Crowdfunding in Italy: A Complete Guide to Mini Bond, Equity and Lending
Crowdfunding emerged as a disruptive force in the world of finance, offering companies and investors innovative ways to connect and achieve their goals. In Italy, this phenomenon has gained significant attention, with constantly evolving legislation and an increasing number of platforms offering different types of crowdfunding. This article aims to provide a complete guide to crowdfunding in Italy, with particular attention to three main types: mini bonds, equity and lending.
What's Crowdfunding?
Crowdfunding, or collective funding, is a collaborative process in which a group of people use their common money to support the efforts of people and organizations. Instead of addressing a single source of funding, such as a bank or institutional investor, crowdfunding allows you to raise small amounts of money from a large number of people, typically via online platforms.
Crowdfunding Types
There are different types of crowdfunding, each with its own characteristics and purposes. The main categories are:
- Donation Crowdfunding: It provides for the donation of money to a social, environmental or humanitarian cause without expecting anything in return.
- Reward Crowdfunding: Supporters receive a non-monetary reward in exchange for their contribution, such as a product or service offered by the company.
- Lending Crowdfunding (or Social Lending): Investors lend money to an undertaking or individual, with the expectation of receiving the capital lent plus accrued interest.
- Equity Crowdfunding: Investors buy capital shares of a company, becoming full partners and participating in profits and losses.
This article focuses on three types of crowdfunding particularly relevant to Italian companies: mini bonds, equity and lending.
Mini Bond
Mini bonds are bond loans of less than EUR 50 million issued by equity and cooperative companies, even unlisted. Introduced in Italy with the 2012 "Decree Sviluppo", mini bonds represent an alternative financial instrument to bank credit, allowing companies to find resources to finance their investment programs. The minibond market has seen significant growth in recent years. According to the Politecnico di Milano, in 2021 832 Italian companies issued minibonds, of which 62.5% are SMEs. The total harvest through this instrument has reached 4.23 billion euros, with an increase of 58% compared to the previous year.
How Mini Bonds Work
The companies that intend to issue mini bonds are addressed to a financial advisor who assists them in structuring the transaction and drafting the business plan. Subsequently, an arranger deals with placing mini bonds with investors, who may be institutional or professional. Mini bonds can be listed on regulated markets, such as ExtraMOT PRO of Borsa Italiana, or on other regulated markets or MTFs, or placed privately.
Advantages and Disadvantages of Mini Bonds
Business benefits:
- Diversification of funding sources.
- Increased stability of the loan, with duration and repayments agreed in advance.
- No reports in Central Risks.
- Possibility of listing on ExtraMOT PRO or other markets.
- They are not reported at the Rischi Central.
- Possibility of obtaining coverage up to 90% by the Central Guarantee Fund/SACE Fund.
- Tax incentives, such as the deductibility of liabilities up to 30% and the exemption from the levy on interest paid.
Disadvantages for enterprises:
- Emission costs, which include expenses for the advisor, the arranger, the law firm and the certification of the budget.
- Insolvency risk of the issuer.
Mini Bond Regulation
The reference legislation for mini bonds in Italy is the "Decreto Sviluppo" (D.L. 83/2012) and the subsequent additions and modifications made by the "Decreto Sviluppo Bis" (D.L. 179/2012), the "Destinazione Italia" (D.L. 145/2013) and the "Decreto Competitività" (D.L. 91/2014). With the entry into force of the ECSP Regulation, approved by the European Parliament in October 2021, restrictions on the categories of investors who can buy mini bonds fell. The regulation establishes that all investors, sophisticated and non-member, can subscribe to mini bonds issued by stock companies (SpA).
Equity Crowdfunding
Equity crowdfunding allows companies to collect online risk capital, offering participation odds to a wide audience of investors. This model is particularly suitable for innovative startups and SMEs seeking funding to start or develop their business. Thanks to the equity crowdfunding, businesses can access a wider investor basin, including those who may not typically invest in early-stage businesses. In addition, equity crowdfunding can help startups build a professional network and gain visibility.
