posted Jul 12, 2013, 10:24 AM by Andrew Manzo   [ updated Jul 12, 2013, 10:25 AM ]

Broota's Jose Berrios on Equity Crowdfunding in Chile

Latin America, a rapidly-developing region with a (mostly) common language and an affinity for social media, presents a great opportunity for crowdsourcing and crowdfunding.

Recently, we learned of an equity crowdfunding campaign that took place in Chile; it is, to our knowledge, the first successful equity raise in the country, and one of the first in the entire region (Colombia’s crowdfunded skyscraper may have beat it to the punch).

The campaign raised roughly $135,000 for the Cerveza Guayacan brewery in northern Chile; it took place on Broota, an equiy-based platform that's located in Santiago. 48 investors participated in the funding round, which lasted 43 days. Investments ranged from $60 to $20,000, with the average clocking in at around $2,600.

To find out more about the brewery’s successful raise, Broota, and Chilean crowdfunding in general, we spoke with Jose Berrios, the platform’s co-founder and CTO. In the first half of the conversation, which went up yesterday, we focused on Cerveza Guayacan's campaign; in the second half, we touch upon crowdfunding regulations in Chile, and Broota's plans for the future.

Anton Root, I wanted to talk about crowdfunding regulations in Chile, in general. Have you spoken about this with government officials?

Jose Berrios, Broota co-founder and CTO: Yes, we have very good relations with certain [parts] of the government, especially CORFO, which is part of the Ministry of Economy. CORFO is the entity that gives funds to projects, and it works quite well in Chile. We have a very good relationship with them and other entities, like entrepreneur associations. I think that at the moment, we are not making too much noise because the amount of money that we are raising is still small. I think we haven’t rung the bells yet in certain institutions, especially the one that supervises public offers. But we worked on the legal framework for almost eight months. We involved a law firm as a partner in our product. For example, now, Broota is not open to everybody; anybody can upload a project, but not everyone can invest in it. Only the entrepreneur [campaign owner] can invite investors to his project, or projects that are on the platform. It’s quite restricted. We would like it to be open, but we cannot [do so], because [our projects] could be considered as public offers.

But what we want to do, basically, is to have a set of successes – five or six. With that experience and success, we can do and talk to entities in the government, and come to them with a solution. We have partnered with a law firm and developed a law that we will [present] to the government. At the moment, we are in a cloud. We are not doing something that’s illegal because we are like a private offering and only people who are invited can invest. Hopefully, with experience and a law based on the JOBS Act, plus the FSA in England, plus the experience in Holland, we expect that we can move fast and, hopefully in the near future, we can have Broota open to everybody.

Just to clarify, the invitations can be sent out to anybody? It doesn’t have to be an accredited investor, right?

No, it can be sent to anybody. Regarding that point – we think what we’re doing is not wrong. In Chile, it’s not illegal; you have public offerings, and you have cases that the government has mentioned, describing what is not a public offering. But that doesn’t mean that there aren’t other kinds of private offerings. We are betting that people will understand that what we’re doing is not wrong. We are also educating the users on our website. We tell them what venture capital means, that the stocks are illiquid, and what that means. So, we have been trying to educate the people that invest, and hopefully, all of that can be seen in a positive way.

One of the problems regarding crowdfunding in Latin America that I’ve heard about is the lack of a solid online payment system. How did you collect the money?

It’s true. There’s a company that has a monopoly on online payment systems. We implemented different payment options – one that [uses] the monopoly [company], plus your own bank account. So you can pay either with a credit card, through the monopoly actor in Chile, or you can choose your bank account, and deposit it that way – that’s the cheapest option.

Also, we don’t want to deal with money, we are a platform that connects people with ideas, so we have an alliance with a Chilean bank, and they are the keepers of the money. Basically, when the user signs onto the platform and approves the terms and conditions, they give a mandate to the bank that allows us to move the money, but only to the entrepreneur, or to return the money to the investor. So they are the ones that deal with the money.

You mentioned the monopoly payment system – what’s it called?

It’s called Webpay, but the company behind it is called Transbank. It’s not an open [ecosystem] with several actors that compete, like in Brazil, or in the states, or in Europe, or elsewhere. Many entities have been trying to change [the system], but it’s very difficult. For example, in Chile, it’s illegal to store credit card accounts, and things like that.

So your platform is only for Chilean projects? Or do you operate outside of Chile – and if not, are you looking to do so?

When we started with the idea of developing a platform for equity-based crowdfunding, we looked, from the beginning, to Latin America, not only Chile. Latin America has one particular benefit – the language. So it’s natural to think on [a regional scale]. What we’re doing is, we’re starting to develop teams in different countries, and we will start companies in those countries. We’re looking to Peru, Brazil, and Mexico. In these countries, we are replicating the same team we have here, and we give them shares so they will be owners of the platform of that country.

Are these going to be, for example, Broota Mexico, or a different brand?

It would be Broota Mexico. The idea is that, hopefully by next year, you could select, for example, ‘biotech projects,’ and Broota will show you all the biotech projects, [regardless of] where they come from. Or, you could filter by country. We would [also] like to be a channel for foreigners, where investors from Europe or the U.S. would invest in Latin American companies.

How do you guys make money – do you take a percentage of the funds raised?

We have three ways. One is we charge a percentage to the investor. Also, we have a success fee, and we will charge a small amount of money to the projects that want to be on the platform. We started in May, and already 60 projects have uploaded their information. But from that 60, we are considering only one or two to get published. So if we charge a small amount of money, we expect to filter out the projects that are not developed or are immature.

What percentage of the money raised do you charge?

2.5 percent to the investors, five percent for the success fee to the entrepreneur, and we are looking at something like $500 to get on the platform.

What do you look for in projects? Are you looking at specific categories, or anything like that?

No, at the moment, we are not. We are a general platform, not looking only for early stage companies, or only energy projects, for example. We’re open to everybody because the industry is not mature enough to have verticals. And also, we are looking for projects with [strong teams]. In certain places, we have helped them. For example, right now, we [help them create] a video for free, to help them have a good presentation. But, we hope that all the projects that come afterwards will come with their own video.

You mentioned some of your plans already in expanding to Peru, Mexico, and Brazil, and also considering rewards crowdfunding, but is there anything else you guys are working on?

For the moment, we have plenty of work. But we also have plenty of ideas. We are in the process of getting B Corporation-certified. Already in the constitution of our company, two of the articles that you must have in order to get certified, they are already there.

What we would like to do is democratize access to the network. For example, if you are born in the upper class, you are well connected and educated, and have access to angel investors. That’s not the case if you are born in the lower part of the society. We hope that with tools like equity-based crowdfunding, someone who is capable and has a good idea – no matter what class they were born into – he can get funded, and get an opportunity to have access to a network of investors. We hope, also, that in the near future, when someone invests, we will offer them [opportunities to donate to other projects]. I don’t know if we will partner with a donation-based platform, or non-profits.

Is there anything else you wanted to mention about your platform or crowdfunding in Chile, in general?

Just that the time limit for the raise is sixty days, the minimum investment is $60, and the maximum is defined by the entrepreneur. So, in the case of the Cerveza Guayacan brewery, they made the maximum $20,000. There was a guy who wanted to invest $40,000, and wasn't able because the brewery was looking for a larger number of investors, rather than having all the money come from a few.

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