Securing funding for a startup in Africa’s booming digital economy often comes down to one word: Compliance. Picture a Lagos-based fintech founder pitching to investors – the product is innovative, the market potential is huge, but one question from the investors could make or break the deal: “Are you fully compliant with all regulations?”

Why Regulatory Compliance Matters for Funding in Africa.

In any business environment, investors want to protect their money – and in Africa’s emerging markets, regulatory risks are a top concern. Regulatory compliance means adhering to all the laws, rules, and standards relevant to your business. It’s not just a legal box to tick; it’s about building trust with those who matter – customers, partners, and crucially, investors​.

A startup that operates within the legal framework and respects regulations, signals to investors that it’s a safe bet. Conversely, a venture with murky compliance risks might scare investors away, no matter how promising the idea.

In a recent report by TLP Advisory, the report shows that regulatory issues and bottlenecks rank among the top challenges faced by startups​. Investors know this, and they increasingly demand evidence that a startup isn’t flying blind on the regulatory front. Many venture capital due diligence processes now include a legal and compliance review as the final hurdle – essentially a thorough check that everything is “up to code” before any deal is signed​. If your startup can’t show that it complies with industry regulatory rules, investors may walk away or put funding on hold.

This dynamic has grown even more pronounced in the aftermath of some high-profile startup mishaps. Following a few African startup fraud scandals and regulatory crackdowns, investors have become far more cautious. As Lexi Novitske general partner of Norrsken22 put it, investors are conducting much deeper due diligence, doing live bank account checks, imposing tougher terms, and generally showing more risk aversion​. In other words, the bar for transparency and compliance has been raised. To secure funding today, African startups must be ready to clear that higher bar by demonstrating impeccable compliance and governance.

The African Digital Economy: Huge Potential Meets Heavy Scrutiny.

Africa’s digital economy is on a meteoric rise – but so is the scrutiny from both regulators and investors. Tech startups across the continent have been attracting record investment in recent years, as the world notices Africa’s entrepreneurial energy. In 2024 alone, an estimated $ 2.2 billion in equity, debt and grants flowed into roughly 188 African startups​.

Yet, these impressive funding numbers come with a caveat. Africa still accounts for only a tiny fraction of global startup investment and value – just 0.2% of the total value of global startups​. Why so low, despite the growth? A big part of the answer lies in real and perceived risks: cumbersome regulations, compliance costs, and fragmented regulatory regimes are holding Africa’s startups back.

Investors from outside (and even within) Africa worry about unstable policies, opaque legal systems, and the difficulty of doing due diligence across many markets. Information asymmetry is a serious issue – reliable public data on startups and their regulatory status is often hard to find, making investors wary.

Despite these challenges, the opportunity is enormous if these obstacles can be removed. Analysts project that by 2030 Africa could attract over $90 billion in startup funding – if governments decisively address regulatory barriers and other investment disincentives​.

In short, streamlining compliance and improving the regulatory climate isn’t just bureaucracy – it’s arguably the key to unlocking tens of billions in venture capital for African innovation. This puts a spotlight on policymakers and regulators: they must balance safeguarding the public with fostering an environment where startups can flourish and investors feel secure.

Nigeria’s Regulatory Landscape and Finding Realities.

As Africa’s largest economy and most populous nation, Nigeria offers a revealing case study of the compliance-funding nexus. Nigeria’s tech startup ecosystem is one of the continent’s most dynamic and has attracted significant local and international investment. In 2023, for instance, Nigerian startups raised roughly $400 million in funding​ (amid a global downturn). Mega-deals for Nigerian fintech and e-commerce companies have grabbed headlines, and success stories like Paystack, Flutterwave, Andela and Moniepoint have put Nigeria on the global startup map.

But Nigeria’s regulatory environment is complex and often evolving, which can be a double-edged sword for entrepreneurs. Startup founders have had to navigate a maze of regulatory complexities while scaling their companies​.

Key regulatory bodies – from the Corporate Affairs Commission (company registration) to the Central Bank of Nigeria (fintech oversight) to the National Information Technology Development Agency (develop, regulate and promote the technology sector) to the Federal Competition & Consumer Protection Commission (FCCPC) (for Consumer protection) and the Nigeria Data Protect Commission ( for data protection) etc – all have rules that might apply to a given startup​.

