By Enam Obiosio

 Understanding the Crowdfunding Context for MSMEs

Under the SEC rules, MSMEs incorporated as companies in Nigeria with at least two years of operating history are eligible to raise up to N100 million annually through crowdfunding portals. This can involve issuing shares, bonds/debentures, or other investment instruments. The framework shifts crowdfunding from unregulated donations (e.g., the “Udoka” goat cheese example in the document, where supporters receive non-financial perks) to regulated equity or debt offerings, where investors expect financial returns. Key participants include the Crowdfunding Portal (the platform), Intermediary (facilitator), Issuer (MSME), and Investor.

The rules emphasize investor protection amid high risks: about 50% of small businesses fail within five years, offerings may lack secondary markets for resale, and issuers could be inexperienced. To counter this, MSMEs must provide full, accurate disclosures and maintain ongoing transparency. This creates a structured but demanding ecosystem where IR services—typically involving strategic communication, compliance support, and relationship management—become a critical tool for MSMEs lacking in-house expertise.

 Key Roles of Investor Relations Services for MSMEs

IR services act as a bridge between MSMEs and investors, ensuring compliance while fostering trust. Based on the SEC rules’ obligations for Fundraisers (detailed in Part 6 of the document), IR professionals can play the following roles:

1. Preparation and Management of Offering Documents

The rules mandate that every eligible MSME issue a short, standardized, digital-friendly offering document before raising funds (Rule 30). This must include key company characteristics, management expertise, offer purpose, targeted amount, audited financial statements, and warnings to investors (Rule 29). General disclosure requirements (Rule 32) further demand details on the business description, risks, use of proceeds, capital structure, related-party transactions, and exit options.

IR services can assist by drafting, reviewing, and optimizing these documents to ensure they are clear, comparable, and hyperlinked for easy access. For MSMEs, which often operate with limited resources, IR experts can verify accuracy, incorporate board resolutions, and align narratives with financial conditions—reducing the risk of unsubstantiated claims that could lead to fraud allegations.

2. Risk Disclosure and Investor Education

Rule 33 requires MSMEs to disclose all investment risks without mitigants, including liquidity issues, resale difficulties, cancellation restrictions, performance uncertainties, minority shareholder disadvantages, dilution, and no guaranteed returns. The document stresses that investors rely heavily on portal-provided information and their own research.

IR services specialize in framing risks transparently to build credibility rather than deter investment. They can develop investor education programs (as encouraged for intermediaries in the rules) tailored to MSMEs, such as webinars or FAQs, to explain these risks. This not only complies with SEC mandates but also positions the MSME as professional, potentially attracting more sophisticated investors.

3. Ongoing Disclosure and Reporting

Post-funding, MSMEs with successful rounds must adhere to continuous disclosure (Rule 34), including prompt notifications of changes (e.g., business discontinuation or control shifts) within 24 hours via the portal, website, and email. Annual audited financial statements must be delivered to intermediaries and investors, accompanied by notices on proceeds usage. These obligations persist until the MSME lists on an exchange, winds up, redeems debts, or buys back securities.

IR services are pivotal here, managing reporting calendars, preparing financial narratives, and ensuring timely dissemination. For MSMEs, this prevents non-compliance penalties and maintains investor confidence, especially since the rules note limited regulatory oversight, leaving investors to pursue private remedies if misled.

4. Communication and Marketing Support

The rules allow moderated interactive forums on portals for investor questions (intermediary obligations, but Fundraisers must respond publicly). Marketing communications must be identifiable, approved by intermediaries, and compliant with SEC advertisement rules (Rule 36). Fundraisers cannot guarantee returns or promote abusively.

IR services can oversee these channels, crafting responses, monitoring forums, and developing compliant marketing materials. This includes general portal advertisements (restricted to business models, not specific offers) and ensuring all investor touchpoints are professional. For MSMEs transitioning from donation-based models, IR helps shift to investor-focused communication, mitigating the “collective action problem” for minority shareholders.

5. Compliance and Risk Mitigation

Overall, the rules warn of illiquidity, limited legal recourse, and reliance on self-research, urging full disclosure to avoid lawsuits. IR services provide compliance audits, train MSME teams on SEC obligations, and handle records (e.g., investor lists, as required for portals but flowing to issuers). This is crucial for MSMEs, as the document highlights their potential inexperience and the need for structured frameworks to drive economic growth.

Benefits and Challenges for MSMEs

Engaging IR services offers MSMEs several advantages in this regime:

• Enhanced Access to Capital: Professional disclosures and communications can widen the investor pool, providing alternatives to Ponzi schemes as noted in the rules.
• Building Long-Term Relationships: By managing ongoing updates, IR fosters loyalty, potentially easing future funding rounds.
• Regulatory Compliance and Reputation: IR reduces exposure to SEC sanctions or investor disputes, boosting national economic growth through credible MSMEs.
• Cost-Effectiveness: Outsourced IR is scalable for MSMEs, avoiding the need for full-time staff.

However, challenges exist: MSMEs may view IR as an added cost in a high-risk environment, and the rules’ emphasis on limited oversight means poor IR could amplify failures. Nonetheless, given the rules’ investor-centric focus, neglecting IR could hinder fundraising success.

The SEC crowdfunding rules transform MSMEs into regulated issuers, imposing rigorous disclosure and communication duties to protect investors while enabling capital access. Investor relations services are indispensable in this context, helping MSMEs comply, communicate effectively, and sustain investor trust. By leveraging IR, MSMEs can not only meet SEC obligations but also position themselves for sustainable growth in Nigeria’s evolving capital markets. For MSMEs considering crowdfunding, consulting IR professionals early is advisable to align with these rules and maximize benefits.