BRAZIL Law and Practice Contributed by: Fernanda Levy, Aline Bauermeister, Rodrigo Menezes and Fabiana Fagundes, FM/Derraik
of negotiation and a point of concern for the investors. 6.2 IPO Exits In spite of the slight increase in the number of exits through IPOs in Brazil, the country’s capital market deals are pretty modest when compared with developed jurisdictions. The whole process is time-consuming and cost - ly. Preparation for an IPO takes around 12 to 18 months, and requires a certain mindset and operational change, in view of the numerous compliance and regulatory requirements. 6.3 Pre-IPO Liquidity There is no legal provision for secondary market needs in the context of an IPO. In fact, this is a major problem for the development and growth of the Brazilian capital market, which is still incipient in this respect and where there is not enough demand. There is no legal provision for promoting or stimulating liquidity of the second - ary market. Nonetheless, there are sometimes certain acquisition priorities in employee IPOs as well as preferences for primary offering versus secondary offering.
• the issuer hires brokers or agents, or uses employees, to search for underwriters or pur - chasers for the securities; or • if the trading of the securities is to be carried out in a public space, the issuer uses public communication devices. An important aspect in determining whether a placement constitutes “public offering” is the public sought by the offer – ie, whether the offer is directed towards the general public. The CVM defines “general public” as any class, cat - egory or group of people, even if individualised, besides those who have had a regular and pre - vious relationship with the issuer. Therefore, the offer is deemed “public” whenever it is not pos - sible to identify or individualise the investors to whom it is directed. If any offer is made within Brazil, such distribu - tion must be conducted by entities authorised to Foreign direct investment (FDI) restrictions are more common in the real economy than in rela - tion to technology companies. However, some existing FDI regulations may apply to growth/ portfolio companies of foreign VC investors, as follows. Sector-Specific Restrictions Certain sectors may be sensitive or strategic, requiring special approval or outright prohibit - ing foreign investment. Defence, telecommu - nications, real estate (rural areas) and gaming are examples of sectors that are subject to FDI restrictions. Most of the time, the restrictions are limited to a cap on the percentage of ownership that foreign investors can hold in domestic com - panies; therefore, minority interests of VC inves - tors may not be affected by such limitations. do so by the CVM. 7.2 Restrictions
7. Regulation 7.1 Securities Offerings
Under the applicable laws of Brazil, an offering of securities is deemed to constitute “public offer - ing” whenever: • the issuer publishes any form of advertising (or materials that may be deemed to consti - tute advertising) or announcement expressing the issuer’s intention to sell securities to the general public in Brazil;
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