Crowdfunding restrictions affect Portugal's start-up businesses

Crowdfunding investors in Portugal will be banned from shelling out more than €3,000 per offer, according to restrictive proposals from the stock market regulator CMVM.

The new rules are up for public consultation until January 21, 2016 but if they go ahead, the market that encourages new companies to get going, without recourse to applying to banks for money, will artificially be constricted.

Any company seeking crowdfunding investors will need at least €50,000 of capital and any investor in the collaborative funding method is limited to €3,000 per company and to €10,000 per year.

The proposals from the Portuguese Securities Market Commission (CMVM) is seen by many as a result of its past failure to regulate companies such as Banco Espírito Santo whose in-branch selling of highly risk bonds led to massive problems for investors, assured their money was safe, when the bank went bust.

CMVM denied all responsibility for the BES fiasco and now seems to be restricting crowdfunding investments, that by their very nature are risky, in a move to appear 'robust'.

The crowdfunding rules were covered in some August legislation which came into force in October, but failed to include a limit to the amounts members of the public could invest.

Any investor who is in receipt of an annual income of over €100,000 comes outside these new suggested rules.

As for the companies seeking funds, they each are limited to raising no more than €1 million from crowdfunding, must have professional indemnity insurance, must have €50,000 capital, must register in advance with CMVM and submit an organisational and human resources description of the business and a certificate as to the competence and professional experience of the members of Board of Directors.

The regulator will then check out the directors’ suitability, work experience, any criminal background, administrative offences and disciplinary processes which may have convictions and/or fines.

The main platform for crowdfunding in Portugal is PPL which has raised €1.3 million in the last four years for 1,013 start-ups.

Pedro Domingos of PPL said today that the maximum investment introduced in the regulator’s proposal is "a bit unfair" since equity investment has no limits and the risk is the same.

There are 230 platforms in the European Union which raised 126,000 million through the reward model, or the equity model where investors become shareholders in new businesses.

Portugal's successive governments claim to be promoting new businesses by cutting red tape. This proposal by the CMVM shows this to be a sham as under the guise of reducing risk for investors, the regulator is restricting the availability of low-cost liquidity and start-up capital to those companies that most need them.  

How banks such as Luso Baião will fare, looking for funding of €4,000 to record a new album, remains to be seen but under the current CMVM proposals, crowdfunding will cease to be a fun, counter-culture way of taking a punt.

Similarly, funding for Os Patudos, a series that will show the reality of Animal Protection Associations in Portugal would have got nowhere under the proposed CMVM rules. In fact it has been oversubscribed and the €1,995 raised will be used to fund a film series revealing the exceptional work of the various Animal Protection Associations based in Portugal.

For many youngsters looking for a break, they simply may go to a country where they can get the start needed to become a success. Yet again Portugal is in danger of creating obstacles for entrepreneurs which the state professes to encourage.

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