Investing in the future of Italian tech

Turin recently hosted the Italian Tech Week 2021, the largest Italian tech event and an opportunity to consider the success and shortcomings of the Italian tech ecosystem.  We reflect on the steps needed to support the future of Italian tech and sustain the recent growth in investment. 

Italy’s growing number of start-ups

Italy’s ecosystem for startups has been developing for years and has currently reached a remarkable position. In Italy there are currently 13,000 innovative startups, representing about 3.6% of the total amount of capital companies recently incorporated. There are many examples of high-quality startups funded in Italy such as fintechs Satispay and Moneyfarm, property tech Casavo, and online grocery marketplace Everli.

Italy is behind in attracting VC investment

In 2020 and 2021 Italian tech has seen significant growth in venture capital investment.  However, Italy is still behind its European counterparts – and dramatically behind the US. Despite being the fourth economy in Europe with significant technology talent available at reasonable costs, Italy is running at least five years behind Spain and France when it comes to attracting venture capital investment.

Scale-ups are moving abroad

Italy recently saw many scale-up with Italian founders and management, such as Depop, Soldo, and Truelayer, moving their headquarters abroad to maximise their fundraising efforts, keeping only a minor number of headcounts in Italy. This could be as a result of Italian startups being unable to raise sufficient funds at an early stage to scale up and compete internationally. It may be because there is a different social and historical environment which encourages saving. or does not expose them to alternative investment solutions. The fact that there are still few Italian unicorns– and some of them still do not have their HQ in Italy – seems to confirm this assumption.

Providing support for businesses to scale

To scale effectively and at speed, businesses need to be well-funded.  Support for scaling businesses might come from skilled business angels as well as from structured venture capital investors capable of rapidly injecting seed smart-money. To this extent, the Italian Government recently made some positive moves by offering tax benefits for early-stage investors and an advantageous tax regime for the exit phase. Similarly, introducing a startup visa to attract talents has certainly been a smart strategic move of the Italian Government.

€1 billion Government investment program

Furthermore, the Italian Government has recently taken the important initiative of sponsoring a €1 billion investment program in the native startup ecosystem, establishing a new venture capital fund in Cassa Depositi e Prestiti (CDP), the state-owned financing agency. CDP currently manages nine different investment funds, including a VC fund-of-funds, “Series A/B matching” funds, and acceleration funds. It has also launched two different acceleration projects aimed at supporting SMEs and startups with mentoring, networking and support services.

On track for €1 billion VC investment in 2021

Based on the above, although Italy still appears to be in Europe one of the most underdeveloped startup market, there is a lot to be optimistic about. The significant growth in the VC investments indicators is the best sign. 2020 VC investments in startups amounted to €569 million, up by 55% compared to the previous year and apparently 2021 may mark a further significant boost of venture capital investments in Italy that may account for total investments of almost €1 billion at the end of the year.

For Italy to have a chance to be one of the leading countries in the European startup market, it is crucial that Italy keep up this pace of development by continuing to support the ecosystem. Furthermore, Government has work to do to ensure that the local market attracts sufficient Italian and international VCs and hubs have proper funding to start developing ecosystems that allow startups and SMEs to be integrated into industrial strategies of incumbents.

Sources: Dealroom.co; Report B2B Italian Startup Scene 2021, Startup Wise Guys