In 2012, Italy passed a specific law on startups aiming at fostering innovation and young talents. In the most recent years, further innovation-oriented laws have been passed and today Italy is a fundamental player in the european and international ecosystem of innovation.
Italian innovative startups are more than 6.000 and are active in the most relevant fields of innovation:
- internet of things;
- virtual and augmented reality;
- 3D printing.
I have been advising several innovative startups in the recent years and only now I see International VCs and Funds actively looking at Italian startups for their investments.
So it is the right time to clarify and point out several peculiarities of Italian innovative startups to the benefit of foreign investors which may not immediately understand why Italian startups represent a growing and unique market.
Innovative Startups: requirements
Only limited liability company (società a responsabilità limitata under Italian law) or joint-stock company (società per azioni under Italian law) meeting the following requirements can be acknowledged as “innovative startups”:
- new company or established no more than 5 years before;
- headquarter in Italy or in a EU country with a branch in Italy;
- development, manufacturing and sale of innovative products or services with high technological value;
- turnover no higher than € 5 millions;
- no dividends distribution;
- it is not the result of a merger, a spin-off or the sale of a business as a going concern;
- at least one of the following criteria: (i) R&D expenses equal or higher than 15% of the total costs, (ii) at least ⅓ of the personnel is PhD graduated or students, (iii) at least ⅔ of the personnel is properly graduated or (iv) it is the holder/licensee of a patent or software.
The label innovative startup brings along two fundamental consequences:
- access to several tailored-made rules not applicable to other companies;
- being part of the innovation market where VCs and Funds interest is focused.
Innovative Startups: benefits and exceptions
Innovative startups may be established through an online procedure which does not require the involvement of any Notary Public: this means a faster and cheaper way to start business. It is worth mentioning that such an online incorporation process include a standard by-laws which may be tailored according to the specific needs of the founders.
Startups are heavily dependant on R&D, usually achieve positive results after three/five years and failure is more likely than not. Therefore,
- in the event of financial losses affecting the share capital of the company, the shareholder assembly of the innovative startups may postpone any decision up to two years later;
- the innovative startups are not subject to bankruptcy but to a peculiar procedure to cope with the insolvency status.
Startups need several rounds of financing from external investors which might be professional or private so the by-laws of the company may provide for shares with different rights and obligations including:
- shares with no voting rights;
- shares with voting rights limited to certain matters or subject to certain conditions;
- shares with non proportional voting rights.
Financing and investments
Innovative startups may access the equity crowdfunding platforms in order to collect the required financing from the public.
Also, investments in innovative startups benefit from a fiscal discount which, up to 2016, is 19% of the investment. The draft fiscal law currently under discussion in the Italian parliament establishes a fiscal discount equal to 30% of the investment.
Workforce and other costs
Personnel and external consultant may be paid with shares and stock option plans according to the work-for-equity model. And this kind of remuneration is not considered as income.
Employees may be paid with a retainer fee plus a success fee based on the net result of the company.
Innovative startups do not pay the filing fee and the annual fee at the Registry of Companies.
The Italian market of, and for, innovative startups is fast growing and Italy is well positioned in Europe as a leading country for innovation.
In particular, the EU Commission appointed Turin – the city where I am based in – as the Second European City for Innovation after Amsterdam and before Paris.
Next post will be again focused on innovation in Italy: I will be discussing about Innovative SMEs.
About the Author: Raffaele Battaglini (LLM. at The University of Edinburgh) is a lawyer expert in international contracts and M&A, innovation and startups.