Equity Crowdfunding or Investment Crowdfunding is a powerful tool for startups looking to raise capital and scale their businesses. Unlike traditional forms of fundraising, crowdfunding allows entrepreneurs to solicit investments from a large number of investors, often through online platforms.
What is Equity Crowdfunding?
We can define it as a form of collective financing where investors provide capital to a company in exchange for equity. This model has been growing globally, democratizing access to investments and enabling startups to reach a diverse base of investors.
How does the Equity Crowdfunding process work?
The process involves several stages and stakeholders. Equity crowdfunding platforms, registered with the Securities and Exchange Commission (CVM), play a crucial role in ensuring the security and functioning of the process.
Companies seeking funding through equity crowdfunding must be duly incorporated businesses in Brazil, with a maximum annual revenue of up to R$ 10 million. The annual fundraising limit is R$ 5 million per company.
Investors, in turn, can start with relatively low amounts, making the investment accessible to a wide range of people. The annual investment limit for non-qualified investors is R$ 10,000, except where investors are considered qualified under specific CVM regulations.
Advantages of Equity Crowdfunding
For startups, offers several advantages. Firstly, it provides access to a diverse network of investors, including individuals, venture capitalists, and angel investors. This broad investor base increases the likelihood of securing funding, as startups can attract investors who are passionate about their vision and mission.
Moreover, equity crowdfunding democratizes the investment process, allowing ordinary investors to participate in early-stage opportunities that were previously reserved for institutional investors. This not only opens new avenues for capital but also helps startups build a community of supporters investing in their success.
Investment Crowdfunding in Brazil and World
Equity crowdfunding is regulated in over 20 countries worldwide. In 2017, the global market moved approximately US$ 100 billion, with a significant portion allocated to peer-to-peer lending-based crowdfunding. It is estimated that the other three modalities – donation-based crowdfunding, reward-based crowdfunding, and equity crowdfunding – each represented between US$ 7 and 8 billion.
In Brazil, equity crowdfunding began gaining traction in 2014, even before specific regulation was published in July 2017 by the CVM. Prior to regulation, 60 offerings were successfully completed, raising R$ 20 million. Regulation brought legal certainty to the market and enabled more structured and professional sector growth.
Outlook for the Brazilian Market Development
The outlook for the Brazilian equity crowdfunding market is promising. It is estimated that the market could generate between R$ 150 and 200 million in fundraising annually over the next five years. Advanced and flexible regulation compared to the rest of the world has been a crucial factor in this growth.
Furthermore, a favorable economic environment, with economic reforms and falling interest rates, has been a significant driver of this new market. Proximity of investors to the company, the possibility to influence decisions, products, or services offered are factors that make equity crowdfunding an attractive alternative for investors.
Conclusion
In conclusion, equity crowdfunding offers startups a unique opportunity to raise capital, access a diverse base of investors, and build a community of supporters. By adopting this innovative financing model, startups can accelerate their growth trajectory and achieve their vision. Appropriate regulation and a favorable economic environment in Brazil are contributing factors to the growth and success of the equity crowdfunding market.
Soon, you will be able to invest in crowdequity through Collective, a new investment unit from Pipeline. A successful financing vector in Brazil, Collective streamlines access to investments for smaller fundraising amounts.
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