Crowdfunding is an English term made up of the words ‘crowd’ and ‘funding,’ which can be translated into Italian as ‘finanziamento della folla.’ It is an investment method that emerged in the second half of the 1990s, allowing individuals who wish to invest small amounts to use a digital platform to access funding campaigns for innovative SMEs and startups that are not present in the stock market. The types of crowdfunding can vary:

• Donation-based crowdfunding, which involves donating a sum of money for a specific cause without receiving any rewards in return.
• Lending crowdfunding, also known as social lending or peer-to-peer lending, is a form of alternative financing that takes the form of loans between individuals, facilitated through online platforms.
• Reward-based crowdfunding, where investors can receive a reward in the form of a product or service in exchange for their investment.
• Equity-based crowdfunding, which allows investors to purchase shares in an SME or startup through dedicated platforms, acquiring property and administrative rights.
• Real estate crowdfunding, which enables investors to commit their risk capital to real estate projects, in both lending and equity modes.

Italy was the first country in Europe and, in fact, internationally, to provide a regulatory framework for equity crowdfunding in 2013. By December 2021, the total amount of investments reached €1.348 billion in favor of startups and innovative and non-innovative SMEs. The steps and elements that constitute crowdfunding are:

• An investor with capital for small investments or larger amounts, such as €50,000.
• An innovative SME or a startup, which must not be publicly traded.
• A digital platform, like CrowdFundMe, that accepts applications from SMEs and startups and creates crowdfunding campaigns for fundraising. These campaigns are visible on a public electronic board.

The investor registers on the digital platform, which is authorized and supervised by CONSOB, reviews the active campaigns, and contributes capital for the chosen campaign. At the end of a campaign, accessible after the investor registers on the platform, there are two possibilities: the funding goal is reached and exceeded, or it fails. In the latter case, the amounts are refunded to the investors without any charges.

Equity crowdfunding allows for the purchase of a stake in the equity of the startup or SME that launched the campaign. The investor thus becomes a shareholder of the company, and if the business succeeds, the purchased shares will increase in value. The ROI, or return on investment, can occur in several ways:

• Selling the shares you own, where the profit is determined by the difference between the purchase value and the selling price.
• Selling your shares if the company is listed on a stock market.
• Through profit distribution, which generally occurs in proportion to the invested capital.

Investment in equity crowdfunding carries a high risk that can result in the total loss of the invested capital. Therefore, it is advisable to invest diversely and carefully evaluate each individual project of interest before investing. The investor profiling process promotes awareness of the investment and the associated risks. Investors are also granted the right of withdrawal and reflection.

The right of withdrawal is applicable if new or significant facts, inaccuracies, or errors related to the offer arise between the time of investment commitment, its closure, or the delivery of financial instruments. The right of reflection (withdrawal) regarding participation in a campaign can occur within 4 days (as per EU regulations) from the order of commitment, with no costs incurred.

To further protect its users, CrowdFundMe allows all investors, regardless of their classification (professional, sophisticated, or unsophisticated), to exercise the right of withdrawal within 7 days from the date of the investment order.

CrowdFundMe targets anyone who wants to invest in unlisted, innovative companies with high growth potential. Investments through CrowdFundMe are suitable for anyone who believes in a specific company, regardless of their financial expertise, as long as they are aware of the investment risks. Both individuals and legal entities (companies) can invest.

Thanks to investment in equity crowdfunding, investors can:

• Connect with the most promising entities in the Italian entrepreneurial landscape.
• Discover new investment opportunities outside traditional financial instruments and diversify their portfolio by including innovative companies.

Moreover, both individuals and legal entities can deduct 30% of the amount invested in the share capital of one or more innovative companies (startups/SMEs) on their annual income tax return. Finally, it’s important to note that the characteristics of the products you can invest in through equity crowdfunding platforms are high-risk and illiquid products from unlisted issuers.