Italy is the first Country to fully implement a complete legal framework for equity crowdfunding, with very interesting features and an international vocation, allowing people from all over the world to crowdfund in Italy.

1. Alessandro M. LERRO
Las Vegas, October 15, 2013
2° Annual Global Crowdfunding Convention and Bootcamp
EQUITY CROWDFUNDING:
the ITALIAN FRAMEWORK

2. …2000$
maximum
?
©2013 A.M. Lerro

3. …$1M
maximum
?
©2013 A.M. Lerro

4. PLATFORMS – BROKER-DEALERS – CAMPAIGN OWNERS – INVESTORS
©2013 A.M. Lerro

5. workshop
EQUITY
CROWDFUNDING
IN ITALY
By Alessandro M. LERRO
©2013 A.M. Lerro

6. LAW:
LAW n. 221, Dec. 17, 2012
“2.0 Growth Decree”
REGULATION:
CONSOB Reg. n. 18592
June 26, 2013
©2013 A.M. Lerro

7. AS PRESIDENT
OBAMA, WE BELIEVE IN
EQUITY CROWDFUNDING
HIGH POTENTIAL AND
CAPACITY TO RAISE
PRIVATE INVESTMENTS
And we have found some
confirmation in
MASSOLUTION’s
INDUSTRY REPORT
©2013 A.M. Lerro

8. ©2013 A.M. Lerro

9. 2012 C.F.
VOLUMES
“BUSINES”
MOTIVATION
“BUSINESS”
VOLUMES
Reward-based
383,000,000
16,3%
62,477,000
Lending-based
1,169,700,000
54,2%
633,977,000
Donation-based
979,300,000
12,8%
125,350,000
Equity-based
111,700,000
TOTAL
2,643,700,000
111,700,000
≈35%
933,500,000
35% OF THE 2012 CROWDFUNDING VOLUME
HAS BEEN COLLECTED
IN THE BUSINESS AND ENTREPRENUEURSHIP CATEGORY
©2013 A.M. Lerro
CROWDFUNDING
MODEL

10. ©2013 A.M. Lerro

11. ©2013 A.M. Lerro

12. - 6,7M$ max per year
- Any nationality (platform, target, investors, …)
- Registered Platforms
- No investment limit per person
- Investment concluded through Broker-Dealers
- Free sale of the shares
(incentives to keep them)
- STRONG consumers’ protection
- 5% equity: Professional Investors
©2013 A.M. Lerro
BASICS

13. CONSOB
BROKER-DEALER
PLATFORM
TARGET Co.
INVESTORS
©2013 A.M. Lerro

14. CONSOB:
IS THE ITALIAN SECURITIES
AND EXCHANGE COMMISSION,
THE EQUIVALENT OF SEC,
WHOSE TASKS ARE
REGULATION, SUPERVISION,
VIGILANCE
©2013 A.M. Lerro

15. EUROPEAN UNION:
A single authorization system has
been created for INVESTMENT
FIRMS, to enable them to do
business anywhere in the EU, with
a minimum of red tape, while
increasing customer protection.
HARMONISED REQUIREMENTS
govern the activity of
AUTHORISED INTERMEDIARIES
©2013 A.M. Lerro

16. RESPECT OF RULES
AND COMPETITION
INVESTORS
PROTECTION
CROWDFUNDING:
MAIN
TASKS
STABILITY AND
PROPER OPERATIONS
OF THE FINANCIAL
MARKET
MAINTAINING TRUST
IN THE FINANCIAL
SYSTEM
©2013 A.M. Lerro

17. INVESTIGATION POWERS:
Communication of news and
data
Transmission of documents
Inspections
International collaboration with
other Authorities
©2013 A.M. Lerro

18. PENALTIES:
FINES
• From 500 to
25.000 euro
fine
BANS
• Suspension
• Radiation
INJUNCTIONS
• Stop
operations
• Stop
irregularities
• Order
limitations
©2013 A.M. Lerro

19. CONSOB manages:
©2013 A.M. Lerro

20. CHAMBER OF
ARBITRATION:
CONSOB manages an
arbitration chamber to solve
conflicts between Investors
and Broker-Dealers.
©2013 A.M. Lerro