How does Equity Crowdfunding work
Businesses intending to use equity crowdfunding sign up for an online platform authorized by Consob. Through the platform, they present their own project and define the goal of fundraising and the percentage of social capital offered to investors. Investors can view projects and decide what to invest in, becoming business partners. Equity crowdfunding can also be used to pre-sell products and validate market demand.
Advantages and Disadvantages of Equity Crowdfunding
Business benefits:
- Access to a large investor base
- Possibility to raise funds quickly
- Creating a community of supporters
Disadvantages for enterprises:
- Dilution of ownership quota
- Platform Costs
- Risk of failure of the campaign
Advantages for investors:
- Access to innovative companies with high growth potential
- Possibility to invest in the real economy
- Portfolio diversification
- Tax benefits, such as deduction from income tax (IRPEF) for investments in startups and innovative SMEs
Disadvantages for investors:
- Risk of loss of invested capital
- Risk of illiquidity, i.e. difficulty in reselling quotas
Regulation on Equity Crowdfunding
The Italian legislation on equity crowdfunding was introduced with the "Decreto Crescita 2.0" (D.L. 179/2012) and subsequently amended and supplemented by various provisions, including the Law of Budget 2017 and the "Decreto Sostegni Bis" (D.L. 73/2021). The European Crowdfunding Service Providers Regulation (ECSP), which entered into force in November 2021, introduced a common European framework for collecting capital through online platforms.
Lending Crowdfunding
Lending crowdfunding, or social lending, is a form of funding where investors lend money to an enterprise or an individual through an online platform. In return, they receive the capital lent more interest accrued, according to the conditions defined in the loan agreement.
How Lending Crowdfunding works
Lending crowdfunding platforms connect companies or individuals seeking funding with investors willing to grant loans. Platforms evaluate the credit risk of applicants and define interest rates and other loan conditions. Investors can choose to lend money and diversify their portfolio by investing in multiple projects.
Advantages and Disadvantages of Lending Crowdfunding
Business benefits:
- Access to loans for enterprises and individuals with difficulty in obtaining credit from banks
Advantages for investors:
- Potentially higher yields than traditional fixed income investments
- Portfolio diversification
Disadvantages for investors:
- Debtor Insolvency Risk
- Risk of illiquidity
- Not all investors will be able to make initial investment to purchase minibond
Lending Crowdfunding Regulation
The lending crowdfunding in Italy is regulated by the Unico della Finanza (TUF) and the Bank of Italy's provisions on financial intermediation. The ECSP Regulation introduced a common European framework for crowdfunding service providers, including those operating in the lending sector.
Examples of Crowdfunding Success in Italy
The crowdfunding has contributed to the success of several business initiatives in Italy. Some remarkable examples include:
- Winelivery: Alcoholic and wine delivery platform that raised over 1.7 million euros through equity crowdfunding on CrowdFundMe.
- StartupItalia: Information and support platform for startups that raised over €7.6 million through equity crowdfunding on Mamacrowd.
- MySecretCase: E-commerce of sex toys that collected €2.5 million in a B Series round through equity crowdfunding on Doorway.
- Soisy: Lending marketplace platform that has collected over €5.3 million in three crowdfunding rounds.
- Green Energy Sharing: Innovative startup operating in the renewable energy sector and raised 1 million euros through equity crowdfunding.
- Baladin: Craft brewery that used equity crowdfunding to finance its expansion.
- OlivAmo: Company that produces extra virgin olive oil and has collected over 2 million euros in two equity crowdfunding campaigns on Mamacrowd.
These examples show how crowdfunding can be an effective tool for Italian companies from different sectors to collect capital, increase visibility and reach new customers.
Conclusions
Crowdfunding is a significant opportunity for Italian companies and investors. The different types of crowdfunding offer flexible solutions to finance projects, start activities and diversify investments. The Italian legislation on this subject is constantly changing, with the aim of promoting transparency, safety and market growth. Crowdfunding can be more than just a financial transaction: it can be a strategic tool for the company's overall growth. The Italian crowdfunding market shows a positive trend, with an increase in the number of platforms, campaigns and investors. However, it is important that both companies and investors are aware of the risks and challenges associated with this tool. For those wishing to deepen the topic, there are numerous online resources available, including crowdfunding platforms websites, Consob and Banca d'Italia documents and industry research reports.
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