A bill currently under discussion in the Brazilian Congress proposes the creation of a new agreement structure aimed at converting investments in companies into future equity, called the “Contrato de Investimento Conversível em Capital Social (CICC)” in Portuguese. This new contractual framework is designed to facilitate investments in Brazilian companies, particularly startups, while also aligning Brazil’s legal landscape with practices already adopted in other markets, especially the United States.
Why is CICC important?
The CICC emerges in response to the need for greater legal certainty for investors, particularly “angel investors” looking to invest in startups.The CICC offers an alternative to the convertible loan, which has been the primary investment instrument for early-stage businesses in Brazil. Also, the CICC aligns the structure of these investment agreements more closely with the widely accepted American model—the Simple Agreement for Future Equity (SAFE).
What are the goals of the CICC?
The CICC aims to provide a clear and well-defined legal framework for this type of investment, addressing several limitations inherent in the use of convertible loan agreements. One key issue with the convertible loan structure is its classification as debt, which can negatively impact startups by increasing their liabilities and introducing repayment risks. For investors, it can also create challenges, such as potential tax implications on any remuneration derived from the loan.
Inspired by the SAFE model, the CICC aims to be a simpler, more flexible instrument that can be tailored to meet the needs of both startups and investors, without the limitations inherent in convertible loan agreements. The CICC is designed to avoid being classified as a liability or debt for the startup, while also not being considered a credit for the investor. It grants the investor the right to convert their investment into equity in the future, according to the conditions set forth in the agreement.
Additionally, under the CICC framework, the investor is afforded more protections, reducing exposure to the risks associated with being a direct shareholder in the startup until the investment is effectively converted into equity.
In summary, the CICC represents a significant advancement in the legal framework for startup investments in Brazil, offering legal security to investors while providing better instruments to support the growth and innovation of early-stage companies. The bill is currently awaiting a vote in the Brazilian House of Representatives and, if approved, will proceed to presidential sanction.