Over the past 12 months, several landmark VC transactions in Italy have shaped the country’s innovation landscape. In the tech space, Bending Spoons, a leading app development company, secured EUR143 million in 2024, reflecting strong investor confidence in Italy’s growing tech ecosystem. The medical and biotech sectors also saw significant funding, with Medical Microinstruments (MMI) raising EUR101 million in a Series B round to expand its robotic surgery technology. Similarly, Genespire, a biotechnology firm focused on gene therapy, raised EUR46.6 million, further highlighting interest in healthcare innovations.

In fintech, Satispay, Italy’s prominent mobile payment platform, secured EUR60 million to scale its operations across Europe, driven by the rising demand for digital financial solutions. Another significant funding round took place in the mobility sector, where LimoLane, a B2B mobility scale-up, closed a EUR35 million round in July 2024. The funding, supported by Cherry Bay Capital Group, FG2 Capital and private investors, will help fuel LimoLane’s organic growth and a buy-and-build strategy in the industry.

Among notable exits, D-Orbit, an aerospace company focused on space logistics, strengthened its position through a significant funding round, garnering attention in the global space industry. Additionally, the partnership between OpenAI and Cassa Depositi e Prestiti (CDP), Italy’s state investment fund, is worth noting. This collaboration aims to integrate AI technologies into Italian start-ups, signalling a shift in VC dynamics and national efforts to drive innovation.

These milestones highlight Italy’s vibrant VC environment and the increasing global interest in its emerging sectors.

Over the past 12 months, the Italian VC market has experienced several notable trends, shaped by the global investment climate. The most significant trend has been a tightening of financing conditions, driven by broader economic uncertainty and a globally subdued VC market. Investors have become more cautious, focusing on companies with proven business models and stable growth trajectories. Early-stage funding rounds have become more selective, with higher due diligence standards and a stronger emphasis on profitability over rapid growth.

Transaction structures have also evolved in response to these market conditions. There has been an increased use of milestone-based financing, where investors commit capital in tranches tied to the achievement of specific operational or financial milestones. This structure mitigates risk and ensures that capital is deployed efficiently as companies meet key growth targets.

In terms of deal terms, there has been a clear shift towards more investor-friendly provisions. Valuations have seen a downward adjustment, and down rounds (where start-ups raise capital at a lower valuation than in previous funding rounds) have become more common. Additionally, the use of liquidation preferences has increased, allowing investors to secure priority returns in case of an exit event, reflecting heightened risk aversion. Anti-dilution clauses have also become more prevalent, ensuring investors’ equity stakes are protected in future funding rounds.

In light of these trends, Italian start-ups are increasingly required to demonstrate resilience and a clear path to profitability to attract investment, and deal terms are becoming more heavily weighted in favour of investors, reflecting the global investment climate’s more conservative stance.

In the past 12 months, the Italian VC market has been primarily driven by industries such as fintech, life sciences, AI and sustainability. These sectors have attracted significant investor interest, with fintech and AI seeing robust funding due to the increasing demand for digital payments and data-driven solutions. Life sciences, particularly biotech and medtech, also remain strong, with innovation in healthcare technology fuelling investments.

The fintech and software sectors have been key drivers. Milan led fintech investments, attracting EUR4.1 billion between 2020 and 2024, constituting 76% of regional capital.

A clear distinction can be drawn between industries with higher VC-backed exits and those that experience a greater number of financing rounds. Life sciences and technology sectors, especially those with more mature companies, tend to see more exits, as start-ups often progress to acquisitions or public listings once they achieve scalability. These industries typically have clearer exit strategies once their products reach market maturity.

In contrast, sectors like fintech, AI and sustainability often see increased financing rounds. Start-ups in these industries tend to require multiple funding stages to scale their operations, refine their offerings, and extend their market reach. The nature of these sectors often demands ongoing investments before considering exits, as the companies are still in a phase of rapid growth and technological development.

Thus, while some industries are geared toward exits after reaching certain milestones, others remain focused on continuous funding to support their expansion and innovation. This trend reflects the different growth stages and investment strategies across sectors in Italy’s evolving VC landscape.

In Italy, VC funds are typically structured as closed-end investment funds (Fondi chiusi), established and managed by an asset management company (SGR – Società di Gestione del Risparmio) authorised by the Bank of Italy and supervised by both the Bank of Italy and CONSOB. The fund itself is not a legal entity, but a separate pool of assets held by the SGR in the exclusive interest of investors.