21. CONSOB
BROKER-DEALERS
PLATFORM
TARGET Co.
INVESTORS
©2013 A.M. Lerro

22. BROKER-DEALERS:
• Having
established
business in
Italy
• Authorized in
their home
Country
• Need to be
authorized
by CONSOB
OWNERS of the BROKER-DEALER : ANY NATIONALITY
©2013 A.M. Lerro

23. BROKER-DEALERS:
BANKS and INVESTMENT Co.s
Take in charge the PAYMENT,
the execution of the investment,
once the investor has decided
to pledge.
(… at least…)
©2013 A.M. Lerro

24. BROKER-DEALERS:
BANKS and INVESTMENT Co.s
CAN EITHER:
MANAGE A
CROWDFUNDING
PLATFORM
THEMSELEVES
PARTNER WITH A
CROWDFUNDING
PLATFORM
©2013 A.M. Lerro

25. MIFID PROCEDURE:
IDENTIFICATION OF
THE CLIENT
ANTI-LAUNDERING
RULES
INVESTMENT
PROFILE TO MATCH
WITH PROCLIVITY
TO RISK
INVESTMENTS
MIFID = European Union Directive, Markets in
Financial Instruments and investment services
©2013 A.M. Lerro

26. MONEY PLEDGED:
All money pledged must be
deposited with a brokerdealer, outside availability of
the Platform, on a bank
account registered in the
name of the Target Co..
©2013 A.M. Lerro

27. ADVISING:
Broker-Dealers may advise
and give suggestions, within
their general rules.
Platforms may not provide
recommendations suitable
to influence pledges.
PLATFORMS
BROKER-DEALERS


©2013 A.M. Lerro

28. THE BANK OF ITALY
has cuncurrent competence with
the following tasks:
-RISK REDUCTION
-ASSET STABILITY
-SAFE AND CAREFUL MANAGEMENT
But PLATFORMS are not included in the
scope of action, as they may not handle
money and are only communication and
information vehicles.
Instead, BROKER-DEALERS are regularly monitored
©2013 A.M. Lerro

29. CONSOB
BROKER-DEALERS
PLATFORM
TARGET Co.
INVESTORS
©2013 A.M. Lerro

30. CROWDFUNDING PLATFORMS:
ONLINE PLATFORMS,
WHOSE EXCLUSIVE PURPOSE
IS TO HELP
COMPANIES
TO RAISE EQUITY
FROM THE CROWD (art.1.5.9 TUF)
©2013 A.M. Lerro

31. OPERATIONS
PLATFORMS:
May EXCLUSIVELY operate the
crowdfunding website
MANAGERS:
May advise, advertise, trade, offer any
other service
The only limit for MANAGERS is the CONFLICT OF INTEREST
©2013 A.M. Lerro

32. REGISTRATION REQUIREMENTS
for Individuals and Company Directors:
HONOURABLE
PROFESSIONAL
SHAREHOLDERS
✔
DIRECTORS
✔
✔
MANAGERS
✔
✔
✔
no preventive measures,
restrictions or punishment
for certain crimes
✔
CONTROLLERS
HONOURABLE
PROFESSIONAL
at least 2 years experience
of management,
finance, university teaching,
auditing
©2013 A.M. Lerro

33. To be registered with
CONSOB
NEW
category of
Exempted from most
broker-dealers rules
BROKER-DEALER
Forbidden to keep money
or securities of third
parties
©2013 A.M. Lerro

34. SMALL INVESTMENTS
• Directly managed
• MIFID exempted
BIG INVESTMENTS
• Partner with a BROKER-DEALER
• Investment profile to match with
proclivity to risk investment
©2013 A.M. Lerro

35. SMALL INVESTMENTS:
INDIVIDUAL:
< 500€ per investment
< 1000€ per year
COMPANY:
< 5.000€ per investment
< 10.000€ per year
©2013 A.M. Lerro

36. NATIONALITY:
OWNERS:
MANAGEMENT
COMPANY:
PLACE OF
BUSINESS:
Any nationality
Any European
in Italy
©2013 A.M. Lerro

37. Italian
OFFICE
UK
Company
American
Company
Canadian
Individual
Chinese
Individual
©2013 A.M. Lerro

38. INVESTMENT PROPOSAL:
A) How the platform
operates
B) Securities offered and
their risks
C) Specific features of each
Campaign
NO PROSPECTUS, but a lot of SPECIFIC INFO
©2013 A.M. Lerro

