Open Collections

Abstract

Nigeria's Start-Up Act, 2022, aims to promote growth in the technology sector via several initiatives, including investment incentives. However, the landscape of early-stage venture finance has seen important changes over the last 10 years, marked by the increasing prominence of hybrid instruments like the Simple Agreement for Future Equity. Traditional investment incentive frameworks rely on classifying investments as debt or equity, categories into which the SAFE does not neatly fit at execution. This raises concerns about whether the Act's incentives will effectively capture innovative financing methods crucial for startups. This thesis addresses the central question: "How should lawmakers (specifically in Nigeria) effectively draft investment incentive laws to ensure that innovative contracting methods such as the SAFE are captured in the investment criteria?" This research examines the nature and classification of the SAFE, comparing its treatment under investment incentive laws in the United States and Canada, jurisdictions with significant SAFE usage. The analysis also investigates the tax classification challenges of the SAFE (considering debt, equity, and derivative characterizations) and examines fiscal incentives to see if they accommodate the SAFE investor. The findings suggest that holding on to debt/equity distinctions would exclude investments made via the SAFE and hinder the Start-Up Act's Incentive objectives. Drawing lessons from US and Canadian state/provincial approaches that adopt more flexible, substance-over-form criteria, this research provides a template for a similar adaptable approach in Nigeria. It concludes by offering policy recommendations and potential drafting considerations for Nigerian policymakers to ensure the Start-Up Act's investment incentive includes instruments like the SAFE.