In the past year, a number of fledgling but promising African startups, including OurPass, Chekkit, OnePort365, and Shecluded, have collected investment capital in one way or the other from Isaac Ewaleifoh.
A self-described active angel investor with a swelling portfolio that is, for now, only documented in a private Excel sheet he keeps, Ewaleifoh is quite passionate about backing Black-owned businesses early and the U.S.-based Nigerian is often networking.
Recently, Ewaleifoh met one of his portfolio founders, Adewale Yusuf (formerly the CEO of the Nigerian tech publication, Techpoint Africa), in New York, during the “Africa tech happy hour” the latter had put together on Saturday, May 14, as part of a work tour that also included meetups in Silicon Valley days prior.
Yusuf did speak in one of the many conversations that happened on that Saturday about how his new tech talent-sourcing startup, TalentQL, had completed two hassle-free raises, with the second one wrapped up in less than 24 hours. Quite unlikely for an African startup at that stage.
Ewaleifoh had participated in both TalentQL raises. But the pair may have been schmoozed into a sketchy union by an entity that tends to obfuscate.
Both founder and funder had been united in those fundraisers by a fledgling made-in-Nigeria tech startup known as GetEquity, which seems motivated to epitomise the quip: “Software ate the world. It will eat venture capital too.”
It does sound like a plan, except GetEquity appears to be playing fast and loose with its entire operation, which a local tech stakeholder who asked to be anonymous, described rather tartly as a crime scene.
“The whole [GetEquity] operation is illegal, they know it is, and are going full steam with marketing and concealing that fact,” they told WeeTracker.
Neither regular nor regulated
After a series of hints that can be traced back to 2019, GetEquity formally launched in July last year with a six-figure pre-seed led by local investment shop, GreenHouse Capital, in addition to a separate USD 100 K investment it had reportedly secured in April. GreenHouse Capital did not respond to WeeTracker’s requests for comment.
Co-founded by Jude Dike, William Okafor, and Temitope Ekundayo (doubling as the CEO of Printivo) who spent time together at Mozilla Accelerator, the trio figured they’d give up their initial pursuits and team up to reimagine startup funding through a platform they’d call GetEquity.
Theirs was a plan to disrupt, democratise, and decentralise startup funding and private venture investments, but it was always going to take some doing to pull off something so game-changing. So, GetEquity has seemingly found itself doing an unsettling variation of: “Move fast, break things. Ask for forgiveness, not permission.”
The founders launched the Delaware-headquartered company effectively as funding platform that would enable internally-vetted individuals to fund handpicked startups listed on its platform with at least USD 10 via a mobile/web app, with GetEquity being the entity on the cap table of those companies and also signing SAFEs.
GetEquity lists an average of USD 20 K worth of equity in startups with valuations between USD 1 M to USD 3 M, charging listed startups a 5.5 percent commission of the amount raised, as well as a 0.5 percent transaction fee on investors.
There is also a customisable “Dealroom” feature targeted at syndicates, founders, VCs, accelerators, and other institutional investors, aimed at enabling them to organize, structure, and manage portfolios, funds, and deals they operate.
GetEquity even takes things a step further to tokenise investments with its private marketplace for investors and companies to trade digital securities and assets within the app.
The platform offers its own secondaries market that facilitates trading of private startup equity between individuals/institutions outside liquidity events in the form of transferable digital tokens, not unlike how local startups like Bamboo and Chaka enable fractional trading of publicly-listed securities.
Indeed, one of GetEquity’s loudest cheerleaders, the bubbly Ized Uanikhehi, who leads a marketing agency for startups known as Zedi Africa, recently did a routine promotional for GetEquity in a tweet showing how her USD 800 investment in an emerging fintech startup, Wirepay, turned into USD 2640 inside a little over four months – yielding USD 1840 in profit which she cashed out in secondaries. Uanikhehi declined to comment for this article.
In theory, this sort of product could potentially bring down the financial, liquidity, and bureaucratic barriers that make startup investments exclusionary and cordoned-off, while also expanding the beneficiary pool for potential outsized returns to include the average Joe (although, with a caveat that losses are just as likely).
