Americans should have no trouble understanding what’s going on with the new Italian crowdfunding law. Italy’s Decreto Crescita, which includes the new equity crowdfunding provisions, and the United States JOBS Act have many of the same challenges and goals.
The Decreto Crescita and the JOBS Act
The biggest similarity between the two pieces of legislation is that while crowdfunding has been given some provisions in the new law, it is not well-defined. In fact, Daniela Castrataro, co-curator of Crowdfuture, a crowdfunding conference happening in Rome later this month, said of the new legislation, “saying that it legalizes crowdfunding is a bit too much“.
While equity crowdfunding may not be legally well-established, the new legislation is enough of a green light for many crowdfunding ventures to move forward. Meanwhile, equity crowdfunding will await final legislation from Italy’s version of the SEC, CONSOB. This is very similar to what’s happening in the US with the JOBS Act, which is also waiting for the American Securities and Exchange Commission to iron out the specifics of how equity crowdfunding will operate.
A second similarity is that CONSOB’s main priority will be to protect unaccredited investors, which is also what’s happening in the United States within the SEC.
The last strong similarity is the uncertainty around when the final legislation will actually happen. There is no deadline for CONSOB to spell out the specifics of how equity crowdfunding will work. The expectation is that everything will be ironed out within the next three to four months. Italian elections are in April, however, so if CONSOB drags it’s feet even a little, those deadlines will leak into being met during the elections, which may push them back even further.
One of the motivations behind Italy’s Decreto Crescita (which translates to “Growth Decree”), is very similar to the JOBS Act as well: boost growth by getting more businesses funded in order to create more jobs. Unlike the JOBS Act, though, the real thrust of the Decreto Crescita was to curb financial abuses by people holding public office. Or, in the words of the Decreto, to establish “efficient, transparent administrative and accounting processes that respect the law”. Too many Italians holding public office have bent or broken the rules for use of public funds. The new law aims to fix that.
What’s Different from the US in the Italian Crowdfunding Law
There is one major difference in Italy’s equity crowdfunding law. It is designed for high-tech businesses only. Crowdfunding may occur only for the “development and commercialisation of high-tech value products or services”. So no equity crowdfunding for local businesses yet in Italy. Award-based crowdfunding, like what happens on Kickstarter, is still done in Italy, and it’s been successfully used for several years.
Some other interesting restrictions for Italy’s crowdfunding include that companies cannot have been in operation more the 48 months. This basically limits crowdfunding to startups, not established businesses. There can also be no distribution of profits: Investors will not be getting quarterly dividends. The companies being funded also have to be at least 51% “natural persons”, not just legal entities. Finally, Italian crowdfunding will also require at least one “professional investor” or venture capitalist to anchor the offering, and yearly output for crowdfunding businesses is capped at 5 million euros.
Despite the proposed restrictions on Italian crowdfunding, and the hoops it still has to leap through in the Italian government agencies, the Decreto Crescita marks another step forward to legitimatize crowdfunding and bring it into wider use. Congratulazioni!