The legal framework is primarily governed by the Italian Consolidated Law on Finance Legislative Decree No 58/1998 (Testo Unico della Finanza – TUF) and Bank of Italy regulations, which set out rules on fund formation, management and operations. The fund’s governance and investment process are defined in the Fund Rules (Regolamento del Fondo), a key corporate document approved by the SGR and filed with the regulator. The Fund Rules establish the fund’s investment strategy, duration, fees, governance bodies and decision-making processes, including the role of the Advisory Committee, often composed of representatives of cornerstone investors, which provides non-binding opinions on conflicts of interest and key transactions.

Decision-making is typically centralised within the SGR, which exercises full discretion over investment and divestment decisions, though internal investment committees and advisory bodies may be involved for strategic guidance or investor alignment.

Market-standard fund documentation includes the fund rules, the investment management agreement (if outsourced), and subscription agreements with investors, often incorporating limited partner (LP)-style terms adapted to the Italian regulatory context. Increasingly, Italian venture funds adopt international best practices – such as those inspired by the Institutional Limited Partners Association (ILPA) Principles – to ensure alignment of interests and transparency with institutional investors.

In Italy, fund initiators, managers or principals typically participate in the economics of VC funds through management fees, carried interest and personal co-investments. Management fees, usually ranging from 1.5% to 2.5% of committed capital, cover operational expenses. Carried interest, typically around 20%, entitles fund principals to a share of the profits once a preferred return (or hurdle rate) is achieved for investors. Increasingly, fund managers are required to commit their own capital – known as general partner (GP) commitment – aligning their interests with those of limited partners.

Over time, key market-standard terms have evolved to strengthen investor protection and governance within Italian VC funds. Investor advisory committees are commonly established, granting limited partners oversight rights on conflicts of interest, valuation methodologies and material fund decisions. These committees also review related-party transactions and extensions of fund life, reinforcing transparency.

Preferred return structures or hurdle rates have become standard, ensuring investors receive a minimum return before managers participate in profits. Claw-back provisions are also typical, requiring managers to return excess carried interest if fund performance drops below target levels after early distributions.

Governance provisions now emphasise strong reporting obligations, quarterly updates and detailed disclosures to investors. Compliance with eESG principles is increasingly embedded in fund documentation, reflecting both investor expectations and alignment with EU sustainability regulations. Together, these mechanisms balance the entrepreneurial incentives of fund principals with robust investor protections in Italy’s VC landscape.

VC funds in Italy are typically structured as closed-end alternative investment funds (AIFs) and are subject to specific regulation under both Italian law and the European Alternative Investment Fund Managers Directive (AIFMD). Italian VC funds are commonly established as Fondi di Investimento Alternativi (FIAs), governed by the TUF and overseen by the Italian financial regulator, CONSOB, as well as the Bank of Italy for prudential supervision.

Fund managers must obtain authorisation as AIFMs if they exceed certain asset thresholds, requiring them to comply with stringent reporting, risk management and transparency obligations. Smaller funds may benefit from lighter regulatory requirements if they fall below AIFMD thresholds. Additionally, funds’ marketing to retail investors face further restrictions and obligations to ensure investor protection.

Funds investing in innovative start-ups or SMEs may also qualify for favourable tax treatment or government-backed initiatives, subject to additional compliance requirements. For example, funds targeting sectors relevant to national interests might be scrutinised under Italy’s foreign direct investment (FDI) rules.

Unlike mutual funds, VC funds are generally illiquid and operate with defined investment periods and lock-up structures. Their governance framework often includes an advisory committee composed of investors to oversee conflicts of interest, valuation and major decisions.

Overall, Italy’s regulatory environment for VC funds aligns with European standards but incorporates specific domestic requirements reflecting the country’s efforts to promote innovation while safeguarding investors.

The Italian VC environment has matured in recent years, characterised by increased government involvement, the rise of impact funds and fund-of-funds activity. Notably, the Italian National Innovation Fund (Fondo Nazionale Innovazione) and various regional programmes have significantly increased government-backed VC investments. These initiatives aim to stimulate start-up growth, particularly in strategic sectors like digitalisation, sustainability and healthtech.

