What Crowdfunding Dreams Are Made ofFUNDING ALSO FROM VENTURE CAPITALISTS AND ESTABLISHED COMPANIES AND A CHANGE IN THE COUNTRY'S FINANCIAL CULTURE: BENEDETTO PIRRO, ALUMNUS AND COFOUNDER OF CROWDFUNDME, TALKS ABOUT THE ITALIAN STARTUP ECOSYSTEM
A new, more courageous alliance, in which companies and institutional investors, typically venture capitalists, walk hand in hand with crowdfunders, not leaving the task of financing startups only to the retail market, or to individuals who decide to invest in innovative companies. Thus Benedetto Pirro, 36-year-old Bocconi alumnus and cofounder of Crowdfundme, a company that since its foundation in 2016 has raised almost €71 million and was listed on the stock market since 2019 , summarizes the key step that would allow all the Italian crowdfunding system to make a leap and reach the levels of other EU countries and Great Britain.
Let's start from the beginning: what is Crowdfundme?
A platform that offers investments in alternative finance to enter the equity of companies in the startup and scaleup phases.
How do you select the companies to finance?
We look at a mixture of qualitative and quantitative parameters based on three pillars. First of all, the level of innovation of the project and the ease of understanding by the market. For radical innovations we evaluate the presence of patents (therefore validation by the scientific community), while for incremental innovation projects we look for example at turnover figures, active customers, etc. Secondly, the financial situation, because, despite being young companies, they must be healthy. Finally, that all the elements of investor protection must be respected, which is also required by the law. We care a lot about this aspect and have often rejected beautiful projects for this reason. For example, we push startups to include a liquidation preference for minority investors (in the case, for example, of a depreciating exit).
How many companies are there selected? And how many investors do you propose them to?
We evaluate 60 projects per month, investigate 30 and launch 4 to 5. At this time our platform sees more than 10,600 active investors and, on average, each investor makes two trades. Since we started operations in January 2016, we have made possible the financing 144 successful projects and raised € 70.9 million through 21,200 investments.
In the light of your experience, what advice do you give to a young innovative company that introduces itself to investors?
First of all, don’t do it in the very early stages of the project. It is true that crowdfunding should enter in the embryonic stages, but we have seen that Italian investors are rather reluctant to do so. They are more likely to enter when the company is a little more mature and structured, when it has already received an initial market validation. Let's say that crowdfunding does not have to be the first round of financing. Second very important tip: crowdfunding is played with very open cards. The company must have maximum transparency towards investors and not keep anything hidden for fear that someone will come and copy. This is why it is useful that it has already begun to operate on the market, because in this way it will have already set up barriers to entry that avoid these risks. Finally, an excellent company presentation is important, that must include all the information on how the capital will be used.
We talked about companies, now let's look at the system: how is crowdfunding doing?
There is no doubt equity investment in Italy is smaller compared to other countries. And it is not a question of regulation or legislation, which in fact is advanced our country. It is really an issue of financial culture. For instance, Eastern European countries, which began operating after us, are already ahead.
What does this depend on?
From the fact that they launched crowdfunding arm in arm with venture capitalists and institutional investors for the start. In Italy, 98% of the investors in crowdfunding are retail, i.e. individuals, while there is no investment from venture capital and companies. At the beginning, the motivation was that the companies to be financed were still too green, but today it is no longer entirely true.
What would it take?
Courage. That institutional investors have the courage to enter the crowdfunding world more massively, also because legislation already gives all the tools to invest jointly to everyone's advantage.
Benedetto Pirro, co-founder and COO of the Crowdfundme platform, after a Bocconi bachelor's degree in the Management of Innovation, earned a MSc in Economics and Management of Innovation and Technology (with the thesis 'Has India's Growth Been Lopsided? A brief analysis of the remarkable albeit atypical growth of this subcontinent'. "Of my Bocconi years, I remember above all my classmates, Prof. Raffaella Piccarreta and the effort it took to pass civil law," he says. "My favorite subjects were industrial economics, statistics, and innovation economics!".
by Andrea Celauro