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On 16 January 2026, the Securities and Exchange Commission (SEC) issued Circular No. 26‑1, raising the minimum share capital for venture capital (VC) fund managers in Nigeria from ₦20 million to ₦200 million. This tenfold increase marks a significant shift in the regulatory landscape and raises questions about its alignment with the realities of venture capital. The central question is: what economic risk is a 200m share capital meant to absorb? We share some key market considerations below.
1. LP Recourse
If the intention of the SEC is to create a protective buffer for LPs, the logic may not hold under the structure of venture funds because the GP is typically a separate entity from the fund manager and with the benefit of limited liability. Ordinarily, there should be no recourse to the capital of the manager. Also, the investment capital belongs to the fund, not the manager's balance sheet and investment losses are designed to be borne by LPs not by the fund manager. Importantly, a GP does not guarantee portfolio performance and is not designed to serve as a loss-absorbing institution. While capital requirements can serve useful purposes in deterring unserious entrants, supporting operational resilience, and providing a base for liability in cases of misconduct, these objectives must be calibrated to the nature of the activity being regulated.
2. Operating Capacity
If the intention of the SEC is to ensure that the venture capital fund manager has sufficient financial capacity to sustain its operations, this rationale also weakens under examination of how VC economics actually function. In practice, a venture capital fund manager's operating model is not designed to depend primarily on its paid-up share capital. Instead, its financial sustainability is built into the fund structure itself. Venture managers typically earn management fees calculated as a percentage of committed capital from LPs specifically intended to cover the manager's operating costs as well as a contractual provision to cover fund expenses.
3. Skin in the Game
If the purpose of the minimum share capital requirement is to ensure that a venture capital fund manager can meet its own capital commitments to, the rationale is also weak because, in practice, venture capital commitments are called on a pay-as-you-go basis, not required as a lump-sum upfront contribution. Fund managers do not deposit their full commitment upfront. Instead, capital is drawn over the fund's lifecycle, usually in line with investments. By imposing a fixed ₦200,000,000 threshold regardless of the size of the relevant fund, the SEC is effectively signalling that a fund manager cannot operate as a venture fund unless it's managing a large, fully funded capital pool. With a 200 million day -1 capital requirement, a structural misalignment is also inevitably created as smaller or early-stage managers may be forced to lock up capital far in excess of what they actually need to satisfy their obligations, artificially raising the cost of entry and excluding potentially high-quality fund managers from the market.
Key Takeaways
1.In venture capital, the dominant financial risk is portfolio risk, which is knowingly assumed by sophisticated LPs and contractually allocated to them. The manager does not function as a loss-absorbing intermediary, and its balance sheet does not ordinarily protect investors from investment losses. A fixed ₦200 million capital threshold therefore operates primarily as an entry barrier rather than an investor protection mechanism, and may be disproportionate to the operational risk profile of VC management particularly in an emerging market context where ecosystem development depends on the formation of smaller, specialist, and first-time funds.
2. The SEC's fixed requirement is therefore at odds with the market-driven, scalable design of venture funds, where capital commitments naturally expand with fund size and are drawn over time as investments are made, rather than demanded upfront. Especially in the alternative markets, regulatory design shapes where funds are domiciled, where professional expertise develops, and where financial infrastructure deepens. At this stage of market development, the primary regulatory objective should be local venture capital formation and domestic market infrastructure building, supported by robust accredited-investor and disclosure frameworks, rather than balance-sheet style capital thresholds that are not core to how VC risk is managed globally.
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