On April 27, the Brazilian Securities and Exchange Commission (CVM) issued CVM Instruction 88, which repealed CVM Instruction 588/17 and now regulates the public offering of securities issued by small scale companies, carried out with exemption from registration through an electronic platform for participatory investment.

This fundraising method, already widely used in more advanced markets such as the United Kingdom and the United States, is known as equity crowdfunding or investment crowdfunding, and has gained even more relevance with the prominence gained by the Brazilian startup ecosystem, especially companies whose business is related to technological innovation, which has also contributed to the growth of the national venture capital industry in recent years.

To get an idea, in 2021, according to information from the Distrito platform, the volume of investments in Brazilian startups was US$9.4 billion, an increase of 166% compared to 2020 and 526% compared to 2018. And it does not stop there! Sling Hub, a data intelligence platform about the Latin American startup ecosystem, projected that "if Brazilian startups repeat the same growth shown last year, it is possible that they will close this year 2022 with an invested volume of US$29.4 billion.”

Despite this high flow of capital, Brazilian startups still encounter difficulties in raising funds from the popular economy through capital market transactions, specifically through traditional public offerings of securities, governed by CVM Instructions 400/03, as amended, and 476/09, as amended,[1] due to the regulatory and operational costs involved.

By creating a specific regulation on crowdfunding investment, CVM Instruction 588/17 gave new contours to this scenario, allowing companies to raise funds in the general market by issuing debt and equity securities (including convertible securities), albeit with important limitations, such as:

  • funds raised (maximum amount of funding of R$ 5 million);
  • amount of gross annual revenue recorded by the company whose securities are publicly offered (up to R$ 10 million as measured in the fiscal year prior to the public offering of securities); and
  • restricted target audience (access to qualified investors and investors whose annual gross revenue or amount of financial investments is greater than R$100,000, in which case the annual investment limit could be increased to up to 10% of the higher of the two amounts).

Even with such restrictions, this type of fundraising has gained traction in recent years. According to information from the CVM, in 2021, approximately R$ 188 million were raised via crowdfunding investment through 114 public crowdfunding offerings. The figure represented a 123% increase in the total transacted in 2020.

In addition, there has been a substantial increase in the number of platforms registered with the agency: 56 in 2021, up from 32 the prior year, which represents a 75% increase. There was also a 139% growth in the number of investors in this type of public offering, which went from 8,275 in 2020 to 19,797 in 2021, denoting the market's appetite for this type of asset.

These factors, combined with the constant demands made by market participants for improvements in the regulation of crowdfunding investments, caused the CVM rush to revise the current rule, which culminated in the issuance of CVM Resolution 88.

In general terms, CVM Resolution 88, which enters into effect on July 1st of this year, brought about important innovations to this type of investment by broadening the spectrum of companies that can conduct offers and investors who can participate in them, as well as conferring additional protections to the investing public.

We highlight below the main changes and developments implemented by CVM Resolution 88:

  • 1.
Concept of a small scale business company

Article 2, subsection VII

Article 2, paragraph 2
The CVM has extended the list of small scale business companies that can conduct a public offering of securities, according to CVM Resolution 88, by increasing from up to R$10 million to R$40 million the amount of annual gross revenue that such companies must have registered in the fiscal year prior to the offering. In addition, CVM Resolution 88 increased from R$10 million to R$80 million the limit value of the annual consolidated gross revenue, registered in the fiscal year prior to the offer, of a company that is controlled by another legal entity or investment fund.
  • 2.
Offer requirements: maximum funding amount

Article 3, subsection I

Article 3, paragraph 3
The funds raised in the offer may not exceed R$15 million, an amount three times greater than that contained in the former CVM Instruction 588. Furthermore, if a company has made more than one offering in a given fiscal year, the aggregate amount raised in all the offerings made by the company cannot exceed R$15 million. The change allows companies to have access to substantially more capital, which tends to encourage the use of this fundraising option.
  • 3.
Deadline for withdrawal of an investment order

