Avv. Alessandro M. Lerro

November M. LERRO
Alessandro 27, 2013
Roma, November 15, 2013
LUISS – Scuola di Management – MBA...
©2013 A.M. Lerro
GARAGE BOYS

Student experiments, no professional
business planning, no expert teams,
no proof of concept, wishful thinkin...
FINANCING A START UP :
•
•
•
•

BOOTSTRAPPING
ANGEL INVESTING & VENTURE CAPITAL
DEBT
CROWDFUNDING

©2013 A.M. Lerro
©2013 A.M. Lerro
BOOTSTRAPPING

©2013 A.M. Lerro
BOOTSTRAPPING TECHNIQUES:
• SAVINGS
• FAMILY & FRIENDS

• PERSONAL LOANS
• LENDING-BASED CROWDFUNDING

©2013 A.M. Lerro
ANGEL INVESTING
&
VENTURE CAPITAL
©2013 A.M. Lerro
- In 2012 global VC volume was $ 51,7 BL
- 58% is in the USA

- A USA VC usually looks into 200 deals/weak
- VC focus on $...
In ITALY investments are mostly allocated to
PRIVATE EQUITY operations.
Just a few early stage deals. Mainly:
- Buy Out;
-...
©2013 A.M. Lerro

Fundraising expected allocation:
Note: most are
intercompany
investments.

©2013 A.M. Lerro

Early stage investments:

€100ML
©2013 A.M. Lerro

Investment distribution by stage
1° half Y2013:
©2013 A.M. Lerro

Average invested amount per stage
1° half Y2013:
Everything ought to be 100% quality, but the
first impression will rule

©2013 A.M. Lerro

- FIND THE RIGHT TEAM
- INVEST ...
©2013 A.M. Lerro
DEBT
( Mini Bond )
©2013 A.M. Lerro
D.L. 83/2012 “Sviluppo” art. 32

EMPLOYEES

• > 10 employees
• < 250 employees

TURNOVER

• > 2 ML euro
• < 50 ML euro

AS...
“SPONSOR”
appointed
Audited
annual
accounts

To be distributed only
to qualified investors
(Art. 34 ter Reg. CONSOB
11971)...
“SPONSOR”:
Bank, SIM, SICAV, SGR,
Broker-Dealers art. 107TUF
Ought to subscribe and keep:
- 5% BOND (up to €5ML)
- 3% BOND...
At the moment only LARGER companies are on the market ©2013 A.M. Lerro
CROWDFUNDING

©2013 A.M. Lerro
Joseph Pulitzer

©2013 A.M. Lerro
©2013 A.M. Lerro

REWARD
LENDING
EQUITY

DONATION
FONTE:

©2013 A.M. Lerro
1000

©2013 A.M. Lerro

FINANZIAMENTI

1200

800
600
400
200
0
REWARD

LENDING

EQUITY

DONATION
FONTE:

©2013 A.M. Lerro
©2013 A.M. Lerro
2012 C.F.
VOLUMES

“BUSINES”
MOTIVATION

“BUSINESS”
VOLUMES

Reward-based

383,000,000

16,3%

62,477,000

Lending-based

...
By 2025 the volume of
INVESTMENT CROWDFUNDING
will be:
> $92 billions
= 1,6% of household savings
≈ 2 x total Venture Capi...
©2013 A.M. Lerro

REWARD - BASED

CROWDFUNDING

©2013 A.M. Lerro
©2013 A.M. Lerro

400
350
300

250
200
150
100
50
0
REWARD-…

2010

2011

2012

FONTE:

©2013 A.M. Lerro
PLEDGES

CATEGORY

$ 10,266,845

High Tech

OUYA: videogame consòle

$ 8,596,474

Games

Veronica Mars

$ 5,702,153

Movie...
©2013 A.M. Lerro

PREORDER
DONATION
with PERKS

ROYALTY
BASED

REWARD

©2013 A.M. Lerro
Rotterdam Bridge
• Pedestrian Bridge, 350
m., 17.000 boards by Y2042
• Y2012: ca. 100.000€, 1300
boards
• Civic Crowdfundi...
• Y2005 – no platform
• LP: 300.000R =
27.000€
• 20.161 PLEDGES
• Preorder LP: 150R
• Purchase LP: 116R

©2013 A.M. Lerro
...
SELLABAND
• Y2006 
• Min. invest.
10$
• Target:
50,000$
• “Believers”
• 10% reward

