Consob regulation on equity crowdfunding published: new opportunities for Italian start-ups

CONSOB issued the regulation on equity crowdfunding with resolution no. 18592 dated 26 June 2013, published on the Italian Official Gazette of 12 July 2013 (hereinafter, the "Regulation").

The Regulation implements articles 50-quinquies (Management of portals collecting capitals for innovative startups) and article 100-ter (Offers through portals for collecting capitals) of the Italian Legislative Decree no. 58 dated 24 February 1998 (the “Italian Consolidated Financial Act”), recently amended by Law Decree no. 179 dated 18 October 2013 (the so called Development Decree 2.0) and converted with amendments into Law no. 221 dated 17 December 2012.

"Crowdfunding" means the activity to finance projects by several investors (crowd), by pooling their money (funding) via the internet on online platforms. Crowdfunding takes the form of equity crowdfunding when the fund rising is made through offers of capital to be underwritten in the form of financial instruments.

The Development Decree 2.0 offers a specific model of equity crowdfunding consisting of investments in the capital of high-tech innovative start-up companies, as defined in such decree.

According to the decree innovative start-ups are both newly incorporated companies and companies incorporated since no more than 48 month, provided that, inter alia, the following requirements are met:

exclusive or prevalent corporate purpose aimed at the production, development and/or sale of high-tech and innovative products and services;

• no more than Euro 5 million as overall value of the annual production, starting from the second year of activity;
• at least 30% of the higher of (i) annual costs and (ii) turnover must be invested for research and development;
• ownership or license of the industrial property rights of at least one industrial or biotechnological invention.

According to article 50-quinquies of Italian Consolidated Financial Act, the management of the on-line platform for the crowdfunding is restricted to the following entities (the “Managers”):

• companies enrolled within a special register held by CONSOB, provided that they transfer the underwriting and trading orders of financial instruments representing the capital of the start-up company exclusively to banks and investment companies; and
• investment companies and banks authorized to provide the relevant investment services, which are subject to a mere annotation in the said special register held by CONSOB.

The Regulation formally introduces the register, setting out the conditions for the enrollment, the reputation requirements of the entities or individuals holding a controlling interest in the enrolled companies as well as the reputation and experience requirements of persons performing administrative, management and control functions in those companies.

The Regulation also provides for the conduct rules that the Managers should observe in their relations vis-à-vis the investors with particular reference to disclosure duties for the management of the platforms, the investment in the share capital of the innovative start-up and the disclosure duties concerning the single offer. By way of example, the Managers are requested to ensure the right of withdrawal of the retail investors from the order without any costs and within 7 days from the order’s date.

The Managers other than banks and investment companies, are committed to transmit the orders regarding the execution and trading of financial instruments representing share capital of the innovative start-up, exclusively to banks and investment companies. The latter, in turn, are subject to the rules governing the provision of investment services as set forth in the Italian Consolidated Financial Act as far as the relationships with the investors are concerned, unless the amount of investors’ orders does not exceed certain fixed thresholds (i.e. EUR 500 in relation to each order or EUR 1,000 considering the total amount of orders placed on a yearly basis by an individual or EUR 5,000 in relation to each order and EUR 10,000 considering the total amount of orders placed on a yearly basis by a legal entity).

As regards the rules governing the offers through on-line platforms, the Managers are requested to verify that the incorporation deed or the by-laws of the innovative start-up companies provide for specific rules (including, for example, the right to withdraw from the company or the tag along right in favor of the retail investors in case a change of control occurs, the duty to communicate any shareholders’ agreements to the company and publish them on the company’s web site) and that at least 5% of the offered financial instruments has been subscribed by professional investors or banking foundations or incubators of innovative start-ups. The funds relating to the offer have to be deposited with a bank account opened in the name of the issuing company at the bank and investment company to which the relevant orders are transmitted.

Furthermore, the Regulation provides for the retail investors’ right to revoke their orders in case from the beginning until the closing of the offer, a new adverse event occurs or they find out that the information provided to them was inaccurate.

It must be finally highlighted that Italy is the first country in Europe to have issued a specific regulation on equity crowdfunding.

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