If you look for financing a start-up financed in Italy, this is probably the right moment.
Italy is world-renowned for its rich cultural and historical heritage, delicious food and dolce vita. The country is one of the key players in the European Union. Italy is currently the fourth biggest economy in the E.U and the number of accelerators has doubled in the past few years in the country. Equity crowdfunding has become increasingly popular due to a renewed and more favourable legislation, and a massive public funding program for start-ups has been set out. It seems then that Italy appears a good candidate for investment options for anyone willing to find new business opportunities there or to use the country as a way to expand among Europe, North Africa and the Middle East.
In this guide we analyse a briefly a list of the alternative financing options available, from seed stage to venture funding.
Star-ups’ ecosystem – likewise other national ecosystems – passes through several stages and especially through some actors, which allow star-ups to receive their first funds (the so-called seed), and once they have gained their consolidation to obtain more significant amount of money.
We may divide start-up development in three phases: formation, validation and growth (exit).
First step is the so-called “seed”. It is the moment when the following actors mostly intervene:
- Venture incubators, usually offering the very first investment, a physical space to operate and tutoring support for the founders;
- Family offices investing without closely following the start-up management and development;
- Business angels, which is normally an individual – an ex manager or entrepreneur – investing his own money and time for the start-up’s growth;
- Club Deals, business aggregations or single investors each of them putting together a limited amount of money in order to reach a more significant investment, diminishing therefore risk taking
In Italy, normally the average amount of the investment goes around a few hundred of thousand euros.
The second phase comes with the consolidation of the start-up. In other terms, the start-up has begun to generate money and has built a track record of its business and clients. Two types of investors usually intervene here: Venture Incubators and Club Deals, which can decide to increase and boost their previous funding; Venture Capitalists or Corporate Ventures, entering normally at this step of the process.
The average amount of the investment in this phase usually goes from few hundred of thousand euros, up to a few million.
Third phase is the so-called exit and they say start-up’s business success is measured by its exit. This step is indeed the arrival line, the successful completion of the entrepreneurial line. Exit means the partial or total selling of start-up shares and it is normally the primary goal of the founders, opening them up new opportunities to move on to the next business adventure. This phase interests especially corporations or consolidated companies, Stock Exchange and the IPO and M&A sectors.
- How to invest in Italy?
In the specific case of start-ups, we are talking about equity’s investments, which means the direct participation in shares, taking the connected risks on. It is not a case that the start-ups capital is known as risk capital, as it is natural for innovative or experimental businesses to fail sometimes.
It is however important to consider that since start-ups are new, fresh and innovative forms of business with a high potential of growth, in case of consolidation and success, they are able to grant investors great profits and remunerations in a short time (3 to 5 years). We are in other terms excluding from our analysis all those form of investment involving bank loans or financing. The alternative financing options available are presented as follows:
- Business Angel: Italian Angels for Growth (IAG) and Italian Business Angels Network Association (IBAN) are the main networks. Each entrepreneur willing to send their business plan can contact them. The IBAN Association currently counts almost 500 angels.
- Accelerators: a cocktail of mentorship, human capital and networking with investors.
- Crowdfunding: perhaps the most popular form of investment for stat-ups in Italy, due to the implementation of specific provisions for equity crowdfunding in 2012. Over 40 platforms exist today.
- Public funding: to bridge the gap between seed funding and venture capital, the Invitalia Smart&Start program for innovative start–ups was recently (February 2015) developed by the Italian government. It consists in an interest-free loan for both capital and operating expenditures, up to € 1,2 million per each start-up.
- Venture funds: investing mostly in ICT, mobile and biotech.
Advantages of Start-up financing
In brief, innovative start-ups can profit by a vast array of benefits for five years, including:
- They are exempt from all of the fees which are usually due to the Chamber of Commerce;
- Workers and consultants have the chance to be remunerated through stock options and work for equity schemes, which are tax deductible;
- Capital may be raised in exchange for shares through equity crowdfunding portals;
- Several tax incentives exist by up to 27% on seed and early-stage investment amounting up to 1.8 million Euros;
- Streamlined, free-of-charge access to public guarantees by 80% on bank loans amounting up to 2.5 million Euros.
We also would like to stress that Italian legislation has recently launched the Italia Start–up Visa programme, which allows extra-EU citizens (fact of particular interest for British after Brexit) intending to establish a high-tech company in Italy to obtain an entrepreneurship visa within 30 days, following an online and streamlined procedure.
Dott.sa Daniela Pacino