The Delaware Dilemma: Why Nigerian Tech Startups Still Choose US Incorporation Despite Startup Act 2022

In October 2022, President Muhammadu Buhari signed the Nigeria Startup Act into law. The legislation promised to position Nigeria as a leading hub for digital entrepreneurship in Africa by offering tax incentives, regulatory sandboxes, fast-tracked approvals, and intellectual property protections. Labelled startups, particularly those obtaining certification from the National Information Technology Development Agency, became eligible for an initial three-year income tax holiday, extendable by a further two years, capital gains tax exemption for investors holding equity for at least two years, and access to a dedicated Startup Investment Seed Fund managed by the Nigeria Sovereign Investment Authority. These provisions seemed designed to address the very concerns driving Nigerian founders abroad, like regulatory bottlenecks, tax burdens, and difficulty accessing capital. However, four years on, the exodus continues. Approximately seventy percent of Nigerian startups that raise significant venture capital still incorporate their parent companies in Delaware, with Nigeria hosting only subsidiary operations. Why? 

The Business and Compliance team at Smith and Partners LP posits that Delaware’s appeal begins with its unique position in global corporate law. The state is home to over 2.1 million registered business entities despite a population of roughly one million residents. More than two-thirds of Fortune 500 companies are incorporated there, and in 2024, approximately 81 percent of US-based IPOs chose Delaware, a figure that has ranged from the high-70s to low-90s over recent years depending on market conditions.

This preference reflects Delaware’s specialized Court of Chancery, which adjudicates corporate disputes without juries using judges with deep expertise in business law.

Over decades, this court has built a comprehensive body of corporate precedent providing predictability on matters ranging from fiduciary duties to merger procedures. When venture capitalists in Silicon Valley, New York, or London evaluate opportunities, they expect Delaware incorporation because they understand the law, can predict dispute outcomes, and know their rights are protected by well-established legal principles.

A startup incorporated in Nigeria, governed by the Companies and Allied Matters Act and subject to courts lacking specialized corporate law expertise faces immediate skepticism from these investors regardless of how compelling its business model may be.

The practical implications become clear when examining actual funding rounds. When TradeDepot secured $42 million in Series B funding and $68 million in debt financing in December 2021, its SEC Form D filing identified it as TradeDepot, Inc., a Delaware corporation. When MAX raised $31 million in Series B funding that same month, its entity, Metro Africa Xpress, Inc., was also Delaware-incorporated. TeamApt raised $50 million in Series B funding in August 2022 as a Delaware corporation. Reliance Health raised $40 million in February 2022 as Reliance Health, Inc., incorporated in Delaware and registered as a foreign corporation in Texas. Bamboo raised $15 million in Series A funding in January 2022 through its Delaware parent, Bamboo Global Inc. The pattern is unmistakable. Nigerian startups serving Nigerian and African markets, founded by Nigerian entrepreneurs, operating primarily from Nigerian offices, incorporate their legal entities in Delaware because that is where the capital is.

The US venture capital market dwarfs any available African capital pool. Most US venture capital firms operate under internal policies or limited partner agreements restricting investments to companies incorporated in familiar jurisdictions, primarily the United States, and occasionally the United Kingdom or Singapore. These restrictions reflect not discrimination but risk management. American venture capitalists cannot justify exposing funds to uncertainties of Nigerian commercial law, the unpredictability of Nigerian courts in corporate disputes, or the complexities of repatriating capital from Nigeria should the investment succeed. Even when investors are genuinely interested in African opportunities, they require Delaware incorporation as a non-negotiable precondition. A founder who insists on incorporating in Nigeria to benefit from the Startup Act’s tax incentives will simply not receive funding from investors who write the largest checks.

The second major driver is exit strategy. Venture capital operates on a specific timeline: invest, help the company grow, then achieve liquidity through acquisition or public offering within five to seven years.

The largest exits for Nigerian technology companies have been to North American or European buyers. Stripe’s acquisition of Paystack for over $200 million and Visa’s acquisition of a stake in Interswitch are notable examples. These transactions are significantly simplified when the target company is incorporated in Delaware. The acquiring company’s lawyers understand Delaware corporate law, can conduct due diligence using familiar frameworks, and can structure acquisitions using standard merger agreements tested in thousands of previous transactions. Acquiring a Nigerian-incorporated company by contrast requires analyzing Nigerian corporate law, assessing exchange control risks, navigating Central Bank approval for capital repatriation, and potentially litigating in Nigerian courts if post-acquisition disputes arise. Most large corporations facing a choice between acquiring a Delaware company or a Nigerian company with similar business metrics will choose Delaware every time.

The Nigeria Startup Act, for all its good intentions, does not address these structural realities. The Act provides tax incentives, but tax incentives are largely irrelevant to a startup that is not yet profitable and will not pay taxes for years regardless of incentives.

The Act promises regulatory sandboxes and fast-tracked approvals, but founders incorporating in Delaware can operate a Nigerian subsidiary under existing Nigerian law while keeping their parent entity outside Nigerian regulatory reach. The Act requires that labelled startups be registered as limited liability companies with the Corporate Affairs Commission, exist for not more than ten years, and have at least one-third of shareholding held by Nigerian founders. These requirements, while reasonable, create additional compliance burdens without offering advantages that outweigh Delaware’s benefits.

A Nigerian founder can incorporate a Delaware C-Corporation, maintain majority Nigerian equity, operate a Nigerian subsidiary, hire Nigerian employees, serve Nigerian customers, and still access American venture capital, all while preserving optionality for eventual acquisition by a US company.

This is not to say the Nigeria Startup Act is valueless. For startups focused exclusively on the domestic market, not seeking significant venture capital and not likely to be acquired by a foreign company, its tax incentives and regulatory support provide genuine benefits. However, for the category Nigeria should most want to retain, high-growth technology companies with potential to achieve billion-dollar valuations serving global markets, the Act does not compete with Delaware’s advantages.

Until Nigeria develops a specialized commercial court rivalling Delaware’s Chancery Court, until Nigerian corporate law becomes as predictable and well-tested as the Delaware General Corporation Law, until the Central Bank removes barriers that make foreign investors nervous, and until the depth of available capital in Nigeria approaches what is available in the United States, founders seeking to build globally competitive companies will continue choosing Delaware.

The Startup Act can reduce taxes and streamline regulations, but it cannot create the legal predictability, investor confidence, and capital availability that only decades of consistent commercial governance can produce.

Nigerian policymakers must decide whether to address this uncomfortable reality or continue celebrating legislation that, while helpful at the margins, has failed to stem the tide of incorporation abroad.