For example, a health-tech startup might need approvals from the Federal Ministry of Health, Medical and Dental Council of Nigeria, State Ministries of Health and State Primary Healthcare Development Agencies, and the Nigeria Data Protection Commission; a fintech app needs to follow CBN, SEC licensing and anti-money-laundering guidelines. Overlooking any of these can spell trouble.

Nigerian regulators have shown increasing assertiveness in enforcing compliance, particularly as the tech sector matures. A striking recent example came in 2024 when the Central Bank of Nigeria (CBN) conducted surprise audits of fintech companies. The result? Several prominent fintech unicorns were hit with hefty fines of ₦1 billion (around $1.3 million) each for compliance infractions​ – a loud message that even the largest players must toe the regulatory line.

Essentially, these companies had grown explosively, but their customer verification processes hadn’t kept up with regulatory standards – so the regulator pressed pause on their growth until they improved their regulatory compliance checks.

For a startup, nothing could be scarier: imagine having to tell your investors that you can’t sign up new users for two months because the central bank said so. It’s a vivid reminder that regulatory non-compliance isn’t an abstract worry; it can directly hit operations and, by extension, investor confidence.

What Investors Want: Proving Your Compliance Credentials.

Given all the above, what exactly are investors looking for when they demand proof of regulatory compliance? It helps to demystify this from the founder’s perspective. Essentially, investors want to ensure that:

1. Your business is operating legally – This means your company is properly registered, you have all necessary permits/licenses, and you’re following the laws in your sector. For a fintech, that might mean having a payment license from the central bank; for an e-commerce or ride-hailing startup, it could involve consumer protection and transportation permits.
2. You have no looming legal troubles – Investors will check if there are any past or ongoing regulatory sanctions, fines, or court cases against your startup. Any red flag here can stall a deal. They prefer a “clean bill of health.” If there were issues in the past, be prepared to explain what happened and how it was resolved.
3. You have internal processes to stay compliant – It’s not enough to have been lucky so far; investors want to know you will stay compliant going forward. They often ask about your internal controls: Do you have someone responsible for compliance? Do you conduct regular audits or training? For example, if you handle user data, how do you ensure privacy laws are followed? If you handle money, what anti-fraud and KYC measures are in place? Demonstrating that you’ve institutionalised compliance (even in a small way) can set you apart. It shows maturity.
4. Transparency and documentation – A savvy investor might say, “Trust but verify.” They will appreciate if you can produce documentation of your compliance efforts. This could include regulatory filings, tax clearance certificates, audit reports, or official letters from regulators confirming your status. If your startup has undergone any voluntary audits or obtained certifications (like a penetration test certificate for cybersecurity, or compliance attestation for NDPA or FCCPC in Nigeria), those are great evidence to share. Essentially, you want to have a dossier ready that says, “We play by the rules, here’s the proof.”
5. Awareness of the regulatory roadmap – Investors may probe your understanding of future regulations. For instance, they might ask how new central bank guidelines might affect your business model, or how you would handle expansion to another country regulation-wise. They aren’t expecting you to predict the future, but they want to see that you’re not ignorant of the regulatory landscape. The best impression you can give is being proactive: show that you not only comply with current rules, but you’re also monitoring upcoming bills or policies that could impact you.

When due diligence, it’s increasingly common for investors to include a “regulatory compliance checklist.” Many investors in Nigeria now require startups to confirm they operate within the legal framework and have no compliance issues before funds are released​. This might involve answering a questionnaire or providing supporting documents. It might feel tedious to founders, but remember, it’s a one-time effort that could unlock significant capital for your company.

How to Nail the Compliance Test.

With a clear idea of what investors expect, how can startups practically ensure they meet those expectations? Here are some actionable strategies for entrepreneurs to turn regulatory compliance into a competitive advantage:

