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Is Italy ready for equity crowdfunding for Startups?

Consob, the government authority of Italy responsible for regulating the Italian securities market, is debating regarding crowdfunding and could set regulation by the end of March 2013.

Is Italy ready for equity crowdfunding for Startups?

Davide Sfrecola


Consob, Italy's government authority responsible for regulating the Italian securities market, is now debating regarding crowdfunding: its goal is to set all the needed regulation by the end of March 2013.

Although respecting such tough time constraints is a big challenge, a success would make Italy the first country in the world issuing a specific set of rules for such matter. In fact, equity crowdfunding is already a strong reality in UK or Australia but without any specific rule regarding it.

There are many controversial issues concerning the implementation of this new investment model that will determine whether equity crodwfunding might become popular or not in Italy.

The set of rules is essential in this process but, assuming that the regulators will do a great job in avoiding the so called "crowd-frauding" to occur, does the Italian economic environment present the optimal conditions for such innovation?

Let's disentangle the different perspectives trying to find an answer:

1) Seekers

Startups are falling in love with crowdfunding everywhere in the world. The booming number of startups is of course the most essential condition for the crowdfunding to spread in Italy but it still might not be enough. The United States, with the JOBS Act, is trying to open the equity crowdfunding to startups as well as to other players. Consob is limiting the access to this source of capital only to startups as narrowly defined by the Italian law. Many will be excluded by such a strict definition and this might be definitely a hazardous decision.

2) Substitutes

According to ISTAT, the Italian Institute of Statistics, the companies seeking for sources of financing increased from the 36.5% to the 52.2% in the last two years while the number of loans given by banks is steadily dropping. At the same time the 53.3% of the companies is willing to look for alternatives to bank credit.

Are there real alternatives for start-ups though? Especially in the Italian economic context these players were almost always financed thanks to bank loans. The increasing Venture Capital activity in Italy is trying to offer another option but there's still a huge need for capital. The power of the crowd can help with this.

3) Investors

According to Fabio Simonelli, Project Manajer of Eppela (the main Italian crowdfunding platform), here is where crowdfunding will face the real difficulties. "People have a very little familiarity with the terminology itself and are still reluctant when talking about online donations or payments", he says. As far as equity crowdfunding is concerned, these problems may only be more critical: not only knowing how to invest requires much more than knowing how to donate but also mistrust, suspicion or just prudence are emphasized when talking about equity investments.

Italy can definitely benefit from crowdfunding and needs all the remarkable efforts Consob is making. On the other hand, there is still a lot of work to do regarding the crowd itself.





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