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Last October, Italian lawmakers passed legislation called Decreto Crescita (Growth Decree), which, among other things, legalized equity crowdfunding in the country.
Since then, the Commissione Nazionale per le Società e la Borsa (CONSOB), akin to the Securities and Exchange Commission in the U.S., has been working out the regulations around equity crowdfunding. On Friday, CONSOB released the final version of the regulations, which will go into effect on July 27th. To find out about the finalized version of the legislation, we got in touch once again with Daniela Castrataro, co-founder of twintangibles, who explained the changes to the law that took place over the past several months and walked us through the law. The first half of our discussion is below, and the second will be up tomorrow.
Anton Root, Crowdsourcing.org: I’ll go deeper into what the actual law is, but just so I’m clear on this point – the law is set to go into effect in 15 days, on July 27th. Is there anything that can derail or delay this?
Daniela Castrataro, twintangibles co-founder: No, it’s normal [procedure], whenever any law is approved in Italy, there is a period called vacatio legis, which means there are 15 days before the law actually goes into effect. But no, there is nothing that can cancel the law now. Actually, CONSOB can already receive applications from portal operators to be included in the register.
CONSOB published the laws late last week, but the framework has been out since, I believe, March 29th. Have there been any significant changes to the regulations since then, or is it pretty much the same?
There were a lot of suggestions and comments from the public, the crowdfunding market itself. From the first publishing of the regulations in March, the biggest change was probably the fact that the five percent that professional investors have to put in – before it had to be put in before the offer went [out to unaccredited investors]. Now, it’s a condition that still applies – the offers still need five percent to be put in by professional investors – but it can come at the end. It doesn’t have to come before the offer is published online. This is something that was changed following requests from people who left negative comments about that provision of the regulation.
In general, some things have been simplified – for example, the criteria that portal operators have to meet to become equity portal operators. Another important [change] is – there is the MIFID, an E.U. directive, which was a big obstacle in the first regulations that have been published. Now, the directive has been simplified, as well, in the sense that small investors have got some exemptions from the directive. So for them it’s easier to make an investment, but just for investments that are below €500, and in total €1,000 per year. So, very small investments. Probably the most negative comments about the regulation now are about this, because a lot of people find €500 per offer to be a very small investment.
You brought up a lot of interesting things there, and I want to return to them later, but this is something you’ve been following for some time – can you just briefly give some background on what these laws allow and do not allow, and how they came to be?
So, the law introduces equity crowdfunding for innovative startups into Italian legislation. It passed together with other regulations and laws that were made to promote innovation and innovative startups in Italy. What it does is give the possibility to launch offers on online portals in Italy, which had so far been prohibited. As I always said, one of the best things about this process is that it has been very open. The CONSOB was tasked to bring forward something they didn’t know at all [about], and they asked the market, the people who have been involved in equity crowdfunding for a long time, and listened as hard as they could to all the comments and suggestions that people gave. Of course, it still has some faults and its negative points, but it’s considered as a way to test equity crowdfunding in Italy.
Diving into the actual regulations, I want to start off by asking more about the crowdfunding portal register. You mentioned that they simplified the requirements for getting on – what do these look like now?
Yes, there were a lot of requirements before, but now they tried to cut a bit of them [out]. It’s mainly about the professional background of people who open the crowdfunding portal. There is the requirement that the person has a background in finance or in insurance. Now, this requirement is still there, but this requirement is only for executive management of the portal, and not for non-executive managers. This has been changed in order to simplify things.
I see, so is the register something that’s meant to protect investors?
Yes, partly, of course, to protect investors, and partly to protect the market, in general. The register has been introduced for [the purposes of] transparency – you have a register where you can see all the people who are operating in this sector, and who are actually recognized by CONSOB. This is a very new sector, a lot of people are about to launch platforms. And it’s surely a way to protect investors, as well, because if they can see that a portal is included in the register, it’s a way for them to say, okay, if CONSOB has approved these people, it means they meet the quality and professional requirements.
You mentioned that this is one of the more controversial points of the law, but why do you think the CONSOB allowed only ‘innovative’ startups to get funding?
This wasn’t the CONSOB’s decision – crowdfunding regulation is part of bigger legislation, whose aim was to foster innovation in Italy. Innovative startups were defined in this law, so CONSOB couldn’t do anything about that fact. It’s a bit like crowdfunding legislation as part of the JOBS Act [in the U.S.]
Got it, can you briefly go over what is defined as an innovative startup?
Yes, there are quite a bit of [requirements]. To qualify as an innovative startup, at least 51 percent of the company’s shareholders must be individuals, not legal entities; they can’t have been incorporated for more than 48 months; starting from the second year of activity, the total value of the startup can’t exceed five million euros; the company cannot distribute its profits; it cannot result from a merger or transfer of business; and the company must have development or commercialization of innovative products or services at its core. And, of course, it must be based in Italy. By the way, innovative startups must also register [with Registro Imprese, which is held by the Italian Chambers of Commerce], and there are currently around 1,000 of them.
Update: This article has been updated following publication with corrected information about the innovative startup register.