Capital Increase and Offering Memorandum: the Difference

aumento di capitale e documento di offerta: differenze

To start a crowdfunding campaign, you need to sign two types of documents: the capital increase act and the offering memorandum. In this article, let's look together at what they are, how they differ, and how you can leverage them to maximize the results of your raising.

What is the capital increase act

The capital increase is the act by which a company resolves to increase its share capital through new cash contributions. The capital increase act represents the 'framework' of the financial transaction and therefore establishes the numerical limits of the crowdfunding campaign.

Specifically, the document should contain the following information:

  • start date and end date of the operation;
  • the pre-money evaluation;
  • share premium proposed to the public over the share capital already owned by the company;
  • minimum collection target (inseparable threshold);
  • maximum target, beyond which the collection cannot be protracted;
  • other information such as the class of investors or any para-social pacts.

A notary public is required to draw up the act of capital increase. His or her role is to ascertain that all legal requirements are in place to carry out the transaction and to check the validity of the necessary documentation.

What is the Offering Memorandum

The offering memorandum serves as a kind of 'identity card' for the crowdfunding campaign and contains a series of information useful to investors for forming an opinion: description of the offering company (project, sector, etc.), exercise of the right of withdrawal, frequency and method of updates etc.

Unlike the act of capital increase, the drafting of the offering memorandum does not require the presence of a notary, but can be done independently, complying with the requirements of the Consob Regulation on crowdfunding (according to an attached standard template).

The 'numbers' indicated in an offering memorandum do not necessarily have to coincide with the data reported in the capital increase act. In fact, within the same capital increase, there may be multiple offering memorandum, each with its own minimum and maximum targets: the important thing is that the overall figures, derived from the sum of the information in each offering memorandum, match the numbers on the capital increase act."

Submitting multiple offering memorandum: advantages

By submitting multiple offering memorandum as part of a single capital increase, it is possible to divide the raising into several smaller transactions and thus gain a number of advantages.

Let's take an example: let's say we have a capital increase with a minimum raising threshold set at 100,000 euros and a maximum threshold at 500,000 euros. We will follow up this capital increase with an offering memorandum with a minimum threshold equal, of course, to 100,000 (one cannot, by law, go below the minimum declared via capital increase), but with a maximum raise of 300,000. This will give the possibility of keeping the capital increase open for additional transactions: for example, opening to a strategic investor, or launching another crowdfunding campaign for the remaining 200,000.

Ultimately, deciding to submit a single offering memorandum for one's crowdfunding campaign can be, in most cases, counterproductive. The risk is to lose, for example, the opportunity to make multiple investment rounds within the same capital increase, or the possibility of engaging and dedicating a part of the equity to industry partners, and last but not least, the possibility of exploiting the FOMO effect - Fear of missing out - of the very last days of the campaign.

To learn more about the function of the offering memorandum for your capital campaign and the benefits of submitting multiple memorandum for a single capital raise, book a phone appointment with us!

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