Investments for Startups in Italy: foreign capital and national funds



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A lot of words have been said about Startup and the idea of business that is linked to it, but it is still evolving as a concept and it is therefore not easy to explain. In this paper we will try to investigate what a Startup is and in which way the project is funded in Italy, especially through “Smart&Start Italia”, a government-funded scheme that encourages the creation and development of new businesses. Then, we will make a comparison between the Italian model and the US model. This paper is the result of the AISES Talk “Investments for Startups in Italy. Foreign capital and national funds”, held by AISES Young in April 2015 at LUISS University. The invited speakers were Dott. Stefano Scalera, adviser to the Minister of Economic Affairs, and Dott. Andrea Gumina, expert for Startups within the Minister of Economic Development.


First, what is a Startup?

A startup is a recently established company that is just beginning to grow, but at a high rate. In the early stages, startup companies' expenses tend to exceed their revenues as they work on developing, testing and marketing their idea. As such, they often require financing. According to the "Development Decree" n° 221/12 an innovative Italian Start-Up is a firm with certain features such as: having less than 48 months of life, having its place of residence in Italy and being under the Italian taxation, with a turnover under €5 mln, being not the result of a fusion and allocating 15% of the costs in R&D with a qualified team, with Ph.D, master degrees and professional licenses. This is the kind of companies that Smart&Start Italia, the government-funded scheme that encourages new businesses in the digital economy and the empowerment of results from the research system, has supported so far: the companies who have a high tech, innovative business idea, those that develop products and services and those that exploit commercial opportunities resulting from research. They are supposed to have a very strong market potential, because the idea has an important role, but what matters is also the business model you want to develop: what you sell? Who you are selling to? How? 


Smart&Start Italia could fund a business plan with expenses - for capital expenditure ones, such as hardware and software, certifications and know-how, and operating expenses, such as interest on loans granted to the company or depreciation charges for plant and machinery - from €100,000 to €1.5 mln (excluding VAT). Smart&Start Italia provides government-funded, interest-free loans. The maximum repayment period for the loan is 8 years and the loan amount is up to 70% of the business plan expenses that qualify for funding.


The assessment criteria are the following:

  • the appropriateness and consistency of the partners compared with the draft presented;
  • the innovativeness of the idea;
  • the market potential, the strategic positioning and consistency of the marketing strategies;
  • the economic sustainability of the business plan.


There are four ways to invest: with fiscal measures to facilitate private investments in Startups up to 20% extending available capitals; with the equity crowdfunding, an alternative system to the classical credit system; through a guarantee fund that breaks down the investment risk up to 80%; through a direct intervention. In the last case, the Ministry, acting for the State, supports the startups with straight grants and contributions in the form of subsidised interest loans. 


The State has an important role in supporting the startups that risk to fail without help, and in giving them the chance to have a prosperous future if correctly managed. There are not many agents able to do this apart from the State, and according to Domenico Arcuri, CEO of Invitalia, it is not an unemployment benefit, it’s an investment. Mariana Mazzucato, professor of Economics of Innovation at the University of Sussex, said something that we feel important to underline: “what should be emphasised is not startups or entrepreneurs themselves, but the innovation ecosystems within which they operate and which they depend on if they are to become what does matter: high growth innovative firms (of any size) within that system”. “Innovation-led “smart” growth - she continues - has occurred mainly in countries with a big group of medium to large companies, and a small group of SMEs that is spun out from some of those large companies or from universities. These firms have benefited immensely from government funded research”.


What are the results in Italy?

Well, according to the last report of the Ministry of Economic Development (April 2015), at the end of March 2015 the number of startups registered is 3.711, with an increase of 16,7% from December. From a sectoral point of view, the 75% provides services to other firms, 20% works in the industrial sector, 5% in trade. Most entrepreneurs are under 35. The companies in which there is at least one young member are 1.526 (41% of the total).


The Region of Lombardia has the highest number of innovative startups: 808, 21% of the total. Then, there is the Region of Emilia-Romagna with 451 startups and the Region of Lazio with 347 companies. These startups have recorded an overall production of 200 millions of euros in 2013.


Is Italy a Start-Up Nation?

Italian model VS American model


According to Andrea Gumina, a specialist in Startups, working for the Economic Development Ministry, the Italian Startup model diverges from the US one for several reasons.

First of all, the "fail fest" issue: in the US people don't see bankruptcy as tragic as we think about it in Italy, because for the Americans it is better if you go bankrupt instead of generating debt over debt in the long term. Usually, and Statistics helps in it, 2 startups over 10 survive to the first phase, one of them achieves success, the other ones do not perform so well. On the other hand, in Italy the bankruptcy law worsens the “firm agony” instead of accelerating the process.


Secondly, in the US, financial measures such as crowdfunding are widespread in the country whereas in Italy they are timidly spreading nowadays. And crowdfunding facilitates private investments into the startups’ risky capital. What we lack in Italy are sophisticated and audacious investors. We just have conservative one, who are not used to risk. To point out this attitude, Mr. Scalera, an advisor for the Minister of Economic Affairs, provided a quite explicative example: “If you ask to an Italian investor if he prefers to invest capital with a 3% interest for 8 years or a 2% interest for 5 years, he will definitely choose the second one. No doubts”. That is why we also need to change our investors attitude in a more “risky” one.


Thirdly, American startups are usually bought by corporations or bigger companies due to a natural cycle: at the beginning the startup generates economic value. Afterwards, before it consolidates, it is bought by a bigger firm to transform into a bigger enterprise. On the other side, in Italy this transition does not happen due to a traditional attitude within our firms: “what I built will be mine as long as possible”. That's why, sometimes, when a startup reaches “the second stage ground”, it goes bankrupt due to various causes such as lack of private investors. In this context, a matching measure with private investors would help the startup.


We hope to see the flexibility and the innovative way of supporting the startups be introduced from the US to Italy, in order to boost our economy and to become a competitive and hi-tech Country. Surely, Smart&Start Italia represents a great way of doing it. We also hope, as Mr. Gumina said, to unify all the public calls into a National one, instead of having multiple regional call for applications with different procedures. This measure would help to simplify even our bureaucracy.


Catania Matteo

Mezzopera Annaclara

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