Regulating crowdfunding investments in Brazil

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Equity Crowdfunding for Startups

CVM now regulates investment crowdfunding

Third-party investment in small companies is a controversial matter in Brazil, and has gone largely unregulated. Or at least that was the case until July 2017, when the securities watchdog CVM issued Instruction No. 588 to regulate the raising of funds through investment crowdfunding. The Instruction’s objective is to outline the ways in which companies are able to attract investments through online platforms. Crowdfunding allows companies, startups in particular, to publicly offer shares or quotas in exchange for capital to streamline their businesses.

CVM’s Instruction No. 588 opens the possibility for small companies to hold a public offering of securities (shares) – with no need to go public by registration in the stock exchange market – through an electronic participatory investment platform.

In this format, however, it should be noted that the new standard does not regulate capture models, which offer, for example, gifts, rewards, and services.

How does Brazilian legislation define crowdfunding investment?


Crowdfunding is the raising of funds through a public offering of securities where the issued securities are exempt from registration and issued by small business companies (for this, the Instruction defines what small companies are). Public offers should be distributed exclusively through an electronic participatory investment platform (it also defined the rules for the platforms, which should be authorized and recognized by the CVM), and the recipients of the offer are a plurality of investors that provide financing (within the limits in Instruction 588).

What kinds of companies are considered small by the CVM?

Small companies are legal entities incorporated in Brazil and registered in the competent Registry of Commerce (Junta Comercial). Their annual gross revenue is up to 10 million BRL determined in the fiscal year ended in the year prior to the offer, and which is not registered as an issuer of securities at the CVM. An investment in such a company will be covered as long as the issuance of the securities meets the other requirements and deadlines for funding.

The maximum funding amount established by the CVM is 5 million BRL per year. And to protect investors, one of the imposed conditions is that all investments must go through electronic platforms authorized by the CVM. The CVM will authorize electronic platforms in a process that examines the platform and confers this ability to raise capital.

What are electronic participatory investment platforms?

These platforms must be offered by a legal entity incorporated in Brazil and registered before the CVM. They must be authorized to distribute public offers of securities issued by small business entities exclusively through a web page, program, application, or other electronic methods that provide a virtual meeting environment between investors and issuers.

In addition to defining an electronic participatory investment platform, the CVM grants it the private capacity to make public offerings of small companies.

What is a leading investor?

The lead investor may be an individual or legal person with proven investment experience and authorized to lead a participatory investment syndicate. This figure is not mandatory in the funding process, but its participation contributes decisively to the success of the operation.

A leading investor, given his or her experience, can play a key role as an influencer. Through his or her network of relationships, this person can also contribute significantly to the progress of the company. His or her know-how and networking are important differentials that enable the person to act as an interlocutor between the company and the participatory investment syndicate.

The participatory investment syndicate is one of the other agents involved in this model, characterized by the group of investors linked to a leading investor (“supporting investors”) and brought together for the purpose of investing in these small companies.

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About the author

Iure Pontes Vieira

Ph.D. in Public Law, winner of the European Academic Tax Thesis Award in 2011. He is a founding partner of Pontes Vieira Advogados