Startups in Nigeria – What is a Startup ?

In Nigeria, as elsewhere, a startup typically refers to a young company, often newly established, that is designed to develop a unique product or service under conditions of extreme uncertainty. Startups are characterized by their innovative ideas, scalability potential, and a focus on rapid growth. In Nigeria, the startup ecosystem has been growing rapidly, fueled by a combination of entrepreneurial spirit, access to technology, and an increasing pool of venture capital and angel investors interested in supporting new ventures.

Key features of startups in Nigeria include:

1. **Innovation**: Startups often bring new ideas or innovations to market, whether through technology, business models, or services.

2. **Scalability**: They have the potential to grow rapidly and significantly, often leveraging digital platforms and the internet to reach a large customer base.

3. **Risk and Uncertainty**: Startups operate in environments of high uncertainty, where success is not guaranteed and the risk of failure is significant.

4. **Entrepreneurship**: They are typically founded by entrepreneurs who are willing to take risks and challenge the status quo to bring their vision to life.

5. **Ecosystem Support**: In Nigeria, startups benefit from an increasingly supportive ecosystem that includes startup incubators, accelerators, co-working spaces, and access to mentorship and funding opportunities.

Examples of successful startups in Nigeria include companies like Paystack (online payments), Flutterwave (payment technology), Andela (software development outsourcing), and Kobo360 (logistics platform), among others. These startups have not only contributed to economic growth but have also put Nigeria on the global map as a hub for innovation and entrepreneurship.

Nigeria now has a law on startups, and this is how a startup is defined. According to Section 47 of the Nigeria Startup Act 2022, a startup is defined as a company in existence for not more than 10 years, with its objectives being the creation, innovation, production, development or adoption of a unique digital technology innovative product, service or process.

To qualify as a startup under the Act, a company must:

Additionally, a sole proprietorship or partnership may qualify if they meet the other requirements above but they will be given a pre-label status which expires after 6 months to enable them to incorporate as a limited liability company.

Here are the core factors that you should consider when building a startup:

You must determine the structure that you want your startup to be registered as. The options are:

Each of these structures have their pros and cons but generally, it is more advisable to register as a Limited Liability Company for the following reasons:

After deciding your choice of a business structure, proceed to register your business at the Corporate Affairs Commission. You can either do this yourself, through an online provider or hire the services of a lawyer to register it for you.

Hiring the services of a lawyer is most preferable because the lawyer’s expertise and foresight would save you from liabilities that may arise in the future.

However, be sure to hire a lawyer who is well versed in startups, don’t assume that all lawyers have startup knowledge and expertise.

There are various kinds of startups that operate in different sectors of business such as; e-commerce, finance, education, logistics, transportation, etc.

Each of these sectors have regulatory bodies and agencies that oversee the businesses that operate in the sector. For instance, the Central Bank of Nigeria oversees the operation of all financial institutions including fintech companies.

As a tech company starting out, you must identify the regulatory bodies that oversee the business that you wish to operate in, and seek the necessary licenses and permits before commencing operations.

Contracts are important to define relationships, manage collaborative work and most importantly, to protect one’s self or company.

When setting up your startup, you may engage in agreements with co-founders, employees, independent contractors and consultants, etc, and there are different kinds of agreements for each of these relationships.

For co-founders, you should have a Founders Agreement that spells out the rights and limitations of each founder with respect to matters such as: intellectual property, control of the business, distribution of shares, etc.

For employees, there should be employment agreements and for independent contractors and consultants, service agreements; all of which must contain clearly defined clauses that reflect the intentions of both parties.

If you hire an independent contractor, make sure to establish in the service agreement that you own all intellectual property rights to the job done. That is, anything they come up with, you own.

This is very important, as you don’t want to end up with a developer claiming they own the IP to your software product which you paid them to develop.

This brings us to our next point…

Once you’ve registered your business, obtained licenses and permits and signed the necessary contracts and agreements, the next thing on your mind should be- how do I protect my startup idea from being stolen?

Some of the ways you can do this include: Trademark registration, Patent Registration and Copyright Protection.

To learn more about these topics, read our articles on Intellectual Property.

As a startup founder, you must be aware of the taxes that your company is obligated to pay. To learn more about this, read our article on the taxes that every Nigerian entrepreneur should be aware of.

If you’re registering your business as a company, you must appoint board members, a company secretary and auditor (where applicable), hold annual general meetings, file annual returns with CAC and comply with all relevant corporate governance rules and ethics for companies.