Impact investing is gaining traction, with several funds dedicated to ESG-aligned ventures or social impact projects, reflecting broader European trends toward sustainable finance. Additionally, fund-of-funds structures are increasingly used to diversify risk and broaden market exposure, allowing institutional investors to participate indirectly in the VC space while minimising concentration risk.

Given Italy’s traditionally longer holding periods and limited exit options – especially IPOs –, funds have adapted their strategies to maintain flexibility. Continuation funds or secondary sales to new funds have emerged as mechanisms to manage portfolio companies requiring longer maturation without forcing premature exits. Some funds also build in extension options, allowing the fund life to be prolonged to accommodate delayed exits or market downturns.

Moreover, government incentives have encouraged pension funds to allocate capital to VC, further supporting fund growth and liquidity. As the market evolves, Italian VC funds are increasingly incorporating flexible exit strategies, impact-focused investments, and hybrid structures to adapt to longer investment horizons and the specific challenges of Italy’s venture ecosystem.

In Italy, VC investors typically conduct a thorough due diligence across several key areas to assess both the potential and risks of a start-up. The standard due diligence process covers legal, financial and technical aspects, with each area focusing on different critical factors.

Legal due diligence focuses on reviewing the company’s corporate structure, governance frameworks and contracts, including shareholders agreements. A key area of concern is intellectual property (IP); investors assess whether IP rights are properly registered and whether any legal disputes exist. Unresolved legal issues, such as ongoing litigation or imbalanced governance structures, can be major red flags.

Financial due diligence involves a deep dive into the company’s financial health, reviewing financial statements, tax filings and projections. Investors focus on identifying inconsistencies in financial reporting, excessive liabilities or unrealistic revenue forecasts. Any lack of transparency or accounting irregularities could raise significant concerns about the company’s financial integrity. The clarity and accuracy of financial data are crucial for building investor confidence.

Lastly, technical due diligence is particularly important for start-ups in the technology and biotech sectors. Investors evaluate the company’s technology, product development progress and IP portfolio. Red flags include unproven or incomplete technology, reliance on immature products or an inadequate technical team. If the technology is easily replicable or lacks a competitive edge, it can undermine the start-up’s potential for long-term success.

Together, these three areas of due diligence help investors evaluate whether a start-up is a sound investment or presents significant risks.

In Italy, the timeline for a new financing round involving new anchor investors in a growth company typically spans three to six months, though complexity or negotiation intensity may extend it. The process unfolds through preliminary discussions, term sheet negotiation, due diligence and the finalisation of binding agreements, often involving notarial execution for share or quota transfers, particularly in S.r.l. (Società a Responsabilità Limitata) structures. Regulatory filings may add further time, especially if foreign investors or cross-border elements are involved.

The dynamics between existing and new investors can be delicate. New anchor investors often demand priority rights, requiring adjustments to existing agreements, including anti-dilution protections or exit rights. Existing investors may push back, particularly if the new terms risk diluting their position or influence. Aligning interests often results in intense negotiations.

Regarding legal representation, it is common for investors – especially new ones – to appoint separate counsel to avoid conflicts of interest, while companies may have independent advisors.

However, smaller deals or well-aligned syndicates may share counsel for efficiency.

Consent requirements are usually governed by shareholders’ agreements. Major corporate decisions, such as approving a new round, often require supermajority votes or unanimous consent for protective matters. Pre-emptive rights of existing investors, if not waived, may complicate new investments, requiring careful legal structuring to balance majority rule with individual investor protections. Overall, reaching alignment across investor classes is a key factor influencing the timeline and success of a round in Italy.

In Italy, VC investments often involve instruments other than common stock equity. These include special quotas in S.r.l. structures, as well as quasi-equity instruments like SAFEs (Simple Agreements for Future Equity) and convertible loans.

The S.r.l. structures allow the creation of either quotas conferring special rights or different classes of quotas, each with distinct rights. Investors typically receive preferred quotas, which provide rights such as liquidation preferences (ensuring investors are paid before common quotas in the event of liquidation), preferential dividends (usually on a cumulative basis) and anti-dilution protections (eg, full ratchet or weighted average provisions). Voting rights for preferred quota holders are often limited but may include veto powers over significant corporate decisions. The flexibility of the S.r.l. structure makes it a common choice for VC-backed companies, enabling tailored governance and investor rights.