It would also give a lifeline (in the form of capital and community support) to early-stage startup founders who may otherwise be overlooked by institutional funders.
Hence, GetEquity boasts some traction as it claims 7,500 registered users and USD 500 K raised for more than 20 startups so far, with companies like Fluidcoins, Bridgecard, Spire, Famasi Africa, Nguvu Health, Vendly, etc., in the mix.
However, in practice, GetEquity appears to be found wanting for critical compliance gaps, colouring outside the lines, cutting corners, running afoul of regulations, and misrepresenting crucial details that result in misleading or bamboozling investors and founders on its platform with respect to the legitimacy of its operation.
A house of cards?
It could be argued that GetEquity came into the picture as a regulatory misfit in part, in keeping with the time-honoured tradition of regulation often trailing invention – similar to how there was no regulatory framework for fintechs like Piggyvest and Cowrywise when they started out in Nigeria back in 2016/2017.
However, a cursory examination of the GetEquity model would reveal unmistakable elements of crowdfunding platforms, which the Nigerian Securities and Exchange Commission (SEC) has made strict licensing and regulatory provisions (PDF) for since 2020.
“We operate as a duly registered Syndicate by the CAC, we are also in conversations on getting the right license type. However, for now, we operate as a digital syndicate (group of investors) who pool money together to invest in companies,” reads an answer to one of the FAQs on the GetEquity website.
“GetEquity acts as a custodian. In this case, we are a digital SPV/Syndicate that holds securities on behalf of all investors who are the beneficial owners of the securities,” explains another copy from GetEquity.
But custodians of this nature must be registered with the SEC and licensed to operate, lest they exist as illegal entities subject to penalties. GetEquity appears to be functioning as the latter for reasons that may not be unconnected to the steep cost and stiff procedural requirements for obtaining the requisite approval.
Such companies investing in certain projects with funds pooled from individuals are subject to crowdfunding regulations that have been clearly spelled out by both the SEC in Nigeria where the company launched operations and the SEC in the U.S. where it is headquartered.
“By Section 54 of Nigeria’s Investment And Securities Act which creates SEC, SEC is mandated to register all securities of a public company and all securities or investments of a collective investment scheme,” says Charles Rapulu Udoh, a practising Tech Startup, Compliance & Venture Capital Lawyer at Lagos-based Progression Law.
“A collective investment scheme is a scheme whereby members of the public are invited or permitted to invest money or other assets in a portfolio. It follows therefore that SEC retains the power to register GetEquity. As GetEquity operates the crowdfunding model, they would still be regulated by SEC; and until regulated, their activities are not recognized by extant laws,” he tells WeeTracker.
On its part, GetEquity seems determined to throw around mixed signals about its ties to crowdfunding. On one hand, GetEquity’s CEO, DIke, is talking up crowdfunding on Twitter at times.
On the other hand, there’s a conspicuous absence of the main C-word in the entire copy on the GetEquity website, with the preferred “CrowdRaise” used sparingly. Furthermore, the earlier-mentioned Uanikhehi, whose marketing firm, Zedi Africa, has been retained to put GetEquity out there, can be seen relentlessly fighting the narrative that GetEquity is a crowdfunding operator, preferring to label the startup as an “Investech.”
These disparities are quite curious, having undertones of obfuscation; something that might be perceived as a rehearsed, deliberate effort to justify GetEquity’s lack of regulatory compliance, at least on the crowdfunding level.
Interestingly, Dike is also on the leadership of Zedi Africa as CTO and he’s known to be close friends with Uanikhehi, who is crowdfunding for Zedi Africa (a minimum of USD 2 K per investor) via a GetEquity private Dealroom she set up.
In a separate odd twist, one of GetEquity’s documented co-founders, Ekundayo, recently disappeared GetEquity from his tweets and his Twitter bio and put a blanket over his account for unclear reasons, though it might have something to do with some disturbing tweets of his dredged up from the past. But that’s by the way.
Tales of gaps and gaffes
In another aspect, GetEquity’s hoisting of a Corporate Affairs Commission (CAC) registration as a possible pass also appears to not only be inadequate but also questionable.
