By Gustavo Chaves Barcellos, Nathalia Carlet and Layon Lopes*
Several Brazilian startups, in order to raise funds for their business, have used electronic crowdfunding platforms on the internet to present their idea and project as an investment opportunity to a large number of people.
In the model provided by Equity Crowdfunding Platforms, companies offer potential investor contributors an expectation of financial return. It is, therefore, another type of crowdfunding, now with characteristics of the financial market.
In exchange for the funds contributed, the companies offer investors different types of securities, with specific characteristics and terms, normally embodied in an investment contract.
One of the explanations for this phenomenon is that the Investment Crowdfunding Platforms filled a gap in the market that left Brazilian startups helpless.
Normally, startups at an early stage have great difficulties in raising funds, either due to the inexperience of their partners, or the lack of structuring of the company itself.
In this sense, these companies need capital, but, given their characteristics, they are not fully met by banks or traditional capital market options, and are not always able to raise funds from investment funds. venture capital and private equity.
Thus, Crowdfunding Platforms work as a link between startups that need an initial investment to bring their operation to investors who are willing to invest in companies at an early stage.
Having made this initial clarification, it should be noted that, in Brazil, the constitution and activity of the Investment Crowdfunding Platforms is regulated by the Securities and Exchange Commission (“CVM”).
The CVM authorizes small companies (gross revenue of up to R$10 million) to receive investment via a public offering of securities brokered by duly registered crowdfunding platforms.
However, the following conditions must be observed by those interested in using Investment Crowdfunding Platforms:
- The offer must be intermediated by a platform authorized by the CVM;
- The funding must respect the maximum amount of R$ 5 million per year;
- the term for funding is up to 180 days;
- the investor may withdraw from the investment, without fines or penalties, within 7 days of confirmation of the investment; and, the amounts raised must be used in the development of the company’s activities only; and,
- In addition, investors, depending on their gross annual income and their financial investments, will have their maximum investment limit limited.
The CVM is responsible for inspecting authorized Investment Crowdfunding Platforms. In this sense, supervision does not fall on the entrepreneurs, but on the platforms themselves. Therefore, it is up to them to ensure that the procedures defined by the CVM are being followed in each new round of investment that they intermediate.
Finally, even if recent, the Investment Crowdfunding Platforms have already moved more than 84 million reais according to the CVM.
*Layon Lopes is the CEO of Silva | Lopes, Gustavo Chaves Barcellos and Nathalia Carlet are members of the Silva | Lopes team.