In addition to equity-like instruments, quasi-equity instruments are increasingly used, especially in early-stage financing. SAFEs allow investors to provide capital without determining an immediate valuation. These agreements convert into equity when certain conditions are met, such as a future funding round. SAFEs are particularly popular for seed-stage investments because they simplify the investment process. While KISS (Keep It Simple Security) agreements are also an option, in Italy they are less common than SAFEs.

Another widely used instrument is the convertible loan, which allows investors to provide funds that can later be converted into equity, typically at a discount or with a valuation cap. These instruments are common in early-stage financing, providing flexibility and rewarding early-stage risk.

These structures help investors secure preferential rights while providing start-ups with flexible funding options.

In Italy, the key documents typically involved in a financing round for a growth company include the following.

• Term sheet: this non-binding document outlines the preliminary terms of the investment, including valuation, investment size, investor rights and other key provisions. It serves as a foundation for final agreements and is often used as a basis for negotiations. While not universally binding, it helps set expectations and guide the drafting of final legal documents. Templates provided by industry associations like AIFI (Italian Private Equity and VC Association) are commonly used, particularly in seed and early-stage deals, though customisation is often required.
• Due diligence report: this report is prepared during the due diligence process and helps investors assess the risks and opportunities of the investment. It covers legal, financial and technical evaluations of the company.
• Investment agreement: This binding agreement finalises the terms of the investment, including investor commitments, liabilities, and other specific conditions that apply to the investment.
• Shareholders’ agreement: a legally binding document that outlines the rights and obligations of shareholders, governance, decision-making processes and exit strategies. In Italy, it must comply with the Italian Civil Code, specifically regarding shareholder voting rights and exit mechanisms. The agreement also addresses pre-emption rights, allowing existing shareholders the first opportunity to buy additional shares before third parties.
• Articles of association: this constitutional document governs the company’s operations, shareholder rights and internal rules, and must align with Italian law.

In Italy, while standard templates are frequently used, particularly in early-stage deals, the specifics of each deal often lead to customised agreements. Major law firms often create their own templates based on their experience with VC transactions.

In Italy, VC investors typically negotiate strong downside protections to secure priority over founders, employees and junior stakeholders in adverse scenarios like liquidation or winding up. Liquidation preferences are standard, ensuring that investors recover their capital, sometimes with a multiple, before common shareholders receive proceeds. Participating liquidation preferences, allowing investors to recover their investment plus share remaining proceeds, are becoming more common, especially in uncertain market conditions.

Anti-dilution protections are a well-established market standard in Italy, particularly in early and growth-stage deals. They are typically structured as either full ratchet or weighted average provisions. Full ratchet clauses fully adjust the investor’s price to the lowest subsequent round price, while weighted average provisions offer a more moderate adjustment based on the volume and price of the new issuance. These clauses are triggered by down rounds where new shares are issued at a lower valuation.

Pre-emption or subscription rights over new shares are also common and contractually agreed in shareholder agreements, giving investors the option to maintain their pro-rata ownership in future rounds. Such rights are critical in an ecosystem where exits are less frequent, and ownership dilution is a major concern.

Recent market volatility has led to tougher investor terms, including more prevalent participating liquidation preferences, compounded preferred returns and stricter anti-dilution clauses. These reflect investors’ increased risk sensitivity and desire for better downside protections in Italy’s still-maturing venture market.

In Italy, VC investors typically secure meaningful influence over management and corporate governance through both formal board representation and contractual rights in shareholders’ agreements. Investor-nominated board seats are common, particularly from Series A rounds onward, enabling direct involvement in strategic decisions and oversight of management. Investors often negotiate for veto rights over specific material actions, such as issuing new equity, altering the business plan, acquiring or selling significant assets, changing corporate governance structures, or hiring and firing key executives.

Shareholder agreements frequently define these governance rights, balancing investor protections with operational flexibility. These rights may include consent requirements for extraordinary transactions, dividend distributions, changes to company by-laws or capital increases. For S.r.l. structures, particular attention is paid to drafting powers in the by-laws to ensure enforceability under Italian civil law, where quota transfers or special rights require explicit statutory regulation.

Additionally, information rights allow investors to access regular financial reports, budgets and strategic updates. In some cases, investors obtain observer rights on the board, enabling participation without formal voting power, especially when they do not hold a board seat.

