In an environment where IPOs are rarified, but taxes and interest rates are abundant, Brazilian companies are presented with the possibility of raising capital publicly without going through the hurdles of registration and excessive bureaucracy. The Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) enacted in July Rule ICVM 588 regulating the activity of crowd-funding in Brazil.
Crowdfunding is the gathering of capital via online platforms of collective investment, websites where the investor will find money-seeking projects showcased. So, if your Nordic technology/services branch in Brazil does not have the financial capacities for a multi-billionaire Initial Public Offering such as the one recently carried out by our French comrades at Carrefour, grab a seat and relax while you read this memo: you might have just found the right funding opportunity for you.
According to the text, companies with a gross annual revenue of up to BRL 10 million are allowed to raise up to BRL 5 million per calendar year, regardless of previous registration with the CVM. Entities controlled by other companies or by investment funds must comply with a combined BRL 10 million gross revenue. Each round of funding may remain open as long as 180 days and a minimum cap may be distributed if the project does not attain its full amount.
As for the investors, they are authorized to invest up to BRL 10,000 per calendar year, unless they qualify as leader investor, or as qualified investor, pursuant to the legislation in force; those with annual gross revenue or financial investments above BRL 100,000 will be authorized to increase the limit by 10% of the higher of these two amounts. Investor syndicates are authorized to invest in crowdfunding projects as well.
Maybe the part that was most affected by the new regulation is the fundraising platform, that will have to be registered with and authorized by the CVM to operate legally henceforth. The platform will be liable for the analysis and correctness of the information presented by the investors and the fundraising companies. The website activity is hybrid, since it is the register of offers, but also the one selecting the best projects, those that will make their way up to their online menu.
We find the new regulation to be good given its straightforwardness and simplicity. It has been largely debated prior to its enactment between the CVM and people working in the sector, especially with the crowdfunding platforms already operating in Brazil using the registration exemptions that existed. CVM has done a good job in approaching the different players of the market. We await the Brazilian tax authority’s manifestation on the subject and deeply hope that it will not suffocate the activity when it does.
Companies incorporated on Brazilian soil, even those with foreign capital, will be Brazilian companies. Thus, European investors in Brazil should see this initiative positively, as it might foster small and medium businesses—especially startups, those that apply new ideas creating market disruption—while keeping them simple and lean.
This article has been published on NordicLight Magazine.
Adriano B. Consentino was partner at Pacheco Neto Sanden Teisseire Law Firm.