMER – This article is non-exhaustive and should not be taken as legal advice. Indigenous investors looking to set up VC firms or foreign VCs who intend to operate or invest in Nigeria should seek expert legal advice. You can contact Olisa Agbakoba Legal (OAL) for further enquiries. 





Co-Written By:

  • Stephanie Etiaka – Innovation Officer, Olisa Agbakoba Legal (OAL)

  • Azeez Adebayo – Virtual Intern, Olisa Agbakoba Legal (OAL)