Italian venture moves upmarket as overall activity dips

After five years of strong expansion, 2017 saw a contraction in Italian venture capital investment activity, with a drop in the number of transactions conducted, even though there was only a modest reduction in the total amount of capital invested. The Italian VC landscape was also characterised by renewed interest from foreign investors, an upward trend that has emerged in recent years and strengthened further in 2017.

Last year, only 57 initial VC investments were recorded, according to Venture Capital Monitor 2017, a report published by AIFI – the Italian private equity and venture capital association – and LIUC Business School. This was down 38% on 2016, when dealflow increased to 92 from 77 in 2015.

Including follow-on investments, such as second and third funding rounds, the total number of VC investments in 2017 decreased to 78 from the 102 transactions that took place in the previous year.

Numerous VC houses active in the Italian market reached a more advanced stage in their investment period and therefore started to direct their activity towards second and third funding rounds" – Francesco Bollazzi, LIUC Business School

However, there was a less significant slowdown in the total value of the investments recorded, decreasing to €165m for initial funding rounds in 2017, down 9% on 2016, and to €208m from €221m including follow-on rounds.

"The reason why the upward trend was reversed last year primarily lies in a change of focus shown by many VC funds and investors, which prioritised their fundraising activity by attracting a significant amount of fresh capital for future deals," says Francesco Bollazzi, LIUC professor and director of Venture Capital Monitor. "In addition to this, numerous VC houses active in the Italian market reached a more advanced stage in their investment period and therefore started to direct their activity towards second and third funding rounds, instead of deploying new capital for initial investments."

This significant repositioning of the Italian VC market towards follow-on transactions instead of initial investments is proven by the substantial increase in second and third rounds recorded in 2017, both in terms of volume and value. Last year, there were 21 such rounds totalling €43.1m, up 110% and 44% respectively on 2016.

Italia internazionale
Another new trend that emerged in 2017 is the increase in the number of international VCs investing in the country, which accounted for 21% of the total. This is reflective of a resurgence in investor confidence in the Italian market, which is perceived to be becoming more stable and richer in potential, in line with the country's economic recovery.

Says Bollazzi: "Even if the majority of funds are still Italian, there is an increasing percentage of foreign investors within the VC industry, with a trend reversal compared to three years ago, which goes hand in hand with the rediscovered stability of the country's economy. The trend is even more evident in the PE industry, where about half of the deals in 2017 were made by international funds."

Over a third of the startups targeted by venture capitalists in Italy operate in the ICT sector, with a particular focus on developers of web and mobile apps for smartphones and tablets. A significant amount of capital was also directed towards the service industry and the fintech sector.

There is an increasing percentage of foreign investors within the VC industry, with a trend reversal compared to three years ago, which goes hand in hand with the rediscovered stability of the country's economy" – Francesco Bollazzi, LIUC Business School

In terms of size, in 2017 VC investors displayed a preference for larger and more structured startups, with annual revenues of €2.5m on average, compared with smaller businesses with revenues of €1.2m on average in 2016.

In a country like Italy, where strong local identities persist and the difference between north and south is still profound, especially in economic terms, a distinctive geographic distribution of investments has emerged. Last year, 50% of the targeted startups were based in northern Italy, 26% in central Italy primarily in or around Rome – and only 5% in the south, which continues to constitute the least developed environment for startup incubation and VC expansion. The remaining 19% is represented by Italian businesses based abroad, mainly in the UK, but also in Switzerland, the US and Spain.

Casting a glance at the Italian VC market in the first two months of 2018, activity appears quite promising, with a €10m funding round led by United Ventures for Brumbrum, an online car retail platform based in Milan; and many other smaller investments, some of which were led by foreign VC funds.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Southern Europe
• Investments
• Italy
• Venture
• AIFI