Startup boom: A wake-up call for Italian VCs

According to reports from Startupitalia! and Finsmes, Italian startups attracted €100m in funding in 2015, up from €40m in the previous year. The bulk of this investment came from family offices and business angels.

With many commentators questioning if Italy is Europe's next big startup hub, venture capital investments from local players appear to be thin on the ground.
To date, there are 5,264 startups in Italy, according to Camera di Commercio's records. The numbers collected by the public authority show an increase of 76% compared with 2014. Furthermore, the records show that startups within the fashion, food and furniture sectors are the most prolific.

Pricing attraction
Andrea Di Camillo, of Italian venture capital firm P101, says there are increasing opportunities in Italy compared to other countries such as the UK, simply because pricing in Italy is more attractive. Nevertheless, Di Camillo says Italian investors remain wary of investing in technology-led startups, with the pain of the dotcom bubble continuing to linger. He points out that the number of venture investments steadily increased from the 1980s to 2000 but fell sharply following the dotcom crash. And despite a small resurgence in 2012, investor suspicion concerning new technology investments remains a key barrier, leading many to invest in real estate instead.

If we keep on buying real estate, we are buying into the past. We need to invest in innovation" – Andrea Di Camillo, P101

For Simone Cimminelli, CEO of iStarter, an Italian accelerator based in London that connects Italian companies with UK investors, one major attraction for venture capitalists should be the high level of Italian engineers. According to him, Italian engineers tend to lack management expertise, which should provide a neat opportunity for investors as well as creating decent quality to pricing ratios.

Cimminelli has observed that UK investors are increasingly looking at opportunities in southern Europe, and putting money to work. This is being driven by the high valuations seen in the UK market, meaning several UK investors are now looking further afield into continental Europe for new opportunities.

Italian fintech business Moneyfarm is an example of the increasing interest of UK-based GPs in the Italian market. In November 2015, London-based Cabot Square Capital led a €16m funding round alongside existing investor United Ventures. The deal marks the highest funding round recorded in the Italian market last year.

Corporate connection
While local venture firms may not be making significant investments, multinational companies have been making inroads into the Italian startup space. In January 2016, Apple opened an app-dedicated innovation centre in Naples. One month later, Microsoft founded Tilt, a research laboratory in Trieste.

Also at the start of the year, Cisco signed an agreement with the government to commit €100m to Italian startups. This marks an important development for the early-stage segment, and signals more investment is on its way. The first step has been a €5m investment in the state-backed venture fund, Invitalia, at the beginning of March. Invitalia has already invested in a €1.5m funding round for D-Eye, which has developed an app for eye and retinal imaging recognition.

While large corporates are seizing current opportunities in the market, there are some glimmers of hope on the horizon for local VCs. Recently, P101 signed a partnership with a German VC, Join Capital, to bolster the internationalisation of Italian startups, not only in terms of clients and products but also for funding. Furthermore, in early March, P101 signed a new partnership with a UK-based venture capital firm.

For P101's Di Camillo, as well as lingering concerns over investing in new technology, there are several reasons behind the current lack of investment by local VCs: "Italy needs to incentivise the creation of new investment vehicles, to create more effective fiscal benefits for investors. The current Italian legislation in this area is not appealing. If we keep on buying real estate, we are buying into the past. We need to invest in innovation."

But in order for the Italian startup market to really take off, Di Camillo believes investors need a clear example of the potential returns that can be generated. A large and profitable venture-backed exit would go a long way in evidencing market potential.

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

• Topics
• Investments
• Southern Europe
• Italy
• Top story
• Corporate Venture
• Venture