The Italian Ministry of Economic Development, with Decree dated October 1, 2020 (published in the Official Gazette on Thursday, November 19, 2020), issued the procedures for the implementation of the facilities provided by the venture capital support Fund in favour of innovative start-ups and innovative SMEs (art. 38, paragraph 3, of the “Decreto Rilancio”) with an additional allocation of € 200 million for the year 2020.
The corporate vehicle that will manage the endowment is CDP Venture Capital SGR S.p.A. through the “Relaunch Fund”.
The contractual instrument to make the investment, a real innovation on the Italian scene, is the “converting financing” which is similar to the well-known SAFE model (Simple Agreement for Future Equity) introduced by the US accelerator Y Combinator.
It is a “quasi-equity” cash contribution without repayment or redemption which is converted, together with notional interest, into share capital when any of the following circumstances occur:
- listing at a discount on the fully diluted pre-money valuation;
- sale of control of the company to third parties at a discount on the fully diluted pre-money valuation;
- sale of the company/branch of the company or a substantial part of the assets at a discount on the fully diluted pre-money valuation;
- commitment by third parties to invest in the company with a capital increase for a total amount, including share premium, equal or higher than a predetermined threshold with a discount on the fully diluted pre-money valuation;
- merger or other extraordinary transaction resulting in a change of control at a discount on the fully diluted pre-money valuation;
- liquidation, dissolution or bankruptcy proceedings at a fully diluted pre-money valuation corresponding to the post-money value of the last capital increase carried out by the company in portfolio or, in the absence thereof, on the basis of a valuation established by an independent third party;
- discretionary decision of the SGR after the fifth year on the basis of a fully diluted pre-money valuation corresponding to the post-money value of the last capital increase carried out by the company in portfolio or, in the absence thereof, on the basis of a valuation established by an independent third party.
The Fund’s single investment operation has a ceiling of four times the investment made by regulated and/or qualified investors up to a maximum of € 1.000.000,00 (one million/00) per target company.
As said, the Relaunch Fund will only invest in innovative start-ups and innovative SMEs. But this is not enough, the following additional requirements must be met:
- company already terget of an investment by regulated investors and/or qualified investors, no earlier than six months before the entry into force of the Decreto Rilancio or which are subject to investment by regulated investors and/or qualified investors who are carrying out an investment round together with the Relaunch Fund;
- company introduced by the regulated investors and/or qualified investors themselves;
company with registered office and activities in Italy;
- company with effective development potential, measurable on the basis of quantitative and/or qualitative indicators, which can be demonstrated by meeting at least one of the following criteria: (i) growth in revenues, clients or users of services in the twelve months preceding the investment by the Fund, (ii) sustainable three-year business plan approved by the competent administrative body, (iii) contracts or strategic partnerships or (iv) patents filed with industrial exploitation potential;
- companies that do not present ongoing assessment procedures that have not yet been remedied;
- companies that pass the risk management, compliance with standards or prevention of the risk of money laundering and terrorist financing.
The Fund will also give priority to companies showing a reduction of turnover caused by the Covid-19 pandemic.
Types of investors
Another new element is the concept of investors entitled to present innovative start-ups and innovative SMEs to the SGR. In addition to investors regulated under the Italian Financial Regulation, “qualified investors” are also allowed which means:
- business angels;
- family offices;
with consolidated experience in the venture capital sector measurable according to quantitative and/or qualitative indices.