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A Closer Look at Italy’s Crowdfunding Law
© Image: Anton Root /

A Closer Look at Italy’s Crowdfunding Law

As we reported yesterday, the Italian government recently passed a decree that, among other things, legalizes equity-based crowdfunding.

The details of the law are not yet clear, as the CONSOB (the Italian SEC counterpart) has to consider how to best implement the government’s decree. To get some early insights about the decree, we reached out to Daniela Castrataro, co-founder of twintangibles and co-curator of Crowdfuture, a crowdfunding conference that is taking place in Rome later this month.

While the Decreto Crescita mainly focuses on digitizing public administration, it also includes several sections on helping entrepreneurs get access to capital and making it easier for them to go through the bankruptcy process. Crowdfunding is included in section one of article 30, Raccolta diffusa di capitali di rischio tramite portali online (translated as “Widespread collection of venture capital through online portals”). The law is now being reviewed by the CONSOB.

According to Castrataro, the crowdfunding aspect of the law is focused only on high-tech, innovative startups. At this point, the criteria for businesses that can be crowdfunded is:

  • the company purpose should expressly include "development and commercialisation of high-tech value products or services"
  • at least 51% of the company must be natural persons (not legal entities)
  • no distribution of profits
  • no more than 48 months in operation
  • total value of yearly output should not exceed 5 million Euros (from the second year)

The CONSOB is directed to develop secondary legislation in order to protect unaccredited investors. To that effect, professional investors and/or VCs will need to invest in a startup before equity is opened up to the crowd, and the CONSOB will need to create protective measures for non-professional investors “in the event that controlling shareholders yield their shares to a third party after the offer,” Castrataro said.

Our conversation with Castrataro is below:

Anton Root, I’ll jump right in – it seems like this is a decree that, among other things, legalizes equity crowdfunding in Italy. Is that how you see it?

Daniela Castrataro, twintangibles co-founder: Yes, in Italy there’s been more talk about crowdfunding since the beginning of this year. It was a very fast development. As for equity-based crowdfunding, there weren’t any particular regulations about it in Italy, as in many other countries. They’ve been working on the Decreto Crescita, which is the digital agenda in Italy, and a part of that bill is about crowdfunding.

But saying that it legalizes crowdfunding is a bit too much. The bill includes crowdfunding, but as in the U.S. everything has been left in the hands of the SEC, in Italy it’s being discussed in the CONSOB, the Italian Securities and Exchange Commission. So at the moment, everything is in the hands of the CONSOB and it will be defined in the next, hopefully, three or four months, if not more.

I saw that there is supposed to be a 60-day review period, but you’re predicting delays?

Probably, because there will be elections in Italy in April 2013, so the attention will probably be diverted to that. But it’s certainly an innovative measure that requires a lot of answers because, as I was saying, crowdfunding wasn’t really so popular before the beginning of this year. It’s been a very fast development.

What is the reasoning behind allowing crowdfunding? Is it like in the U.S. – giving entrepreneurs an alternative source of capital?

Yes, it’s mainly a measure to open a different route to funding, especially for innovative startups. The Italian digital agenda is limited to innovative startups, so it’s not for all businesses.

Has there been a lot of discussion about crowdfunding in the media?

Yes, certainly. I don’t like to say this, but "crowdfunding" is kind of a buzzword now, so everybody is talking about it. There is still a lot of confusion about the actual concept of crowdfunding. Italians know mostly reward-based crowdfunding, Kickstarter and Indiegogo; we have reward-based crowdfunding platforms in Italy, but they were all founded in the second half of 2011 so they haven’t been up for a lot of time. At the moment, though, there is a lot of noise in the media about crowdfunding. And I think that will continue.

I’ve been researching crowdfunding for a while and when I started in Italy at the beginning of this year, it was very difficult to find any mention of it. Now, there are articles about it every day, from different points of view. There is a lot of interest around the equity-based model, but at the moment there’s not a lot to say. Everybody’s waiting for CONSOB action. The bill that passed said it’s possible to raise money through crowdfunding, and that’s it. There are some groups and associations who are starting to work on suggestions and proposals to CONSOB to help them come up with relevant directives.

Still, it’s a very important movement. The fact that it’s been included in the bill is important. As I see it, though, I think limiting crowdfunding to innovative startups is just very, very limiting because not everybody can take advantage of it.

Do you think if it goes well for the high-tech startups, there’s a chance that it will be opened up to local and small businesses?

I think that's a possibility. I think they’ve been so fast and innovative in introducing it now, that in the future they’ll probably widen it to other kind of businesses. But again, I think Italy must prepare investors for it because, as I always say, there is no crowdfunding without the crowd. The public in Italy is not ready yet for equity-based crowdfunding, so there are still a lot of awareness-raising initiatives [that need to happen] around it. But I think it will be a quick process, we get used to new things very, very quickly.

And you’re helping to organize a crowdfunding conference in Italy, right?

Yes, Crowdfuture. When we started organizing it, our main objective was to raise awareness about crowdfunding, and improve knowledge of crowdfunding about all the different models and what’s happening in the U.S. and in Europe. I’m also part of the European Crowdfunding Network, and there is an objective of linking together all the crowdfunding experts in Europe and working for a common objective.

The bill was introduced quite suddenly, and now it will be, of course, a part of the conference. There will be a panel on the legal aspects of crowdfunding, we’ll have some experts to talk about crowdfunding in Italy. We’ll have other speakers presenting on other models – reward-based crowdfunding, social lending. We’ll have workshops in the afternoon and one of them will be legal experts who put together some directive and proposals on how to implement the crowdfunding bill. We’re not looking to answer all the questions, but I think it will be a good start for Italians to learn a bit more about crowdfunding.

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