1. Start Compliance Planning Early: Don’t wait until you’re in fundraising mode to address compliance. From day one, make a checklist of applicable regulations in your sector. If you’re not sure, consult a professional. Complying with relevant laws – from incorporation and tax to employment laws, IP protection and getting the appropriate licences – is non-negotiable for startups​. Incorporate these steps into your startup launch plan just as you would product development.
2. Designate a Compliance Champion: In a small startup, you may not have a formal Chief Compliance Officer, but it helps to assign someone on the team to keep an eye on compliance matters. It could be a co-founder or a manager who liaises with lawyers or regulators and reads up on regulatory news.This person’s job is to ensure filings are done on time, licenses are renewed, and the team is aware of any new obligations. Many startups also engage part-time consultants (or law firms on retainer) for this – which can be worth the cost if it prevents costly mistakes. Remember, strong internal governance and processes early on make you more attractive to investors​. Even a simple thing like maintaining an organized folder of all legal documents (registration certificates, licenses, tax returns, etc.) can make due diligence much smoother​
3. Leverage Industry Associations and Sandboxes: As mentioned, being part of your sector’s community can keep you ahead on compliance. Join any startup associations in your country – for example, the Fintech Association of Nigeria (for fintechs). These groups often hold workshops on regulatory compliance and engage with authorities. If there’s a regulatory sandbox or pilot program available, apply for it. Participation not only helps you iron out compliance in a low-risk setting, it’s also something you can proudly tell investors: it shows you’re working with regulators, not against them.
4. Implement Robust KYC/AML and Data Protection Measures (if applicable): If your startup deals with money or sensitive data (and most startups do in some form), make sure you adopt best practices on customer verification, anti-money laundering (AML), and data protection. Use reputable third-party tools or services to handle these if needed. For instance, use a known ID verification API for KYC, or use cloud platforms that are compliant with data standards. Not doing so can lead to incidents that raise red flags. As we saw, weak KYC processes led to a temporary ban for some Nigerian fintechs​ – a situation you want to avoid at all costs. Investing in good security and compliance tech early is a selling point: you can say “Our systems are PCI-DSS compliant” or “We follow NDPA grade data practices,” which immediately elevates investor comfort.
5. Stay Updated and Document Everything: Regulations can change, so make it a habit to stay informed. Set up Google Alerts for key regulatory agencies in your domain, follow regulators on Twitter or subscribe to their newsletters for any new guidelines. When something relevant is announced, discuss internally what it means for you. Keep minutes of those discussions and plans for how you’ll comply – it sounds overly formal, but these records show a pattern of diligence. Likewise, document any compliance-related actions: if you did a safety audit, log the findings and fixes; if you trained staff on a new policy, save the attendance list. These documents can be pure gold during due diligence to demonstrate your operational maturity.
6. Be Honest and Open with Investors: If an investor asks about compliance, never brush it off or hide things. A transparent, proactive approach works best. If there’s an area where you are still working on full compliance, explain your roadmap to get there. For example, “We are in the process of obtaining the Payment Service Provider license or a Money Lender License; we’ve submitted all documents and expect approval by next quarter.” This is far better than skirting the issue. Investors understand that not everything will be perfect, but they will appreciate honesty and a clear plan. Establishing a culture of ethics and transparency is repeatedly cited as a key way to build trust with investors​

In taking these steps, startups send a powerful message: we are competent, responsible, and prepared to operate in a regulated environment. That message can dramatically increase investor confidence. It shifts the narrative from “Compliance is our headache” to “Compliance is our strength – we know how to navigate it better than competitors.” Some founders even include a dedicated slide on compliance in their pitch deck now, highlighting licenses obtained, endorsements by regulators, or any notable compliance achievements. It’s all about showing that this startup is not a ticking time bomb of regulatory risk, but rather a well-steered ship.

Final Notes.

In Nigeria and across Africa, the message is clear – compliance is now king when it comes to securing investor funding. As the continent’s digital economy matures, investors are no longer content with flashy growth and big user numbers alone; they want the reassurance that startups are built on solid, law-abiding foundations. Regulatory compliance has moved from the periphery to the centre of startup success factors, right alongside product-market fit and revenue models.

For entrepreneurs, this new reality is an opportunity in disguise. Proactively embracing compliance and weaving it into your business strategy, you distinguish yourself in a crowded market. You transform that sceptical question from investors – “Are you compliant?” – into a confident answer: “Yes, and here’s the proof.”

A startup that can say that, is a startup that exudes credibility and reliability, two qualities that can be rare in the high-risk world of early-stage ventures. In practical terms, it means startups must do their homework on regulations, engage with experts, and possibly move a bit slower to move much farther. It might feel like extra work upfront, but it pays off when you’re the one venture among many that passes an investor’s due diligence with flying colours.

Securing funding when investors demand proof of regulatory compliance comes down to this: be proactive, be prepared, and view compliance as an integral part of your value proposition. The startups that internalize this mindset are not only more likely to get funded but also more likely to build resilient, lasting companies.