39. SPOT ON THE RISKS:
1) Investment loss
2) Illiquidity
3) Temporary tax advantage
4) No dividends for a certain
time
©2013 A.M. Lerro

40. COMMUNICATION:





Max 4 pages (A4 size)
Reasonable font size
Common language
Easy to understand
Comparable proposals
©2013 A.M. Lerro

41. CONSOB
BROKER-DEALERS
PLATFORM
TARGET Co.
INVESTORS
©2013 A.M. Lerro

42. TARGET CO.:
ONLY
INNOVATIVE START UPs
ARE ALLOWED
TO RAISE EQUITY
FROM THE CROWD
(…for now)
©2013 A.M. Lerro

43. REQUIREMENTS:
INNOVATIVE START UP COMPANY
Italian or European company
The Holding may be
wherever
Main place of business and domicile in Italy
Incorporated maximum 48 months before
You can move the
Target to Italy!
Sales: less than € 5 Mill/year
No dividends ever distributed
Not resulting from M&A operations
BUT The Target may buy
a company or a business
©2013 A.M. Lerro

44. Plus one of the following:
RESEARCH &
DEVELOPMENT
• R&D expenses
> 15% costs or
sales (the
bigger)
EMPLOYEES
• 1/3 PhD or
graduated
with research
experience, or
• 2/3 being
graduated
INTELLECTUAL
PROPERTY
• 1 patent, or
• 1
microchip, or
• 1 new
vegetable, or
• 1 registered
software
©2013 A.M. Lerro

45. PURPOSES of the Target:
PURPOSE
…BUT
• Production, develop
ment or commerce
of innovative
products or services
having high
technological value
• A company may
have wide
purposes and pick
up some of them
from time to time
©2013 A.M. Lerro

46. TAX EFFICIENCY
is easily ACHIEVABLE, i.e.:
TARGET
HOLDING
FOUNDERS
CROWD
VENTURE
CAPITAL
©2013 A.M. Lerro

47. TAX ADVANTAGES
for INNOVATIVE START UPs:
- Lower industrial cost for employment contracts
- 24 months (instead of 12) of time to cover losses
- Free access to a Government Guarantee for SME bank credit (up to
80% of €2,5M)
INDIVIDUAL
INVESTORS:
CORPORATE
INVESTORS:
May deduct up to 25% of
the investment
May deduct up to 27% of
the investment
(€0,5M maximum)
(€1,8M maximum)
PROVIDED THAT YOU KEEP THE INVESTMENT FOR 2 YEARS
©2013 A.M. Lerro

48. CROWDFUNDING CAMPAIGN BASICS:
Project (team, technology, market, …)
Specific risks of the Project
Business Plan
Due Diligence Basics
Temporary tax advantages
Withdrawal right
©2013 A.M. Lerro

49. INVESTORS RELATIONSHIPS:
Target Co.s may offer
PREFERRED SHARES, with
limited voting rights
against advantages in the
dividends distribution, in
order to reduce costs and
difficulties of investor
relationships.
©2013 A.M. Lerro

50. You can raise
$ 6,700,000.00
per company, per year
(€ 5.000.000)
©2013 A.M. Lerro

51. INFORMATION TO BE PROVIDED:
Terms and
conditions
Other simultaneous
campaigns
Any conflict of
interest
Applicable law and
jurisdiction
Available languages
Broker-Dealer hired
Where is the
money
Costs and
investment fees
Reimbursement
terms
Involvement of any
professional
investors
©2013 A.M. Lerro

52. CERTIFIED BUSINESS INCUBATOR:
REGISTRATION grants
access to Government
incentives
Allowed to support
Innovative START UPs in
the launch of equity
crowdfunding
©2013 A.M. Lerro

53. “5% RULE”:
5% of the offered equity
must be subscribed by a
BANK, a PROFESSIONAL
INVESTOR or a CERTIFIED
INCUBATOR by the end of
the campaign
But there is no obligation to keep
the shareholding for a minimum time !
©2013 A.M. Lerro