While founders retain operational control in most cases, Italian market practice increasingly reflects a balanced power structure where investors protect their financial interests and strategic influence, especially in later-stage companies. This alignment is critical in the relatively illiquid Italian market, where investors seek assurance that their capital is managed prudently.

In Italian VC financings, representations and warranties typically cover corporate organisation, capitalisation, intellectual property ownership, compliance with laws, financial statements accuracy and the absence of undisclosed liabilities. Founders and the company guarantee that all material information disclosed to investors is true, complete and not misleading, providing a basis for investor trust and legal recourse.

Covenants and undertakings also form a core part of the agreements, committing the company to maintain proper governance, avoid unauthorised debt or asset sales and protect intellectual property. Negative covenants may restrict certain actions without investor consent, while affirmative covenants require regular reporting and compliance with business plans.

Remedies for breach usually involve indemnification, where the breaching party compensates investors for losses directly resulting from misrepresentations or covenant violations. Liability caps are common, limiting the financial exposure of founders and the company, often up to a percentage of the investment or total deal value. Disclosure schedules appended to agreements allow the company to list known exceptions, limiting liability if previously disclosed.

In severe breaches, remedies may include rescission of the agreement, forced repurchase of shares or adjustments in equity stakes. Italian practice typically favours negotiated settlements but allows for litigation or arbitration where disputes cannot be resolved. Given Italy’s legal framework, careful drafting of these provisions is crucial to ensure enforceability, especially when balancing founder liability and investor protection.

Italy offers several government and quasi-government programmes aimed at incentivising equity financing in growth companies, particularly for start-ups and SMEs. Key initiatives include the following.

• Fondo Nazionale Innovazione (National Innovation Fund): a state-backed VC fund that co-invests with private investors, reducing the risks associated with early-stage ventures. This fund supports innovative companies, particularly those in high-tech sectors, contributing to the overall growth of the Italian start-up ecosystem.
• Angel Investor Tax Credit: this programme provides tax credits of up to 30% for investments in eligible start-ups. It encourages individual investors to support early-stage companies, especially in sectors like tech, biotech and green innovation.
• Smart&Start Italia: this initiative provides grants and loans to innovative start-ups across Italy, especially in regions less prone to VC investments. It helps overcome financial barriers to innovation and encourages business creation.
• Euronext Growth Milan: formerly known as AIM Italia, Euronext Growth Milan is a market tailored to dynamic SMEs seeking capital to fuel their growth. It offers a simplified listing process, lower access requirements, and ongoing guidance from a Euronext Growth Advisor. This market is particularly beneficial for companies that need access to capital but are not yet ready for a full-scale IPO.

These government programmes, combined with the support provided by Euronext Growth Milan, create a strong environment for attracting VC and equity financing to innovative Italian companies.

In Italy, the tax treatment of investments in growth, start-up and VC fund portfolio companies is characterised by significant incentives that deviate from the general corporate tax regime. These measures are specifically designed to encourage investments in innovative businesses and strengthen the country’s entrepreneurial ecosystem.

Equity investments in qualifying innovative start-ups and SMEs benefit from tax deductions, allowing individuals and corporations to offset up to 30% of their investment annually. From 2025, individuals will access a 65% deduction for investments up to EUR100,000 per year under the de minimis regime, although this enhanced benefit will no longer apply to innovative SMEs. A further deviation from the general regime is the full capital gains tax exemption available for qualifying investments made between June 2021 and December 2025, provided the investment is held for at least three years. This exemption applies only to investments eligible for the 30% deduction and does not extend to de minimis investments.

Certified incubators and accelerators investing in start-ups can also benefit from an 8% tax credit, capped at EUR500,000 annually, provided the investment is maintained for three years. Additionally, pension funds face new obligations from 2025, with mandatory allocations to VC funds reaching 10% by 2026. Non-compliance results in the loss of certain tax exemptions, further illustrating the state’s effort to channel capital into innovation.

For debt investments, interest income is generally subject to a 26% withholding tax for non-resident investors, although treaty relief may apply. Convertible instruments may, in some cases, qualify for capital gains treatment if structured appropriately. Equity-based incentive schemes such as stock options also enjoy favourable tax treatment, particularly within innovative start-ups, offering exemptions or deferrals that are not available under the standard rules.