©2013 A.M. Lerro

ROYALTY
BASED

©201...
©2013 A.M. Lerro

EQUITY - BASED

CROWDFUNDING
JOBS Act was the first law
in the world to regulate
equity crowdfunding (apr.
2012)
TIT. 2: accredited investors
Implement...
LAW:
LAW n. 221, Dec. 17, 2012
“2.0 Growth Decree”

REGULATION:
CONSOB Reg. n. 18592
June 26, 2013
©2013 A.M. Lerro
LEGAL FRAMEWORK:
CONSOB has the supervision and is
entitled to impose penalties

Platforms ought to be registered with
CON...
TARGET CO.:
ONLY
INNOVATIVE START UPs
ARE ALLOWED
TO RAISE EQUITY
FROM THE CROWD
(…for now)

©2013 A.M. Lerro
You can raise

€ 5.000.000,00
per company, per year

©2013 A.M. Lerro
PROBLEM/OPPORTUNITY:

!?

- The market is too small
- High Tech is too difficult for investors
- High Tech is a risky busi...
CROWDFUNDING PLATFORMS:
ONLINE PLATFORMS,
WHOSE EXCLUSIVE PURPOSE
IS TO HELP
COMPANIES
TO RAISE EQUITY
FROM THE CROWD (art...
SMALL INVESTMENTS
• Directly managed
• MIFID exempted

BIG INVESTMENTS
• Partner with a BROKER-DEALER
• Investment profile...
SMALL INVESTMENTS:
INDIVIDUAL:
< 500€ per investment
< 1000€ per year

COMPANY:
< 5.000€ per investment
< 10.000€ per year...
PROBLEM/OPPORTUNITY:

!?

Crowdfunding is limited to
EQUITY.
DEBT could be an other good
opportunity.

©2013 A.M. Lerro
BROKER-DEALERS:
BANKS and INVESTMENT Co.s
Take in charge the PAYMENT,
the execution of the investment,
once the investor h...
BROKER-DEALERS:
BANKS and INVESTMENT Co.s
CAN EITHER:

MANAGE A
CROWDFUNDING
PLATFORM
THEMSELEVES

PARTNER WITH A
CROWDFUN...
MIFID PROCEDURE:

IDENTIFICATION OF
THE CLIENT

ANTI-LAUNDERING
RULES

INVESTMENT
PROFILE TO MATCH
WITH PROCLIVITY
TO RISK...
ADVISING:
Broker-Dealers may advise
and give suggestions, within
their general rules.
Platforms may not provide
recommenda...
PROBLEM/OPPORTUNITY:

!?

FOREIGN BANKS and INVESTMENT Co.s
are in principle allowed to operate in
Italy, but the absence ...
INVESTORS:
ITALIAN LAW PROVIDES
A ROBUST LEGAL FRAMEWORK
OFFERING PROTECTION
TO INVESTORS

©2013 A.M. Lerro
There is

NO PERSONAL
INVESTMENT
LIMIT

MIFID regulates any NON SMALL investment
©2013 A.M. Lerro
SET OF WITHDRAWAL RIGHTS:
WHO

WHEN

WHY

RULE

Retail Investors
Bank Foundations
Registered Incubators

7 days from the
i...
SHAREHOLDERS AGREEMENTS:
INFORMATION
RIGHT

Any Shareholders Agreement
must be notified to Investors

TAG ALONG or
WITHDRA...
PROBLEM/OPPORTUNITY:

!?

Foreign investors in principle are
allowed to invest, but the lack of a Treaty
about jurisdictio...
LAWS AND MATERIALS:

www.CrowdfundingInItaly.com

©2013 A.M. Lerro
©2013 A.M. Lerro
WWW.LERRO.IT
ROME

Alessandro M. Lerro
alessandrolerro
alessandro@lerro.it
Available on:
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Funding Start Ups and Crowdfunding

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This presentation was given at LUISS Business School for the MBA program and the MBA Alumni, during an event managed by Prof. Paolo Boccardelli and his team. Thanks to Edward Mura for the organization.

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Funding Start Ups and Crowdfunding

