When talking about investment in startups, it is common to remember terms like angel investment, venture capital and private equity. But there is another type of financing that has also gained ground in this market and conquered entrepreneurs and investors: equity crowdfunding. To better understand how this investment works, stay with me.
The modality is very similar to the cows we already know to raise money for people or special causes, but here, those who contribute also win. This means that equity crowdfunding allows investors to participate in crowdfunding a company and, in return, they gain an equity interest in it.
In fact, the model is an alternative for those who want to start investing as the contribution values are usually lower than in other modalities. In addition, all transactions take place through a platform that mediates between investors and startups, making it even easier to bet on this format.
equity crowdfunding regulation
If you’re still unsure about this type of investment, don’t worry. Here in Brazil, equity crowdfunding was regulated by the Brazilian Association of Investment Crowdfunding (Crowdinvest) and the Brazilian Securities Commission (CVM) in 2017, thus ensuring greater security to all actors in the ecosystem.
Check the current rules and understand the requirements and obligations of companies, equity crowdfunding platforms and investors:
According to the regulations, any type of company can seek investment through equity crowdfunding platforms as long as the company has annual revenues of up to R$ 10 million. Another important detail is the annual funding limit: it should not exceed R$ 5 million.
In this type of investment, there is an automatic waiver of offer and issuer registration and there are no restrictions on funding vehicles, admitting Convertible Debt Securities or not, Special Purpose Entities, Participation Agreement (LC 155/2016), organizations of investment syndicates and others.
The entrepreneur must also disclose results reports (it defines the set of information to be disclosed), at least every six months.
As an official intermediary vehicle for offers, equity crowdfunding platforms are subject to registration with the CVM. In addition, they cannot carry out any activity that is private to a financial institution and, annually, they must submit accountability reports to the Securities Commission.
CVM also determined a limit for each type of investor. Look:
- Qualified investors (with an investment equity of more than R$1 million): they have no limit, that is, they can invest any amount in accordance with their strategy;
- Investors with an investment net worth of more than R$100,000: in this case, they can invest annually 10% of the highest declared value;
- Investors with less than R$100 thousand invested or in gross annual income: the capital invested per year is capped at 10 thousand.
Advantages and risks of equity crowdfunding
As I said above, one of the great benefits of this type of investment is the value of the money contributed in exchange for a part of the company’s society. Of course, this will depend a lot on the startup’s proposal and how the intermediary platform works, but there are investments starting at R$500.
Practicality is also a very positive point in equity crowdfunding. The platforms themselves already do a screening before putting a fundraising campaign on the air and, to invest, you just need to register, choose a business and make the contribution.
On the other hand, we know that any type of investment, especially in startups, is risky. You can’t know if the company will work (and when), so be patient. The return may take some time (or never arrive)—but if it does, you’ll be right there in the front row.
How to choose an equity crowdfunding investment platform
According to Crowdinvest, first of all, it is important to check if the platform participates in the securities distribution market and is subject to CVM rules. A safe way to do this, therefore, is to look for Crowdinvest members or go straight to the list of investment platforms authorized by the Securities and Exchange Commission — companies that meet these requirements include SMU, EqSeed and Cap Table.
After that, evaluate the profile of companies that are available on the chosen online platform, information about the investment offer and what is the minimum value for investment. Putting all of this in the balance, you will have smarter decision making.
Also remembering that there is no cake recipe when investing, so take into account several variables before hitting the hammer.
With information: Crowdinvest