“I am curious about what the memorandum of association GetEquity filed with the CAC states. This is because the CAC does not register companies that state in their memorandum of association that they run investment schemes involving members of the public, unless the companies first obtain the relevant licenses from the SEC, including the Central Bank of Nigeria where necessary,” Udoh shared.
Similarly, Timi Olagunju, Tech Lawyer and Policy Consultant in Nigeria, reiterated that such companies must make a formal application with the SEC and get approval before going into business, else they’ll be flouting the rules.
In his response to WeeTracker, Dike, who is GetEquity’s CEO, volunteered that the company is registered as a private company operating a digital platform that connects companies who seek to raise capital with pre-identified investors only.
“At our inception, some aspects of our model did not have existing regulatory cover and we sought guidance accordingly. You would agree that innovation drives regulations, as such we are still actively in conversation with relevant authorities regarding our model and the cover to be provided,” Dike told WeeTracker.
It is not clear why the founding team refrained from going through with the defined process of obtaining a crowdfunding license in Nigeria at least, even though it was quite clear they fit the bill. Also, GetEquity’s claim that they are “in conversations on getting the right license type”, which seems to have been chorused repeatedly to both founders and investors, has been strongly disputed.
Earlier this month, the Nigerian SEC, in the midst of weeks of interactions with WeeTracker, publicly released a document titled “Rules on Issuance, Offering, and Custody of Digital Assets (PDF).”
These rules cater for: Issuance of Digital Assets as Securities; Registration Requirements for Digital Assets Offering Platforms (DAOPs); Registration Requirements for Digital Asset Custodians (DACs); Rules on Virtual Assets Service Providers (VASPs); as well as Rules on Digital Assets Exchange (DAX). It’s essentially a raft of requirements that demand up to NGN 500 M (over USD 1 M) in minimum paid up capital among a sundry list of other fees, and a rigorous application process.
While much of the local reporting on this development tended towards citing a new crypto framework for Nigeria, these new rules have the breadth to go beyond crowdfunding provisions to fully regulate the array of products offered by a company like GetEquity, for instance. Nevertheless, the Nigerian SEC faults the company.
“GetEquity is neither registered with the Commission, nor has it filed an application, nor is it in any conversation with the Commission in that regard,” the SEC told WeeTracker in an emailed statement from its Fintech & Innovation Team.
“However,” they continued, “the Commission has written to its promoters to make a formal request for assessment of its business operations within a stipulated period; failing which appropriate regulatory action(s) will be taken.”
It’s quite the contrast to what the company has put out there, as founders/investors on the platform, as well as the general public, were repeatedly fed a communication that doesn’t seem to stand up to scrutiny.
“We weren’t aware of compliance gaps. While it’s certainly come up in some of our conversations with GetEquity, we’ve always been assured of their compliance with regulators,” one founder who raised on GetEquity a few months ago told WeeTracker.
“Most recently, with the new SEC regulation guiding digital assets, we got word from GetEquity about being in talks with the SEC. While I’m yet to get a concrete response from them today, I’ll certainly push further to get specifics on what are the steps they’re taking given the information on ground,” they stated further while asking to be anonymous.
One other founder declined to discuss the issue, five others did not respond to requests for comment.
A startup in a hurry
A source said the shortcomings at GetEquity extend beyond the fact that “they circumvented regulatory oversight and put a house of cards on sinking sand.”
“Their due diligence is poor and not nearly as robust as they claim. One founder raised on there and the founder took people’s money to go rent Lagos house and suddenly started living large,” the source claimed.
It’s hard to tell whether some apprehension or uneasiness may be building up among participants on the platform over concerns that GetEquity may be illegitimate which renders its investments invalid, but the company did send out a communication to its users a week ago, giving familiar assurances that may now ring hollow.
In his comment to WeeTracker, Dike also made the point that in the U.S., the GetEquity registered entity has requisite partnerships that ensure its operations with U.S.-registered startups seeking to raise capital are compliant. “Do refer to Regulations Crowdfunding (Reg CF) for further clarity,” he added.