  1. 1. Avv. Alessandro M. Lerro November M. LERRO Alessandro 27, 2013 Roma, November 15, 2013 LUISS – Scuola di Management – MBA ALUMNI FUNDING START UPs FINANCING START-UPs EQUITY CROWDFUNDING
  2. 2. ©2013 A.M. Lerro
  3. 3. GARAGE BOYS Student experiments, no professional business planning, no expert teams, no proof of concept, wishful thinking FIRED or RETIRED FOLK Wishful thinking, looking for “something to do” SMART START UPs Good idea, professional business plan, skilled team, MBAs, overall quality ©2013 A.M. Lerro
  4. 4. FINANCING A START UP : • • • • BOOTSTRAPPING ANGEL INVESTING & VENTURE CAPITAL DEBT CROWDFUNDING ©2013 A.M. Lerro
  5. 5. ©2013 A.M. Lerro
  6. 6. BOOTSTRAPPING ©2013 A.M. Lerro
  7. 7. BOOTSTRAPPING TECHNIQUES: • SAVINGS • FAMILY & FRIENDS • PERSONAL LOANS • LENDING-BASED CROWDFUNDING ©2013 A.M. Lerro
  8. 8. ANGEL INVESTING & VENTURE CAPITAL ©2013 A.M. Lerro
  9. 9. - In 2012 global VC volume was $ 51,7 BL - 58% is in the USA - A USA VC usually looks into 200 deals/weak - VC focus on $1/3 ML financing in average - SYNDICATION is common ©2013 A.M. Lerro ANGELS & VENTURE CAPITAL:
  10. 10. In ITALY investments are mostly allocated to PRIVATE EQUITY operations. Just a few early stage deals. Mainly: - Buy Out; - Expansion deals; - Replacement deals. ©2013 A.M. Lerro ANGELS & VENTURE CAPITAL:
  11. 11. ©2013 A.M. Lerro Fundraising expected allocation:
  12. 12. Note: most are intercompany investments. ©2013 A.M. Lerro Early stage investments: €100ML
  13. 13. ©2013 A.M. Lerro Investment distribution by stage 1° half Y2013:
  14. 14. ©2013 A.M. Lerro Average invested amount per stage 1° half Y2013:
  15. 15. Everything ought to be 100% quality, but the first impression will rule ©2013 A.M. Lerro - FIND THE RIGHT TEAM - INVEST ON YOUR BUSINESS PLAN - INVEST ON YOUR ROADSHOW - SELECT THE RIGHT INVESTORS’ PROFILES - BEWARE SHAREHOLDERS’ AGREEMENT
  16. 16. ©2013 A.M. Lerro
  17. 17. DEBT ( Mini Bond ) ©2013 A.M. Lerro
  18. 18. D.L. 83/2012 “Sviluppo” art. 32 EMPLOYEES • > 10 employees • < 250 employees TURNOVER • > 2 ML euro • < 50 ML euro ASSETS • > 2 ML euro • < 43 ML euro WHO: SME (Small Medium Enterprises) ©2013 A.M. Lerro
  19. 19. “SPONSOR” appointed Audited annual accounts To be distributed only to qualified investors (Art. 34 ter Reg. CONSOB 11971) MINI-BONDS MAY be eventually listed on the Extra MOT by Borsa Italiana ©2013 A.M. Lerro
  20. 20. “SPONSOR”: Bank, SIM, SICAV, SGR, Broker-Dealers art. 107TUF Ought to subscribe and keep: - 5% BOND (up to €5ML) - 3% BOND (from €5ML to €10ML) - 2% BONS (> €10ML) ©2013 A.M. Lerro
  21. 21. At the moment only LARGER companies are on the market ©2013 A.M. Lerro
  22. 22. CROWDFUNDING ©2013 A.M. Lerro
  23. 23. Joseph Pulitzer ©2013 A.M. Lerro
  24. 24. ©2013 A.M. Lerro REWARD LENDING EQUITY DONATION FONTE: ©2013 A.M. Lerro
  25. 25. 1000 ©2013 A.M. Lerro FINANZIAMENTI 1200 800 600 400 200 0 REWARD LENDING EQUITY DONATION FONTE: ©2013 A.M. Lerro
  26. 26. ©2013 A.M. Lerro
  27. 27. 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
  28. 28. By 2025 the volume of INVESTMENT CROWDFUNDING will be: > $92 billions = 1,6% of household savings ≈ 2 x total Venture Capital volume ©2013 A.M. Lerro
  29. 29. ©2013 A.M. Lerro REWARD - BASED CROWDFUNDING ©2013 A.M. Lerro
  30. 30. ©2013 A.M. Lerro 400 350 300 250 200 150 100 50 0 REWARD-… 2010 2011 2012 FONTE: ©2013 A.M. Lerro
  31. 31. PLEDGES CATEGORY $ 10,266,845 High Tech OUYA: videogame consòle $ 8,596,474 Games Veronica Mars $ 5,702,153 Movie Torment: Tides of Numenera $ 4,188,927 Games Reaper Miniatures Bones $ 3,429,235 Games Double Fine Adventure $ 3,336,371 Games Form 1: 3D professional printer $ 2,945,885 High Tech Wasteland 2 $ 2,933,252 Games Homestuck Adventure Game $ 2,485,506 Games Oculus Rift $ 2,437,429 High Tech 3Doodler: 3D pen $ 2,344,134 ©2013 A.M. Lerro PROJECT High Tech PEBBLE – watch for iPhone / Android ©2013 A.M. Lerro