Article 3, subsection III

Article 8, paragraph 3
Investors may withdraw from the investment within at least five days from the investment confirmation. The two-day reduction in the deadline is in line with CVM rules regarding public offerings of securities from issuers registered with the agency. In addition, if there is a substantial change after the beginning of the offering, the platform may change the circumstances of the transaction, and must, among other conditions, grant investors who have already joined the offering a period of five days from receiving notice of the change to cancel their reservation.
  • 4.
Bookkeeping of the securities subject to the offering

Article 3, subsection V

Article 3, paragraph 4

Article 12

Article 53

CVM Resolution 88 creates a new obligation for companies when it provides that the securities offered, including those that are convertible into them, must be, as of the start date of the offering and throughout the existence of the securities offered:

  • subject to book-entry by an institution qualified, under the terms of the specific regulations, to provide securities bookkeeping services; or
  • subject to control of ownership and ownership interest.

Bookkeeping services must be mandatorily hired if:

  • at the time of contracting a platform, the company has already made, on another platform, one or more offers of securities fungible with, convertible into, or that are converted into the same type of security; or
  • if the platform contracted to distribute the offering does not offer ownership control and shareholding services.

In addition, the bookkeeping or ownership control and ownership interest obligation only applies to securities offered after CVM Resolution 88 takes effect (July 1, 2022).

One notes the CVM's intention to forge mechanisms that ensure easy verification of ownership of securities issued by companies, aiming mainly to provide security to investors and the market, in addition to assisting in the process of building a solid and reliable environment for the trading of such assets through private transactions.
  • 5.
Allocation of the proceeds of the offering Article 3, subsection VI, point "a" The funds raised in the offering cannot be used to acquire, directly or through convertible securities, minority stakes (up to 50% of the voting capital) in other companies.
  • 6.
Limit of the investment value by investors Article 4

The amount to be contributed by investors is limited to R$ 20 thousand per fiscal year, except in the case of:

  • qualified investors, as defined in article 12 of CVM Resolution 30/21;
  • lead investor, under the terms of CVM Resolution 88; or
  • investors whose annual gross income or amount of financial investments exceeds R$200,000, in which case the R$20,000 limit would be increased to up to 10% of the higher of the two amounts (permitted investor).
Although it has increased the maximum investment limit for non-qualified investors from R$10 thousand to R$20 thousand, which allows the allocation of more funds from this type of investor in the offering, one notes that the CVM, by increasing from R$100 thousand to R$200 thousand the value of the gross income and the amount of financial investments, sought to limit the offering to investors with a greater appetite for risk and, in theory, with greater knowledge of the financial and capital markets.
  • 7.
Placement of additional securities Article 5, subsection VI

CVM Resolution 88 brought in an important innovation by giving the possibility, at the company's discretion, of placing an additional lot of securities equivalent to up to 25% of the maximum target value of the offering, provided that:

  • this possibility has been approved by the competent corporate bodies of the company;
  • the total value of the offering observes the R$ 15 million limit; and
  • the additional lot is provided for in the offering material to be disseminated by the platform.
In practice, the maximum value of the offering may be increased by up to 25%, which makes it possible to raise funds equivalent to 125% of the maximum value initially suggested, subject to a maximum amount of R$15 million. This novelty of the rule is already widely used in public offerings of securities by issuers registered with the CVM.
  • 8.
Secondary distribution Article 5, subsection VII

CVM Resolution 88 admitted the possibility of holding a secondary public offering, provided that:

  • the total amount of the offering does not exceed 20% of the maximum target amount; and
  • the controlling shareholder or block does not sell more than 20% of the securities it owns, and the percentage sold does not result in loss of control after the offering; and
  • in the event of partial distribution, the proportion described above is respected.
The possibility of holding a secondary public offering of securities will allow certain investors (angel and venture capital funds), as well as founding shareholders of the companies, to have greater liquidity, which, in our opinion, will stimulate exits, even if partial, and the creation of a stronger secondary market for this type of asset.
  • 9.
Financial statements Article 8, paragraph 2, subsection V

