Welcome to the Growth Hacking Academy. In this lesson we’ll cover innovative startups — the special legal status Italian law gives young technology companies. If you’ve landed here you’re probably weighing up starting one in Italy. Excellent idea. But are you sure you know every important aspect you have to account for?
If the answer is no, you’re certainly in the right place: we’ll cover the requirements, the incentives, the conditions, the articles of association, the register of innovative startups, setting one up, funding and investing in one. In short, if the subject interests you we’re confident this lesson has everything you’re looking for.
Before you read on, a reminder that here in our Growth Hacking Academy there are plenty of interesting ideas; in particular don’t miss growth hacking for startups and successful startups: how to build one, both of which lead naturally into this lesson.
So: let’s start… up!
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Innovative startups: when and why they came about
The term innovative startup arrived in Italy under the Monti government (for anyone who remembers it) with the so-called Growth Decree 2.0 of 2012 (Decree Law 179 of 18 October 2012), which introduced a genuinely new legal category — the innovative startup — in order to pursue sustainable growth, technological development and youth employment more effectively, and to close the gap with the main European and non-European states.
Another important aim of the measure was to promote greater social mobility and attract innovative companies, talent and capital to Italy from abroad.
Worth noting too that no particular sector is favoured and that, although youth employment is one of the primary aims, there’s no age limit on starting one.
The original decree evolved through several later measures (Decree Law 76 of 28 June 2013, known as the “Jobs Decree”, converted by Law 99 of 9 August 2013; Decree Law 3 of 24 January 2015, known as the “Investment Compact”, converted by Law 33 of 24 March 2015), up to the policy summary supporting innovative startups (available from the ministry) drawn up on 27 March 2015.
Innovative startup: the definition
So what does the term innovative startup mean? There’s little room for originality here: we have to follow the legislation, which is very specific.
Section IX, article 25(2) carries the exact definition of an innovative startup enterprise, which we’d put in simpler words: it’s a limited company, including a cooperative, resident in any European Union country provided it has at least one branch or production site in Italy. Its business purpose must be exclusively or mainly the development, production or commercialisation of innovative products or services with high technological content.
So we’re talking about limited liability companies (including the simplified or reduced-capital form, from €1), partnerships limited by shares, joint-stock companies and, as noted, cooperatives.
It’s worth clarifying that a partnership or a sole trader cannot be treated as an innovative startup.
Innovative startups also have to meet certain requirements, which we cover in the next section.
Requirements for an innovative startup
- Youth: it must have been trading for no more than 60 months (five years) as at the date the application is filed.
- Location: its principal place of business and interests must be in Italy, although its registered office may be in any European country.
- Turnover: apart from the first year, total annual production value shown in the latest accounts — which must be approved within six months of the year end — must not exceed €5 million (a nice problem to have, you might say, but never say never).
- Profits: profits cannot be distributed, and must not have been distributed in the past.
- Innovative activity: developing, producing and commercialising innovative products and services with high technological value must be the main business purpose.
- Formation: the startup cannot arise from a merger or demerger, nor from the sale of a business or even a branch of one.
Innovative startups also have to meet at least one of the following three requirements:
- Research and development: put simply, the startup must invest in R&D at least 15% of the greater of production cost and production value. Say production cost is €90,000 with a production value of €120,000: you take 15% of €120,000. So the startup would have to put at least €18,000 into research and development.
- Qualified staff: at least one third of its workforce must be highly qualified (doctoral candidates, people already holding a PhD, graduates with at least three years’ significant experience); or at least two thirds of the workforce must hold a master’s degree.
- Patents: the startup must have registered an industrial patent relating to biotechnology, semiconductors or plant varieties.
We’ve simplified as far as we can to give a picture that’s precise enough while remaining readable. If you want every comma, work patiently through the text of the decree at section IX article 25 (here it is).
Registering with the business register
Right. All the requirements in order? Then you can enter your company in the special section for innovative startups of the Business Register. To do that you file an application electronically as a Comunicazione Unica, attaching a declaration digitally signed by the legal representative confirming that the necessary requirements are met.
The declaration has to be renewed within 30 days of the approval of each subsequent year’s accounts, and in any case within six months of the year end. If you want to look at the form you’ll have to fill in, see here.
For a template to follow in drafting the articles of association, take a look at this PDF for a startup in limited liability form.
You’ll be pleased to know that registration in the special section is exempt from stamp duty and administrative fees, as is every document filed with the Chamber of Commerce, and you’re also exempt from its annual fee.
Not bad. And that’s only the first of a set of far more substantial incentives. Let’s go through them.
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Incentives for innovative startups
We’ve already noted the light-touch registration (and renewal) in the special section of the Business Register and the reduction in start-up costs. Other significant incentives are:
- Employment rules written for startups: staff can be hired on fixed-term contracts of between 6 and 36 months. After 36 months the contract can be renewed once more, for a maximum of another 12 months, reaching 48 months in total. After that the employee can only continue on a permanent contract. Note that, unlike ordinary companies, a startup can renew contracts during the first 36 months without observing the break periods normally required (10 or 20 days depending on the length of the contract).
- Work for equity: as we mentioned in the lesson on successful startups: how to build one, a startup’s collaborators can be paid in stock options, and consultants or external service providers through work-for-equity schemes. Tax and social security neutrality applies to all such creditors — an excellent way of persuading people to climb aboard.
- Tax incentives: available to anyone investing directly or indirectly in an innovative startup, whether an individual (who can deduct 19% against income tax) or a company (which can deduct 20% from its corporate tax base). The incentive is greater for investment in socially oriented startups or those working in energy.
- Crowdfunding: funding can be raised through authorised online platforms. We covered this in the earlier lesson on successful startups too.
- Access to the Central Guarantee Fund: this fund guarantees bank loans up to a maximum of €2,500,000, with simplified, free and direct access.
- Support with internationalisation from the ICE agency.
- Fail-fast: innovative startups aren’t subject to bankruptcy proceedings, so the entrepreneur can recover quickly and start something new.
Startup incubators
In the world of startups and innovation generally, so-called incubators play a very important role. The European Commission defines a business incubator as “an organisation that accelerates and systematises the process of creating new businesses”.
A little vague? Let’s clarify.
An incubator uses varied means to support a startup. It might offer physical premises to work from, provide grant funding, or bring the company into an active business and social network offering contacts and advisory services. All of this generally covers a period of no more than 36 months.
Incubators, public or private, generally pursue an economic objective, which sets them apart from co-working spaces, for instance. For that reason they select carefully among the startups they consider most promising and most worth investing in.
A list of innovative startups
What’s that? You want a list of innovative startups?
Do you have any idea how many there are? A list would, to our minds, be of little use. Instead we’d point you at this page of the Business Register, where more than a thousand innovative companies describe themselves. You can search by sector, region and other criteria and then look at each result’s characteristics in more or less detail.
Image from registroimprese.it
Conclusion
We’ve reached the end of this lesson, which has shown you what innovative startups are, what they mean within the Italian economy, which requirements they have to meet to enter the register, and what the procedure involves.
You also have everything you need to weigh up the many incentives designed to support innovative companies, on tax as well as on relationships with collaborators and external suppliers.
We’ve briefly described what incubators are and how to take advantage of them, and how to browse the now numerous Italian innovative startups. They’re managing it — so can you.
If you enjoyed this lesson on innovative startups, don’t miss the next ones here in your favourite Growth Hacking Academy. We’ll be waiting, so we can keep growing together.
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