The Italian VC ecosystem: 2019 Vs. 2020

2nd April 2020  

by Sammy Squatriti and Ascanio Orombelli

Looking back at 2019, there have been many significant events that took the world by storm, from the protests in Hong Kong, to the Trump impeachment, trade wars, Brexit, Amazon fires, and so on. However, amid all these events that generated an environment of uncertainty, the Italian venture capital industry managed to keep growing and has been through its best year yet. The total invested amount has reached almost 600 million euros, compared to the 512 million euros invested in 2018, and the total number of initial and follow-on operations has increased, from 102 in 2018 to 148 in 2019.

“Last year also sees further growth in follow-ons, a sign of how the venture capital funds’ activity is not limited to a simple initial investment, but constitutes a real start of a path that sees the support of the operator to the project,” says Anna Gervasoni, who chairs the Scientific Committee of the Venture Capital Monitor - VeMTM. "To make the decisive dimensional leap, it is also necessary to activate so-called scaleup funds and interact more actively with the Corporate world.”

This growth has been sustained also thank to the help of business angels. In fact, on the business angel side, the investments made in 2019 amounted to 53 million euros out of 88 deals, an increase compared to about 40 million the previous year. Another positive data point is the fact that the investments made by foreign investors have increased from 30% in 2018 to 35% in 2019. This is a sign that the trust in the potential of the Italian VC has increased over the past year.

Innocenzo Cipolletta, the president of AIFI, the Italian Private Equity, Venture Capital and Private Debt Association, commented the following: “In 2019 we see positive results in the world of Venture Capital thanks to the activities carried out by the Italian Investment Fund. I am sure that with the activities that Cdp Venture Capital sgr is going to start soon, we will further boost the development of a venture capital ecosystem and in favour of new innovation-related initiatives.”

As for the type of operations, 51% are related to startup capital investments, while 35% to seed capital operations, an increase compared to 28% in 2018. Later stage venture capital operations are in line, at 14%, with those of the previous year.

If we look at the numbers from a geographical point of view, we can see that the top three regions in terms of deals were Lombardy, Piedmont and Emilia-Romagna.

  • Lombardy accounted for 45 operations, covering 37% of the market compared to the 36 operations in 2018;
  • Piedmont follows with 15 deals, which amount to 12% of the market compared to three deals in 2018;
  • Emilia-Romagna came along third with 11 operations, 9% of the market compared to two deals in 2018;

Sector wise, we can see how Information and Communications Technology has been the most appealing for the Italian VC, mainly thanks to the spread of web and mobile applications. ICT accounted for 44% of the market share in 2019. While on the rise, the financial services sector, thanks to the significant boost from Fintech, accounted for 15% of the market share. In third place we can find the Healthcare sector, with 12% of the market share.

Undoubtedly, 2019 has been a brilliant year for the Italian VC ecosystem, which was expected to grow even more in 2020, scaling up rankings among more active VC markets in Europe. However, the current economic turmoil derived from the global outbreak of the Coronavirus has put a question mark on the stability and future performance not only of the Italian ecosystem but on the worldwide VC sector.

With government-mandated policies intended to stem the spread of the novel Coronavirus coming into effect, massive shocks are set to impact the global economy. The travel & leisure industries have already seen demand plunge, while retail foot traffic is down dramatically and the service industries — including restaurants and bars — have been shut down in various countries who followed the Italian example. Outside of the consumer space, many manufacturers and retailers have seen disruptions to international supply chains. The energy market is also facing extensive pressure.

Referring to the current crisis, Cipolletta said that "the event we are experiencing will cause a sharp fall in GDP, close to or greater than 5 percent. Percentages that we have never seen in our life. Then we will have a rebound - he added -. We must create the conditions for companies to benefit from it. We have an important responsibility because we manage small and medium-sized enterprises. The analysis that we will make for 2020 will lead to shocking results. This event that has hit us is blocking the economic system and the government has come up with correct and intelligent decisions and measures.”

Speaking about how AIFI is facing the crisis, Cipolletta pointed out that "all our operators are committed to guaranteeing resources to companies in order to ensure that the production system is not irreversibly damaged. We believe, in fact, that after the collapse of the GDP there will be a rebound, hopefully starting from 2021, and therefore our companies must be able to seize this opportunity.”

This crisis is different from 2008 global financial crisis. It has impacted the real economy in a different way. In the case of the current pandemic, "the crisis is reversed because it started in the undergrowth of productive activities and then spread to the financial system. The fall of the current GDP will be stronger than that of 2009, but we expect a rebound should the situation normalise as early as this summer.”

It is too early to assess the real impact of the current economic crisis on the Italian VC ecosystem for 2020 but it is highly possible that fundraising will be heavily hit, as less capital is usually allocated in the alternative investment space once public markets suffer a deep decline.

However, VCs in Europe have raised consistent amount of funds during 2019 and will deploy it around Europe and Italy, maybe with a less hurried pace and with more attention to valuations. Investors will also look closer into business plans, focusing on clear path to profitability and to diversification of supply chains where possible.

As the consumer behaviour might change, startups will have to quickly adapt to new trends and survive the turmoil looking for opportunities. Investors will then recognise the winners and will be willing to invest in them.

In conclusion, 2020 might be a complicated year in terms of VC activity in Italy as consequence of the global VC situation, but investors will be inclined to take bets on those companies able to emerge from the current crisis. By the end of summer, or at worse by the end of the year, the global VC ecosystem should get back to normality, hence the Italian market will stabilise consequently. It is possible that after this period of uncertainty a new encouraging and fast-growing tech wave will begin.