Something is happening in Italy with regard to the usual ways in which capital is raised that, although still quite an uncommon practice compared to the United States, is at a turning point: The world’s first piece of legislation in terms of equity crowdfunding.
The subject was central to Turin Crowdfunding, where the most important moment of the day was when the Consob (regulatory body for the Italian Stock Exchange) and the Ministry of Economic Development spoke.
We Italians are the first to have decided to regulate this part of crowdfunding that, in many respects, is the most interesting. There are, in fact, two main models of crowdfunding:
- Equity-based, in which financing gives access to equity holdings;
- Reward-based,in which funding is rewarded through the product of the core business: For example, through access to the funded product/service before others or exclusively. The most famous case is the Kickstarter platform, which since its launch in 2009 has funded more than 39,000 projects by collecting approximately 576 million dollars.
To have a better understanding of the characteristics and perspectives of this phenomenon and the activity of the Consob we interviewed
Claudio Bedino, founder of ICN (Italiano Crowdfunding Network), CEO of Starteed and organiser of Turin Crowdfunding.
Claudio, please describe crowdfunding
It is a market that needs to be built, but platforms are already being created. There are many of them and they began to develop in 2011, when the subject came to the fore in Italy. The subject is very topical and this why I feel that there is still so much that needs to be built. Italy, in any case, is already underway in both reward donations and in equity, although the latter is still waiting for legislation by the Consob.
Regarding the Consob, what are they doing?
They want to regulate equity crowdfunding to test a specific market, that of innovative startups (as defined by the Passera decree). The idea is to pass legislation restricted to this segment of the crowdfunding market and then to expand it to all the other markets, including non-profit organisations. It is a limiting condition which, however, is needed to understand some basic things: For example, the percentage of fraud that might occur and to create a culture regarding bottom-up financing.
The representative of the Ministry of Economic Development has asked the Consob to be more daring. What do you think?
The main point is the MiFID (Markets in Financial Instruments Directive), a directive of the European Parliament for the protection of investors and the construction of sound and competitive markets. The Ministry asks more disintermediation, it is just that Consob, as mentioned, must take this very Directive and Italian law into account; it seems they do not have much room to manoeuvre, in actual fact.
What will change?
There will be some new and very interesting trends which will need to be identified by those involved and the platforms. For example, self-crowdfunding, i.e. fundraising campaigns that arise directly within already existing communities. Also, the birth of vertical platforms on specific (e.g. music) or deeply local topics, which in truth are already springing up.
What should we expect regarding the platforms?
Many will spring up, although I predict that the widespread phenomenon will shrink and a small number will remain. There will also probably be a best practice, an Italian Kickstarter.
With regard to this, what are the restrictions on which they could work?
As I mentioned, for now there has been no mainstream success, a Kickstarter which widens the market, which becomes a case-study and increases discussions and culture regarding more widespread fundraising. Furthermore, many projects on the platforms are very weak, both due to the types of projects, but especially in terms of form. At the Turin event, there was much talk of online reputations, trust built through a network of contacts and communication in support of the project.
Startups and crowdfunding: What is the relationship and how can crowdfunding help startups?
The main fact is the need to understand that there are many stages in the life of a startup, which obviously begin from the idea itself. It is necessary to create expectation in the market and through crowdfunding a startup can obtain funds, enter the market quickly and also attract other, more “institutional” backers. For example, we have seen the case of public activities with hybrid financing, partly stemming from public funds and partly from crowdfunding.
Why do Italian startups use a foreign platform instead of an Italian one?
There are two reasons:
- Because using platforms that already generate large volumes gives you the illusion of being able to attract greater resources. It is a bit like the “lottery” issue: People prefer to play in the United States because the jackpot is higher than the Italian one;
- The second reason, however, is due to the reputation of the platforms: To take a prime example, Italian startups use Kickstarter because there is confidence in the platform and payment methods. Also, since it is now mainstream, it is capable of attracting more investment.