  32. 32. ©2013 A.M. Lerro PREORDER DONATION with PERKS ROYALTY BASED REWARD ©2013 A.M. Lerro
  33. 33. Rotterdam Bridge • Pedestrian Bridge, 350 m., 17.000 boards by Y2042 • Y2012: ca. 100.000€, 1300 boards • Civic Crowdfunding ©2013 A.M. Lerro DONATION with PERKS ©2013 A.M. Lerro
  34. 34. • Y2005 – no platform • LP: 300.000R = 27.000€ • 20.161 PLEDGES • Preorder LP: 150R • Purchase LP: 116R ©2013 A.M. Lerro PRE-ORDER Verity Price ©2013 A.M. Lerro
  35. 35. SELLABAND • Y2006  • Min. invest. 10$ • Target: 50,000$ • “Believers” • 10% reward ©2013 A.M. Lerro ROYALTY BASED ©2013 A.M. Lerro
  36. 36. ©2013 A.M. Lerro EQUITY - BASED CROWDFUNDING
  37. 37. JOBS Act was the first law in the world to regulate equity crowdfunding (apr. 2012) TIT. 2: accredited investors Implemented Tit. 3: retail investors Waiting for SEC regulation ©2013 A.M. Lerro
  38. 38. LAW: LAW n. 221, Dec. 17, 2012 “2.0 Growth Decree” REGULATION: CONSOB Reg. n. 18592 June 26, 2013 ©2013 A.M. Lerro
  39. 39. LEGAL FRAMEWORK: CONSOB has the supervision and is entitled to impose penalties Platforms ought to be registered with CONSOB Platfoms ought to meet reputation and competence requirements Investment is subject to MIFID and operated through BROKER-DEALERS ©2013 A.M. Lerro
  40. 40. TARGET CO.: ONLY INNOVATIVE START UPs ARE ALLOWED TO RAISE EQUITY FROM THE CROWD (…for now) ©2013 A.M. Lerro
  41. 41. You can raise € 5.000.000,00 per company, per year ©2013 A.M. Lerro
  42. 42. PROBLEM/OPPORTUNITY: !? - The market is too small - High Tech is too difficult for investors - High Tech is a risky business - Wider markets could generate more opportunities of investment, value creation and new jobs ©2013 A.M. Lerro
  43. 43. 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
  44. 44. 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
  45. 45. SMALL INVESTMENTS: INDIVIDUAL: < 500€ per investment < 1000€ per year COMPANY: < 5.000€ per investment < 10.000€ per year ©2013 A.M. Lerro
  46. 46. PROBLEM/OPPORTUNITY: !? Crowdfunding is limited to EQUITY. DEBT could be an other good opportunity. ©2013 A.M. Lerro
  47. 47. 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
  48. 48. BROKER-DEALERS: BANKS and INVESTMENT Co.s CAN EITHER: MANAGE A CROWDFUNDING PLATFORM THEMSELEVES PARTNER WITH A CROWDFUNDING PLATFORM ©2013 A.M. Lerro
  49. 49. 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
  50. 50. 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
  51. 51. PROBLEM/OPPORTUNITY: !? FOREIGN BANKS and INVESTMENT Co.s are in principle allowed to operate in Italy, but the absence of Monitoring Agreements between CONSOB and foreign Authorities inhibits such opportunity. ©2013 A.M. Lerro
  52. 52. INVESTORS: ITALIAN LAW PROVIDES A ROBUST LEGAL FRAMEWORK OFFERING PROTECTION TO INVESTORS ©2013 A.M. Lerro
  53. 53. There is NO PERSONAL INVESTMENT LIMIT MIFID regulates any NON SMALL investment ©2013 A.M. Lerro
  54. 54. 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
  55. 55. 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
  56. 56. PROBLEM/OPPORTUNITY: !? Foreign investors in principle are allowed to invest, but the lack of a Treaty about jurisdiction and conflict of laws could generate conflicts with foreign Authorities. This problem might severely limit investment opportunities. ©2013 A.M. Lerro
  57. 57. LAWS AND MATERIALS: www.CrowdfundingInItaly.com ©2013 A.M. Lerro ©2013 A.M. Lerro
  58. 58. WWW.LERRO.IT ROME Alessandro M. Lerro alessandrolerro alessandro@lerro.it Available on:

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