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Italian start-up funding is higher than expected: almost 600 million euros at the end of November
Andrea Di Camillo, Managing Partner of P101 SGR | December 20th, 2018
Halfway through the year, we stated that the market of investments into Italian start-up companies would reach half a billion euros by the end of 2018. It seemed like an unusual size for Italy, whose market has always been around 100 million Euros. Well, the end of the year has come and our expectations have even been topped.
According to a recent report by Politecnico Milan University (precisely, by its 3 Observatories Hi-Tech Startup, Startup Intelligence and Digital Transformation Academy), at the end of November, start-up funding amounted to 598 million Euros. But the three multimillion deals of the first half of December – namely BeDimensional, MotorK and Buzzoole – bring the total amount to over 650 million Euros. In short, this year is marking a turning point in Italy: as predicted by P101, the Italian VC market is speeding things up.
Indeed, compared to 2017 (331 million euros), this year's growth is very significant: the market size has doubled. Of the approximately 600 million euros reported by Politecnico Milan University at the end of last month, 215 came from formal investors (including VCs, which doubled their share from the 103 million euros in 2017), 154 from informal investors and 229 from international investors. By the end of the year, we can safely expect a total market value of 700 million euros: which brings the psychological threshold of the first billion euros just a breath away.
The Italian VC market is also going through a change in the quality of deals. For instance, there is no longer a clear prevalence of small-sized operations, rather, big transactions are finally signalling that Italy's closing later stage deals too: "46% of rounds have overcome the symbolic threshold of 1 million euros," writes Politecnico.
Moreover, international investors are starting to support Italian ideas: in November 2018 they invested about 229 million euros, almost 73% of which came from the US, over 23% from Europe and 4% from China. In the report we also read of another reason to be positive about the Italian market: "during the year, several funds were born, allocating more than 100 million euros each" – such as our 120 million euros fund, P102 – "and many VCs have declared that they want to invest more."
Now, we must continue to accelerate. Even in the presence of a weakening macro situation, since the Italian GDP showed a contraction (though just by 0.1%) after 14 positive quarters, and since Italy lost 52,000 jobs from Q3 2017 to Q3 2018 (Istat data). These figures might negatively affect our trust, but they should not discourage investors from funding start-up companies, as they are the only real engine of future growth and employment. In fact, according to a report by the Kauffman Foundation, in the USA traditional industries lost 1 million jobs every year from 1977 to 2005, but new companies, in their first year of life, created 3 million jobs on average.
The Italian 2019 Budget Law has allocated 30 million euros annually from 2019 to 2021 to a "Fund for the support of Venture Capital" and 5 million euros each year from 2022 to 2025. To these, a provision of 15 million euros annually (from 2019 to 2021) should be added, covering the development of Artificial Intelligence, Blockchain and Internet of Things. The stated objective is to enhance the competitiveness and productivity of the Italian economic system. It might not be much, but this is certainly a starting point.
Also because, even though it's finally growing, the weight of Italy in the European context is still quite light. 2018 was in fact a record year not just for Italy, but for Europe too: according to the latest PitchBook European Venture Report, published in mid-December, this year will end with a total invested amount being equal to or higher than last year's (i.e. 19 billion euros).
Pitchbook's analysis shows that, out of the 4.5 billion euros invested in Q3, 2.3 billion euros were early stage operations and 2 billion euros later stage ones. In the US, the proportion is one to three, a sign that the European VC still cannot close deals higher than 100 million euros. Yet, the population of European unicorns is getting crowded: there are 61 unicorns, of which 17 have reached 1 billion turnover in 2018, 12 are worth more than 5 billion euros and 5 of them more than 10 million euros.
The State of European Tech, the fourth edition of the report by Atomico in collaboration with Slush, Orrick and Dealroom, is even more optimistic. 23 billion dollars were invested in European tech, compared to 5 billion dollars in 2013: an exponential growth that mainly concerns tech companies, which have a 5x faster growth rate than companies in any other industry. Over the last year, tech companies have seen employment increase by 4% (while European employment has grown by 1.1%). And it's by no coincidence that in France, where the State has heavily invested in the development of a local start-up ecosystem, the growth of hi-tech workers stands at 7.3%.
This, without a doubt, is the road that Italy should follow too.
Andrea Di Camillo, Managing Partner of P101 SGR
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