The platform must disclose on its website a copy of the company's financial statements, which must be audited by an independent auditor registered with the CVM:

  1. Before the offer is held, when:
  • the amount raised in the offering exceeds R$10 million; or
  • the company has recorded annual gross revenue exceeding R$ 10 million, as determined in consolidated financial statements for the fiscal year prior to the Offering; and
  1. After the offer is held
  • if the company has registered in the prior fiscal year consolidated annual gross revenue exceeding R$10 million.
In the case of item 1, the financial statements must be disclosed before the beginning of the offering.
  • 10.
Subsequent transactions Article 15

The platforms may, with the express and contractual consent of the company, act as brokers of transactions for the purchase and sale of securities that have been publicly issued (including fungible securities in relation to securities already issued) by companies that have conducted at least one offering (transaction), expressly forbidding the creation or administration of regulated securities markets (such as stock exchange, over-the-counter market, etc.). In addition, securities issued by a company and held by controlling shareholders or by the lead investor may be subject to transaction, provided that:

  • they do not exceed 5% of the value of the stake held by them at the time of the closing of the offering; and
  • this fact is communicated to potential buyers.

To conduct transactions, the platform must ensure, among other things, that:

  • the seller is the holder of the securities;
  • the potential buyers are active investors (those with an updated registration on the platform) and that have made an investment in at least one offering conducted by the platform in the last two years;
  • the buyer is a permitted investor;
  • the delivery of the security only occurs after the remittance of the amount negotiated with the buyer; and
  • an updated history of the volume and price of transactions carried out for each company, while the platform is acting as broker, is available to active investors, on the first business day of each month.

Companies that have breached contractual obligations to provide periodic information, in accordance with the commitment disclosed to the market at the time of the offering, and have closed their activities, will not be able to use a platform to trade their securities which were subject to the offering. 

This is an important innovation instituted by CVM Resolution 88, which grants a relevant mechanism for investors and controlling shareholders of companies to obtain liquidity for their investments made via offerings. It is, therefore, a big step towards the formation of a secondary market for this type of asset.
  • 11.
Responsible for internal controls Article 27 If it has participated in successful offerings whose total aggregate value exceeds R$30 million, the platform must have, on a permanent basis, a professional responsible for the supervision of internal rules and controls. This function may be performed by other professionals of the platform, as long as it does not entail a conflict of interest. The compliance professional must be appointed by March 1st of the fiscal year following the one in which the condition described above is found.
  • 12.
Liability of the platform’s management and the company Articles 39 and 42 The platform's and the company's management must ensure compliance with the platform's and the company's obligations, respectively, which were imposed by CVM Resolution 88.
  • 13.
Minimum contribution by the lead investor Article 47, paragraph 1

The lead investor must make an investment with its own funds in the company of at least:

  • 5% of the minimum fundraising amount, in the case of an offering with a maximum target fundraising amount of up to R$5 million;
  • 4% of the minimum fundraising amount, in the case of an offering with a fundraising amount greater than R$5 million and less than R$10 million; and
3.5% of the minimum fundraising amount, in the case of an offering with a maximum target fundraising amount higher than R$10 million.
  • 14.
Platforms registered with the CVM Article 55

Platforms already registered with the CVM before CVM Resolution 88 came into effect must:

  • within 6 months of the resolution taking effect, submit proof of compliance with the minimum paid-in capital stock; and
if the intent is to provide securities ownership control services, send the CVM a statement that it is able to provide such services, considering the requirements stipulated by the resolution.


[1] At the date of publication of this article, CVM instructions 400 and 476 are under revision by the CVM. A Public Hearing Notice was published aiming at complete amendment and restatement of these rules. For more information, see https://conteudo.cvm.gov.br/audiencias_publicas/ap_sdm/2021/sdm0221.html.