The Italian government has implemented several material initiatives to increase equity financing activity, particularly in the start-up and SME sectors.

• Scale-up Act (Law 193/2024): enacted in December 2024, this Law introduces new incentives to enhance the start-up ecosystem, including expanded tax breaks and support for emerging sectors like AI, blockchain and green technology. It aims to make Italy more attractive for equity investors by simplifying regulations and offering more financial incentives.
• EU funding access: Italy’s participation in EU programmes like Horizon Europe and InvestEU provides Italian start-ups with access to significant cross-border funding. This strengthens Italy’s position in the European equity financing landscape, particularly in research-driven sectors.
• Patent Box and super-depreciation: tax incentives like the Patent Box and super-depreciation schemes encourage companies to invest in R&D and innovation. These initiatives reduce tax burdens and make investments in equity more attractive, especially for tech and biotech sectors.
• Euronext Growth Milan: this market continues to provide a platform for SMEs seeking growth capital. The simplified listing process and tailored regulatory support offer an attractive option for companies to access equity financing while benefiting from ongoing advisory support. This has become a crucial tool for expanding equity financing options for growing companies in Italy.

These measures, along with continuous improvements in tax and regulatory frameworks, aim to increase equity financing activity and promote Italy’s growing start-up ecosystem

In Italy, the long-term commitment of founders and key employees is typically ensured through a combination of contractual obligations and incentive mechanisms. A common approach is the inclusion of reverse vesting clauses in shareholder agreements, which link ownership of equity or quotas to continued involvement in the business. Under reverse vesting, founders may initially hold shares or quotas, but risk losing part of them if they leave the company before a specified vesting period ends. This structure ensures alignment between the founders’ interests and the company’s growth trajectory.

Good leaver and bad leaver provisions are also widely used. These define the financial and legal consequences if a founder or key employee departs voluntarily, is dismissed for cause, or breaches their obligations. A bad leaver typically forfeits part of their equity or must sell it back at a discounted price, while a good leaver may retain their rights or sell their stake at fair market value.

Non-compete and non-solicitation clauses often reinforce these mechanisms, preventing founders from immediately competing with the company or poaching clients or employees upon departure. These clauses are structured within Italian employment law and civil law frameworks, ensuring enforceability while protecting the business.

Overall, the goal is to align personal incentives with long-term company success, minimise disruptive departures, and secure investor confidence that the founding team will remain fully engaged throughout the critical growth phases.

In Italy, equity-based instruments are commonly used to incentivise founders and key employees, with stock option plans, work-for-equity schemes, and, less frequently, phantom shares serving as standard tools. These instruments grant rights to acquire equity under certain conditions, aligning individual rewards with the company’s success.

Stock option plans are structured to allow participants to purchase company quotas or shares at a predetermined strike price, typically lower than market value, after meeting vesting conditions. Reverse vesting schedules are widely used, tying ownership rights to continued service over several years. If a founder or employee leaves before full vesting, part of the granted options or equity may be forfeited or bought back at a reduced price. Vesting often follows a linear or milestone-based schedule, with typical terms ranging from three to five years.

Work-for-equity arrangements, specifically regulated for innovative start-ups, permit companies to issue equity in exchange for services, often under favourable tax conditions. This scheme strengthens ties between talent and company growth while reducing immediate cash outflows.

Phantom shares, though less common, offer economic benefits similar to equity without transferring ownership. These plans are typically linked to performance milestones or exit events and are paid out in cash.

Exercise periods and terms vary but commonly provide a window post-vesting, often until an exit event, within which options can be exercised. Italian civil law requires that these mechanisms, especially within S.r.l. structures, be carefully drafted to comply with notarial requirements for quota transfers and the rules on special rights.

In Italy, structuring employee incentive schemes is heavily influenced by tax considerations, particularly the timing of taxable events and applicable tax rates. Generally, equity-based incentives, such as stock options or work-for-equity schemes, are taxed at the moment of exercise or realisation, rather than at the grant date. This means taxation arises when the employee exercises the option or sells the resulting shares, aligning tax liability with liquidity events.

For standard stock options, the difference between the exercise price and the market value at exercise is treated as employment income and taxed under progressive income tax rates (IRPEF), which can reach up to 43%. Social security contributions may also apply at the exercise stage, further increasing the cost for employees.

