As alternative finance continues to gain popularity in Europe, crowdinvesting is becoming more and more mainstream today. However, many have not yet heard of it, what exactly is it? Crowdinvesting occurs when many investors finance a project out of interest and/or opportunity, and each provides a small financial contribution in proportion to the total capital required, just like an online fundraiser. Over time, however, the investor receives in exchange the amount paid plus the interest. This is the most important difference from crowdfunding, where the investor usually receives compensation in kind.
Crowdinvesting is therefore characterized by a strong entrepreneurial connotation in the strict sense, having been born mainly as a microfinance tool to allow new forms of investment for start-ups. It is a very interesting mode, because it is simple, flexible and with an important collection capacity, which is also well suited to the size of the scale-up.
When a company is in the growth phase and no longer in the start-up phase, it tends to have a greater need for capital. In order to help SMEs, in order to facilitate the growth phase, various simplified formulas have been introduced in Italy over the last decade, both in terms of bonds and equity: an example are minibonds, which make debt issuance accessible to smaller companies, then we meet the Aim market, an alternative list of the Italian Stock Exchange, dedicated to small and micro-production activities. How were they used?
The second Italian report on crowdinvesting, published in July by the Crowdfunding Observatory of the School of Management of the Politecnico di Milano, gives us a picture of the situation. In the period 2012-2020, 671 companies placed minibonds and 409 of these were SMEs. In fact, only in 2020 SMEs were able to raise about 448 million euros, however the average size of the single issue was, over the whole year, only 4.59 million. The situation is not very different for the Aim market, where the average collection appears also in this case rather low: € 6.5 million.
The numbers presented certainly do not represent dizzying figures, especially by virtue of what had been the initial forecasts in 2012, just think that a threshold of about 50 million euros was presented for the minibonds alone, very different from the 4.59 million euros collected. Therefore, starting to evaluate alternative forms of investment does not seem so wrong, especially in a period where digitalization is now king. Of course, today the average for each single campaign, relative to crowdinvesting, is still very low, around 200 thousand euros, but there have been single millionaire collections as for e-Novia, which collected 8 million euros in a few days. Crowd investing therefore has great potential but should not be understood as a substitute for minibonds and the Aim market, it could instead simply be seen as an additional tool that can give SMEs alternative growth opportunities.
Furthermore, crowdinvesting offers, compared to its more institutional alternatives, a whole series of very interesting advantages:
To launch a fundraising campaign, you do not have to incur any costs related to advisory and post IPO reporting. The costs of listing on Aim amount on average to 5% of the value of the IPO and, even with the tax credit that allows you to recover 50% for quotes up to the end of 2021, they are generally higher than the taxes of a crowdinvesting.
Compared to Aim, crowdinvesting allows greater flexibility in investor management and provides for more streamlined reporting obligations.
However agile and simplified, the admission process on Aim still requires many steps. The Italian Stock Exchange itself indicates more than 40 weeks to set up and implement the entire process. A crowdinvesting campaign is prepared in a minimum of four weeks and in 30-45 days it allows you to raise a capital that can reach up to 8 million, according to the law.
Finally, crowdinvesting allows us to finance projects that would otherwise remain unrealized, this is because despite the technological and financial feasibility, the volumes are often too small for institutional investors. This is precisely one of the objectives of crowdfinance in general: to intervene when traditional finance is not suitable or is not available.
In conclusion, crowdinvesting is growing strongly and has enormous potential that could greatly facilitate the growth of a sector that is fundamental in Italy, namely that of small and medium-sized enterprises. Guaranteeing alternative forms of investment, without eliminating those that already exist but rather by strengthening them, could be the best solution to ensure the restart of an economy, such as the Italian one, among the most affected by the pandemic.
Translated by Veronica Giustiniani