African startups raised over USD 4 B in 2021 with foreign investors (mostly from the U.S. and the U.K.) accounting for the bulk of the inflow (around 70 percent). Given that these investors typically require African tech companies to register a Delaware C Corp as a pre-condition to investing thereby creating a Holding Company sitting in the U.S. into which the investment goes, GetEquity would have to deal with U.S.-registered startups quite a bit. Except it appears to be facing compliance shortcomings over there as well.
“The company allowing investors to invest amounts of as little as USD 10 must be registered and be following all the rules of the SEC and the IRS, especially the “Regulation Crowdfunding” rules and the laws governing the operations of an investment syndicate,” explains Lyle Solomon, Principal Attorney at California-based Oak View Law Group, whose career has spanned three decades.
“The company is signing SAFEs and selling tokens representative of the startups to retail investors. These are under the “Regulation Crowdfunding” rules and all of these methods of raising capital for startups would qualify as crowdfunding only. If the startup is running its operation under the “Regulation Crowdfunding” mechanism, it has to be a registered entity with the SEC and disclose information to the Commission,” he emphasised.
In the same vein, Markley S. Roderick, a corporate and securities attorney who leads the Fintech & Crowdfunding practice at New Jersey-based Lex Nova Law, reiterated that SAFEs are always securities for purposes of the U.S.
“Most tokens are also securities. So both are subject to the same regulatory oversight as ordinary stocks and bonds,” he shared.
Solomon further stated that investment syndicates are also regulated in the U.S. and an LLC must be formed and registered in a particular state to form an investment syndicate, while also noting that limitations apply, as do certain exemptions.
One such exemption has notably given rise to one of Africa’s most interesting homegrown startup funding entities which boasts an exclusive private investment club that exemplifies what Dike was alluding to by stating that GetEquity enables startups to raise capital from pre-identified investors only.
“US and International accredited investors who are admitted to our exclusive club of co-investors are given proprietary access to our deal flow. We are able to do this as an exempt reporting fund advisor in the United States managing assets of less than USD 150 M. We are registered with the U.S. SEC as such,” the Principal of the investment firm told WeeTracker.
“They [GetEquity] need to comply with the U.S. SEC crowdfunding rules (including the requirement for audited financials from companies listed on the site). And if they are specifically targeting investors in Nigeria, they should obtain a SEC Fund Manager, Advisor, or Crowdfunding license,” they recommended.
Although the U.S. SEC declined to comment on a specific company, GetEquity is not known to be in compliance. In fact, WeeTracker has been reliably informed that GetEquity’s partnership with Wefunder; a well-known San Francisco-based crowdfunding service which connects startups with investors online, has been frozen.
Is GetEquity getting dirty?
Before now, Wefunder had an arrangement with GetEquity that had Dike acting as Venture Partner for Wefunder – forwarding U.S.-registered startups that have raised on GetEquity to the wider pool of U.S.-based investors at Wefunder. In some cases, Wefunder forwards startups to GetEquity and they invest as separate entities on the cap table.
This arrangement, which comes with certain perks for GetEquity founders who go on Wefunder, has African startups like Onboardly, Spleet, and Aladdin in the picture. However, it is understood that Wefunder has simply paused its partnership with GetEquity as of early April after a legal review.
Another source told WeeTracker that the attorney GetEquity had approached to sort out its legal walked away to eschew reputational risk as too many rules had been broken because, in the words of the source, “GetEquity had hired a student do its legal and it turned into a mess.”
However, Ewaleifoh, who discovered GetEquity last year through the press release announcing its launch and funding from GreenHouse Capital, remains an advocate for ensuring that a growing number of ordinary people are enabled to participate in private capital markets, and he hopes GetEquity can address its problems.
“I invest directly, via three syndicates, and then in the past 6 months via GetEquity. I needed access to local startups and they had a number of interesting listings so I participated,” he shared.
“I’d say though I expected that they would be a registered syndicate (like Lagos Angel Network, Future Africa, HoaQ, Lofty Afropreneur, etc.) But again, I didn’t ask for any registration document. They need to get that sorted asap.”
GetEquity may yet salvage the situation but the questionable actions or inactions of a first-mover in a space, especially in a yet-infant tech landscape like Africa’s, can often set a precedent that either shuts doors or straighten the hands that do open them.
Feature Image Credit: @bigbrutha_/Twitter