However, innovative start-ups benefit from preferential tax treatment under Italy’s specific regulations. If structured correctly, stock options granted by qualifying start-ups may be exempt from income tax and social security contributions at exercise, provided certain conditions are met – such as holding periods and non-transferability of the options until an exit. This exemption shifts taxation to the capital gain realised upon the sale of shares, generally subject to a 26% flat rate, a significant tax advantage compared to ordinary income treatment.

These tax rules greatly influence the size, timing and structure of incentive pools. Companies and investors often prioritise schemes eligible for favourable treatment, balancing the need to attract talent with the goal of minimising tax burdens for both the company and the beneficiaries.

In Italy, the implementation of an investment round and the establishment of an employee incentive programme are closely connected, both from a procedural and dilution standpoint. Typically, incentive plans are negotiated or adjusted during investment rounds, especially when new investors enter the company. Investors often require the incentive pool to be defined and sized upfront to account for potential dilution, ensuring clarity on post-investment ownership structures.

From a process perspective, the creation or expansion of an incentive pool often forms part of the capital increase approved during the funding round. The shareholders’ meeting, usually held before a notary, formally approves both the investment and any reserved share or quota allocations for the incentive scheme. This approach ensures legal compliance, especially within S.r.l. structures, where quota transfers and rights must be explicitly codified.

Dilution is a key concern addressed during negotiations. Investors frequently request that the incentive pool be calculated on a fully diluted basis, meaning it is considered as already issued when determining their percentage ownership. This shields new investors from unexpected dilution later if the incentive pool expands.

The timing also reflects practical considerations. Incentive plans are often installed immediately after closing, allowing key personnel to benefit from the uplift in company value brought by the new funding. Founders and early employees may also renegotiate their existing rights as part of the round, ensuring alignment between equity incentives, company growth and new investor expectations.

This interplay ensures incentive mechanisms are fully integrated into the cap table, balancing motivation for the team with investor protection against future dilution.

In Italy, VC investments are typically governed by shareholders’ agreements that include exit-related provisions such as drag-along and tag-along rights, designed to protect both majority and minority shareholders in a liquidity event like a trade sale or IPO. Drag-along rights enable majority shareholders to force minority holders to sell their stakes upon an agreed exit, ensuring a clean sale to a buyer. Conversely, tag-along rights protect minority investors by allowing them to join any sale initiated by majority shareholders under the same terms.

Transfer restrictions are common and primarily serve to control the entry of new shareholders and preserve the company’s strategic direction. Standard mechanisms include lock-up periods, rights of first refusal and rights of first offer. These provisions limit the free transfer of quotas or shares, requiring approvals or offering the existing shareholders priority purchase rights.

Exit triggers are typically defined by events such as a qualified trade sale, IPO or other liquidity events, including changes in control or specified financial milestones. Given Italy’s historically limited exit environment – particularly fewer IPOs and strategic sales compared to other European markets – market practice has adapted. Investors increasingly negotiate specific exit rights, including redemption rights or put options, providing a contractual path to liquidity if no external exit materialises within a certain timeframe. This reflects a pragmatic response to the scarcity of exit opportunities, offering investors alternative mechanisms to secure returns while aligning expectations among all shareholders.

In Italy, IPO exits remain relatively rare for start-ups compared to other European markets. The limited size of the Italian capital markets, combined with a more risk-averse entrepreneurial culture, contributes to fewer companies reaching the scale or maturity required for a traditional stock exchange listing. As a result, trade sales, secondary sales and private equity acquisitions are more frequent exit routes for Italian venture-backed companies.

When start-ups do pursue an IPO, the timing is typically driven by revenue growth, market traction and investor readiness rather than fixed timelines. Companies seek to establish profitability or at least demonstrate a clear growth trajectory to meet listing requirements and attract institutional investors.

Among listing venues, the Euronext Growth Milan (EGM) (formerly AIM Italia) is the most commonly chosen platform for start-ups and growth companies. EGM offers simplified access rules, reduced regulatory burdens, and lower costs compared to the main Italian Stock Exchange (Borsa Italiana). This venue targets dynamic small and medium-sized enterprises (SMEs) seeking capital for expansion without undergoing the full compliance requirements of a regulated market.

