Monti lays out plans to bolster Italian VC market

Following on from his €30bn ‘Save Italy’ austerity package, ‘Grow Italy’ aims to boost structural reform and competition in a stagnant economy, creating space for a young work force. However, one industry professional suggests the impact of the reforms may be equally as important in psychological terms as in reality.

According to Mario Monti "insufficient competition, an inadequate infrastructure and complicated administrative procedures" have stunted the growth of the country's economy. Italy's labour market has been criticised as a rigid market, so saturated by self-serving cartels and restrictive regulation that little space is left for either meritocracy or innovation. As a result, young members of Italian society are faced with an impenetrable job market and the wider population stands in the shadow of rising living costs fuelled by a lack of competition.

To remedy these economic afflictions, Monti has introduced a liberalisation programme that includes rule-changes for venture capital investments in Italian SMEs and the deregulation of various service sectors. The package is intended to demonstrate that his response to the crisis lies not only in austerity cut-backs but in growth-stimulating measures too. The Italian leader hopes that GDP and productivity will increase by 10% as a result of these measures.

Article 90 of the liberalisation programme stipulates that recipients of investments made from Italian venture capital funds must have headquarters in Italy and the majority of the company's shares must be held by individuals. Changes to regulations apply to investments of under €2.5m made in small and medium sized companies over a twelve month period. The measures aim to rejuvenate seed and venture capital investments within the country, and perhaps restore foreign investors' appetite for investing in Italian SMEs.

Moreover, the bureaucratic hurdles and capital commitments necessary for an under-35 year old to start a limited company will be lowered with the dual aim of promoting entrepreneurship and reducing youth unemployment. Perhaps the programme will succeed in igniting a culture of innovation able to brighten the prospects of young Italians, increasingly tempted by the glow of more promising opportunities abroad.

According to Alessandro Bellia, managing director at Sigefi Italia Private Equity, while Monti's programme will have a significant "psychological impact", measures regarding venture capital "will not directly change investment trends in Italy which have shown a heavier focus on smaller investments in recent times due to the lack of debt available to fund leveraged buyouts".

Youth and innovation therefore lie at the programme's epicentre. Describing the main beneficiaries of the programme, Monti explained: "young people, who have been underrepresented by Italian politics for years, will reap the rewards. As too will those who have not yet voted because they are not yet born".

Critics of the Grow Italy package have indicated that while structural reforms are needed to catalyse economic growth, it will be many years before the positive effects are felt. They suggest that, in the current economic climate, a negative impact will be felt on short-term output, which may deepen the recession the country is experiencing. Perhaps though, in facilitating venture capital investments to build the SMEs able to rival more established companies, foreign investors who have lost their confidence in the competitiveness of the markets may consider a return to Italian soil.

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• Topics
• Southern Europe
• Italy