54. PROFESSIONAL INVESTORS for the purpose of 5% RULE:
(1)
which are required to be
to operate
in the financial markets:
(a) Credit institutions and investment firms
(c) Other authorised or regulated financial institutions
(d) Insurance companies
(e) Collective investment schemes and their management companies
(f) Pension funds and management companies of such funds
(g) Commodity and commodity derivatives dealers
(h) Locals
(i) Other institutional investors
(2)
meeting two of the following size requirements:
— balance sheet total: EUR 20 000 000,
— net turnover: EUR 40 000 000,
— own funds: EUR 2 000 000.
(3) Other
in financial instruments.
whose main activity is to invest
©2013 A.M. Lerro

55. CONSOB
BROKER-DEALERS
PLATFORM
TARGET Co.
INVESTORS
©2013 A.M. Lerro

56. INVESTORS:
ITALIAN LAW PROVIDES
A ROBUST LEGAL FRAMEWORK
OFFERING PROTECTION
TO INVESTORS
©2013 A.M. Lerro

57. ASYMMETRIC
INFORMATION:
- The campaign owner does
not want to share relevant
information with the Crowd
- The Crowd is not prepared
to discuss specialistic issues
- There are secrets
©2013 A.M. Lerro

58. we have learned that:
CONSOB has the supervision and is
entitled to impose penalties
Platforms ought to beregistered with
CONSOB
Platfoms ought to meet reputation and
competence requirements
Investment is subject to MIFID and
operated through BROKER-DEALERS
©2013 A.M. Lerro

59. There is
NO PERSONAL
INVESTMENT
LIMIT
MIFID regulates any NON SMALL investment
©2013 A.M. Lerro

60. SMALL INVESTMENTS:
INDIVIDUAL:
< 500€ per investment
< 1000€ per year
COMPANY:
< 5.000€ per investment
< 10.000€ per year
MIFID procedure requires BROKER-DEALERS to
test the consumer’s proclivity to risk investments
©2013 A.M. Lerro

61. INVESTORS EDUCATION:
Companies must invest on
education and offer it to
potential investors.
It helps with the asymmetric
information problem.
©2013 A.M. Lerro

62. INVESTORS confirm
• that they understood the
risks of equity investment
INVESTORS confirm
• that their personal estate
will be not compromised
It is NOT an Entrepreneur’s onus; NO particular
formality required; NO third parties databases
©2013 A.M. Lerro

63. SET OF WITHDRAWAL RIGHTS:
WHO
WHEN
WHY
RULE
Retail Investors
Bank Foundations
Registered Incubators
7 days from the
investment
No reason or explanation:
they just changed their
mind
§13.5 Reg.
Consumers*
14 days from the
investment
No reason or explanation:
they just changed their
mind
Consumer
Code
Retail Investors
Bank Foundations
Registered Incubators
7 days from the
news, but before
the campaign
closed
Material mistake or
§25.2 Reg.
something new happened,
suitable to influence the
investment decision
* The only case where platform are allowed to withold costs
©2013 A.M. Lerro

64. SHAREHOLDERS AGREEMENTS:
INFORMATION
RIGHT
Any Shareholders Agreement
must be notified to Investors
TAG ALONG or
WITHDRAWAL
RIGHT*
If the Founding Shareholders
sell the business or anyhow
wave control
* Only for RETAIL INVESTOR
As long as the Company enjoys Innovative Start Up status
©2013 A.M. Lerro

65. SHARES
MAY BE SOLD,
but you lose
tax incentives
Opportunity to create a SECONDARY MARKET
©2013 A.M. Lerro

66. Italy
TAKE AWAY
6,7M$ max/year
USA
1M$ max/year
Any nationality
US national only
No investment limit
per person
2K$ max per person
Investors:
self-attestation
Free sale of the shares
(or different wealth limit)
Qualified investors?
SALE: after 1 year
(incentives to keep them)
NO All or nothing
All or nothing
©2013 A.M. Lerro

67. LAWS AND MATERIALS:
www.CrowdfundingInItaly.com
©2013 A.M. Lerro
©2013 A.M. Lerro

68. WWW.LERRO.IT
ROME
Alessandro M. Lerro
alessandrolerro
alessandro@lerro.it