ITALY Law and Practice Contributed by: Silvia Bordi, Emanuele Bosia, Federico Dettori and Rodrigo Boccioletti, Gianni & Origoni
held before a notary, formally approves both the investment and any reserved share or quota allo- cations 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 dilu - tion 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.
a clean sale to a buyer. Conversely, tag-along rights protect minority investors by allowing them to join any sale initiated by majority share - holders 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 quo - tas 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 speci - fied financial milestones. Given Italy’s historically limited exit environment – particularly fewer IPOs and strategic sales compared to other European markets – market practice has adapted. Inves - tors increasingly negotiate specific exit rights, including redemption rights or put options, pro - viding 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. 6.2 IPO Exits In Italy, IPO exits remain relatively rare for start- ups compared to other European markets. The limited size of the Italian capital markets, com - bined with a more risk-averse entrepreneurial culture, contributes to fewer companies reach - ing 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.
6. Exits 6.1 Investor Exit Rights
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
297 CHAMBERS.COM
Powered by FlippingBook