VENTURE CAPITAL: STATE-OF-THE-ART OF THE ITALIAN ECOSYSTEM
The situation in 2020
At the end of the second quarter of 2020, the number of innovative startups registered in the special section of the Business Register was 11,496, with an increase of 290 units (+ 2.6%) compared to the previous quarter. Of the approximately 365,000 companies established in Italy in the last five years and still active, 3.1% were registered as innovative startups. The total share capital subscribed by the startups increased compared to the last quarter (+13 million euros, + 2% in percentage terms) and now stands at 656.3 million euros; the average capital is 57,090 euros per company.
If we analyze the data relating to gender, the innovative startups led by women – where the majority of shares and administrative roles are held by women – were 13.2% of the total (1,522), a much lower incidence compared to 21 , 7% observed by analyzing the new “traditional” companies. Innovative startups with at least one female employee are 4,902, 42.6% of the total, a percentage that is also lower than other new companies (46.6%). Young people (under 35) prevail in 2,067 innovative startups, 18% of the total, against 15.3% of new non-innovative companies. The difference is even greater for companies with at least one young employee: 41.4% of startups (4,758 in total) against 32.8% of other companies.
The geographic distribution of the phenomenon shows that Lombardy remains the region in which the largest number of innovative startups are located (3,135; 27.3%) of the national total. Lazio is in second place, (1,302; 11.3%), followed by Emilia-Romagna (951; 8.3%), Veneto (948; 8.2%) and Campania (908; 7.9%). Milan is by far the capital of innovative startups: there were 2,253 at 30 June 2020, 19.6% of the national total. Rome is in second place with 1,178 startups, followed by Naples (425), Turin (390) and Bologna (320).
Where are we with funding?
In Italy, in the first half of 2020, the innovation ecosystem lost its positions but held up better than other countries. Venture capital (VC) made investments of 217 million, down 30% compared to last year, spread over 57 operations (-17%).
If, on the other hand, we analyze the amount of investments in Italian startups in 2019, these are positioned at 723 million euros. A number that includes 74 rounds and all 124 crowdfunding operations for a value of over 55 million. The rounds that stood out the most in 2019 were: BrumBrum, which opened the year with a capital increase of 20 million euros; Talent Garden, which closed a € 44 million capital increase; and the biotech company Philogen. The comparison with the previous year shows a positive sign: in 2018 there were investments for 522 million. Equity crowdfunding recorded a record increase (+ 83%), closing the year with 124 closed campaigns and a total of 55 million euros, including collections from SMEs. In 2018 the total amount was 30 million, while in 2017 it stood at 11.7 million.
More specifically, how these 723 million were allocated and by which players, we can confirm that in 2019 the Italian venture capital companies carried out 148 operations with € 597 M invested, higher than the € 521 M of the previous year. Of these, 121 were “first time investments” (+ 55%, compared to 78 in 2018) and 27 were “follow-up investments” (+ 12%, compared to 24 in 2018), the latter in fact remained fairly stable, but with an increase of 64% in the amount of fundin, from € 98 to 161 M. In addition to these results, the data provided by IBAN, the Italian Business Angels Association, show that the investments made in 2019 by these financial entities (Angel Investors) amounted to 53 million euros (+ 32.5%), spread over 88 deals, an increase compared to the 40 million euros recorded in 2018.
If we look at established companies instead, the very first reaction was to postpone many innovation projects and some have simply been abandoned. But now, in adapting to the new normality, we have seen prairies of improvement, especially on the digitization side, what “cannot be done” is now possible and open innovation projects are starting up again. There is less space for visibility-only projects, with the aim of doing something with startups only for image. Now corporate managers have clearer how to work with these realities, how much it takes to invest in terms of time and resources and what can be achieved as KPI and Roi.
In fact, from the corporate venture capital activities in the first half of the year, recent evidence is confirmed that sees a significant presence of companies in venture capital rounds. In particular, the participation of corporates in investments in support of nascent entrepreneurial realities or in the early development phase is, as in 2019, equal to 26%, an increase compared to 2018 (20%).
Overall, venture capital and corporate venture capital invested € 119 million in 36 rounds, syndication activities between venture capital, corporate venture capital and business angels recorded investments of € 98 million in 21 transactions and business angels alone invested 31 million in 31 rounds.
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Finally, the international financing component reached 231 million euros, + 8% compared to 2018. However, when twelve months ago the figure was “spoiled” by an extraordinary operation of 100 million, which represented 47% of the total, in 2019 we do not observe “anomalies” of this magnitude. This shows that as a national entrepreneurial ecosystem, Italy is gradually starting to attract foreign investment on a more regular and constant basis.
As regards to the sectors of activity, 73.3% of innovative startups provide services to companies: in particular, the main segments are: software production and IT consulting (35.6%) and research and development activities (13.8%). Almost 18% of startups are active in manufacturing (machinery, 3.2%; computers and electronic and optical products, 2.8%), while 3.3% operate in commerce.
Do we invest too little in innovation?
Our country is still far from the European target of investing 3% of GDP in Research & Development: Italy invests 1.2%, while France 2.2% and Germany 3.13% (OECD data, 2018); we still have few researchers and few patents. Still, there is a direct relationship between R&D investments and GDP growth. We are proud of the Italian researchers who are successful in foreign research centers, but there is little to celebrate this brain drain. These young people, highly qualified by our universities, do not find adequate professional opportunities in Italy and choose to use their skills in other countries.