Offering structures often involve a mix of new share issuance to raise capital and partial exits by existing shareholders. However, the limited liquidity and lower investor appetite for small-cap stocks in Italy continue to make IPOs a less prevalent exit choice, with many companies viewing them as a long-term goal rather than a primary strategy.

There is a tangible but still developing market need for secondary liquidity mechanisms in Italy, especially given the relatively infrequent IPOs and strategic exits. Founders, early employees and seed investors often seek partial liquidity before a formal exit, particularly as start-ups scale and raise successive funding rounds. However, the fragmented nature of the Italian venture ecosystem and regulatory complexities have limited the widespread development of structured secondary market programmes.

Key challenges include the legal structure of Italian companies, particularly S.r.l., where quotas are not freely transferable and often require notarial deeds for transfers. This creates procedural and cost barriers to establishing efficient secondary trades. Furthermore, contractual transfer restrictions such as rights of first refusal, lock-up periods, and pre-emptive rights can complicate or delay liquidity events, requiring careful navigation of existing shareholders’ agreements.

Legally, any structured liquidity programme must respect these internal company rules, Italian civil code provisions and applicable financial regulations if securities are involved. Such programmes typically require tailored amendments to shareholder agreements, explicit waivers of certain rights and possibly the creation of special purpose vehicles or buyback schemes facilitated by the company itself.

Company-facilitated tender offers are one of the few tools that have gained some traction, especially in later-stage companies. They allow the company or new investors to repurchase shares from early stakeholders, providing liquidity while maintaining control over the cap table. However, their use remains relatively limited and ad hoc, reflecting the need for further market maturation and regulatory clarity around secondary transactions in Italy’s venture landscape.

In Italy, the offering of a company’s equity securities in a VC transaction is governed primarily by the Italian Civil Code, the TUF and the relevant corporate regulations, particularly when dealing with significant transactions or numerous employees and entitlement holders.

For private companies, especially S.r.l., equity offerings are largely governed by private contractual agreements and shareholder resolutions. Any issuance of new quotas requires approval by the shareholders’ meeting, notarisation and registration in the Companies Register. The transfer of quotas is also subject to restrictions typically set out in the company’s by-laws or shareholder agreements, including rights of first refusal and lock-up clauses.

In more sizeable transactions or where employees are entitled to equity participation, public offering regulations may come into play. If the offering qualifies as a public solicitation of investment – typically when it is addressed to more than 150 non-professional investors – the company must comply with the prospectus requirements under TUF and EU Prospectus Regulation unless specific exemptions apply. These rules aim to protect retail investors and ensure transparency but usually exclude offers made to professional investors or employees under approved stock option plans.

Where equity is offered broadly to employees, specific labour and tax rules apply, particularly regarding stock option schemes and work-for-equity plans in innovative start-ups. These structures benefit from streamlined processes and tax incentives but still require compliance with Italian employment laws and proper documentation.

Therefore, while private VC transactions often remain outside public offering regulations, the scale of the transaction and the number of beneficiaries may trigger additional legal obligations, making careful legal structuring essential.

Foreign VC investment in Italian portfolio companies is generally permitted, but certain legal and regulatory restrictions may apply depending on the sector and structure of the transaction. Italy does not impose general currency exchange controls on foreign investors; capital can be freely transferred in and out, consistent with EU principles on free movement of capital. However, banking regulations prohibit non-licensed entities from performing activities reserved for financial intermediaries, such as collecting third-party savings or offering certain financial services without proper authorisation.

The most significant restriction arises from Italy’s FDI screening regime, known as the “Golden Power” regulation. This framework allows the Italian government to review and potentially block investments by foreign investors, including EU investors, in strategic sectors such as defence, energy, telecommunications, critical infrastructure, health, financial services and AI. Venture investments targeting start-ups operating in these sectors may trigger mandatory notifications and governmental clearance. Failure to comply can result in fines or even the nullification of the transaction.

Over the past 12 months, geopolitical tensions and increasing EU-wide scrutiny of foreign investments, particularly from non-EU countries, have led Italy to expand the scope of its FDI rules. Enhanced enforcement and lower thresholds for review mean that even minority VC stakes in sensitive sectors may now face scrutiny. This trend reflects broader European concerns about protecting strategic industries from foreign influence. As a result, foreign VC investors must conduct thorough regulatory checks and factor potential Golden Power implications into their transaction planning, especially in tech-heavy or regulated sectors.