Crowdfunding and Fintech
On November 10th, 2023, the Colombian Financial Supervisory Authority (SFC: Superintendencia Financiera de Colombia) enabled the incorporation of Terrenta S.A. (Terrenta), a crowdfunding private limited liability company, which will start operating in 2024. Our firm played a pivotal role in the company’s establishment and will continue to promote its success into the future.
Terrenta foresees to become the first duly licensed crowdfunding company focused on the real estate market and a financial institution that will lead the advancement of capital markets in Latin America.
Crowdfunding, which involves raising money from many individuals to finance new business ventures, connects investors and entrepreneurs, thus increasing entrepreneurship by expanding the pool of potential investors. In this business, crowdfunding companies based on financial technology (Fintech), such as Terrenta, simplify financing in upcoming small and medium-sized enterprises (SMEs) and startups according to jointly established financing terms and conditions. This is not only a way for companies and individuals to raise capital, as it also levels the playing field for investors keen on certain sectors, such as the real estate market, which for the most part has not been available for the general population.
With the surge of Fintech, it is now easier for anyone to make low-cost digital investments in highly vetted projects. Furthermore, regulated crowdfunding enables ordinary people to make investments in debt or equity securities, thus facilitating an increase in savings steered towards corporation ownership, higher financial profits, and overall entrepreneurial drive.
However, for the potential of crowdfunding to play out and become a real alternative for both business ventures and the general population, there is still a lot of work to be done regarding financial education in Latin America. For this reason, since its inception, the company has incorporated a Financial Education Plan that will grow and improve over time and remains committed to foster education as means to create opportunities and increase overall well-being.
Capital markets and the positive effects of entrepreneurial dynamics
Terrenta will be an initiative of high social and corporate impact. The deepening of the Colombian capital markets and the solid structuring of crowdfunding via licensed companies, duly supervised by the Colombian Financial Supervisory Authority, will facilitate the transition from savings to investments, through a virtuous circle of economic growth and entrepreneurship, better and more formal employment, and thus an increase in workers' real wages.
According to the latest World Bank statistics for 2022, Colombia is the country with the lowest market capitalization (i.e. shares traded in the local market) as a proportion of Gross Domestic Product (GDP) amongst similar countries in Latin America, with a 19.9% market capitalization to GDP rate. It is worth noting the latter ratio in Colombia (i.e. 19.9%) is below the same percentage rate (i.e. market capitalization as a proportion of GDP) in other LatAm countries, such as Brazil (41.4%), Chile (94.8%), Mexico (31%), and Peru (29.4%). Also, the Colombian market capitalization to GDP rate is much lower compared to that in countries such as Canada (127%), Japan (126.4%), and the United States (158.4%), and even below the average for Latin America and the Caribbean (34.7%) and the average for low and middle-income economies (62.8%). Simply put, fostering the Colombian capital markets should be a priority and a sustained government policy.
Thus, we are proud that Terrenta will lead the way to achieve well-structured and deep capital markets by impacting the financing of the real estate sector, which is also one of the main drivers of job creation in the country.
Securitas Consulting, the firm behind Terrenta S.A
Our firm, Securitas Consulting, together with Ideas y Desarrollos Inmobiliarios MG S.A.S., was one of the two companies backing the development of this Fintech venture. In that process we contributed our know-how to adequately structure this crowdfunding company, duly supervised by the Colombian Financial Supervisory Authority and incorporated in the National Registry of Securities Market Agents (RNAMV: Registro Nacional de Agentes del Mercado de Valores). The firm’s work centered on the following legal and operational areas of the newly incorporated company:
〉Development of business models, capital structure and financial outlook
〉Capital structure and financial outlook
〉Corporate governance
〉Appropriate financial customer service schemes
〉Fintech platform development
〉Comprehensive and cross-cutting risk management*
* Adequate risk management required structuring of the risk management systems to be implemented by the company in order to comply with financial regulations: the Operational Risk Management System (SARO: Sistema de Riesgos Operativos), the Anti-Money Laundering and Counter-Terrorism Financing Risk Management System (SGRLAFT: Sistema de Gestión de Riesgos de Lavado de Activos y Financiación del Terrorismo), the Information Security and Cyber Security Management System (SGSI&C: Sistema de Gestión de Seguridad Informática y Ciberseguridad), and the Occupational Health and Safety Management System (SG-SST: Sistema de Gestión en Seguridad y Salud en el Trabajo).
The future of Fintech and the crowdfunding industry
Decree 1235 of 2020 was a breakthrough in the Colombian legal crowdfunding framework, as it increased the cap on the maximum amount of capital that may be raised by a given company via a licensed crowdfunding company. Since 2020 the maximum financing amount that may be allocated to a company is equal to 58,000 monthly minimum wages (about US$18,524,000). However, if funding is provided from non-qualified investors only, the maximum financing amount that may be allocated to a company is equal to 19,000 monthly minimum wages (about US$6,068,000).
Also, licensed crowdfunding companies may now enable a securities administration system for crowdfunding securities and therefore the securities representing investments in upcoming companies are to be duly registered in these systems.
In addition to the above, Decree 2105 of 2023 establishes that licensed crowdfunding companies may now develop an online private placement that enables the purchase and sale of crowdfunding securities amongst pre-registered investors and institutions.
The promising future of the crowdfunding industry will lead to the deepening of the capital markets in Latin America, efficient investments into productive sectors, more and better employment, an increase in workers' real wages, and an overall virtuous business cycle. Terrenta will partake in this innovative financing and investment ecosystem and thus advance the Fintech revolution into a better future.
If you want to learn more about our services for startups and Fintech companies or about Terrenta, please send us an email to contacto@securitasconsulting.com.
