21 ottobre 2024

“The starting line is now”: the state of Venture Capital in Italy

The year 2024 is set to be the second best year ever for venture capital in Italy, surpassed only by the peak reached in 2021. This represents a significant step forward for an ecosystem that was in its early stages of development just four years ago.

The growth of venture capital in Italy was discussed in depth during Italian Tech Week 2024, with a presentation by Yoram Wijngaarde, founder of Dealroom.co, a leading platform for monitoring and analyzing startup and venture capital ecosystems worldwide.

"Four years ago, I was also standing on this stage and I gave a presentation about the state of Italian tech. Back then the message was: Italy needs to get its flywheel going. It was still a very young ecosystem. There was a lack of entrepreneurs, lack of big exits. There needs to be more venture capitals. It's the classic chicken and egg problem".

This statement sums up Italy's journey from a fragile ecosystem to one that today ranks among the top 10 in Europe for venture capital investment.

Growth of Venture Capital in Italy: transformation and economic impact

But what are the signs that Italy is on the right track? Investors' growing confidence in the country's potential is reflected not only in the $1.9 billion invested in 2024 (as shown in Figure 1). But also in the 11x expansion of the Italian startup ecosystem over the last decade, with the cumulative value of its startups now standing at $60 billion. These companies have also created more than 300,000 jobs, with a significant impact on employment and the national economy.

A key sign of Italy's forward momentum is the emergence of second and third generation founders. Having found success in sectors such as e-commerce or marketplaces, these entrepreneurs are now turning their attention to more advanced technologies. Their new ventures often focus on areas such as deep tech, where innovation is taking place in sectors such as surgical equipment, nuclear fission and industrial technology. This shift highlights the country's increasing diversification into cutting-edge industries, including the circular economy and generative AI, indicating a robust and forward-looking ecosystem (as detailed in Charts 2 and 3).

This 'alumni effect' is helping to create a sustainable cycle of innovation. At the same time, Italy has attracted more venture capitalists and business angels, both domestic and foreign, who are increasingly interested in the country's potential as a tech hub.

Global tech: what's holding Europe back?

While Italy's progress is impressive, the broader context reveals both opportunities and challenges. Europe, the Americas and Asia have similar numbers of venture-backed startups, but the key difference is their ability to scale. The United States has produced industry - shaping giants such as Meta, Google, Nvidia and Amazon - companies that have transformed their sectors and dominated global markets. Europe, on the other hand, has struggled to produce similarly impactful and valuable companies on the same scale.

This disparity is highlighted in the Draghi report, which suggests that Europe needs $800 billion of additional investment to catch up with the United States and Asia. The problem is not just a lack of private capital, but also limited public investment in technology and innovation. European companies spend significantly less on new technologies than their counterparts in the US and Asia, making it harder for European startups to reach their full potential on the global stage.

Italy's startup ecosystem: future challenges and growth opportunities

As Italy's startup ecosystem continues to grow, the focus must shift to sustaining this momentum and capitalising on new opportunities. One of the most promising areas is the application of AI integrated into the physical world, which is set to revolutionize industries such as biotech, healthcare, defence and manufacturing (as detailed in Chart 4). Given Italy's strength as the third largest exporter of manufactured goods in Europe, the country is well positioned to lead in these sectors.

Another area of potential growth is in SaaS and manufacturing startups, which are seeing increasing interest as the e-commerce sector begins to slow. In addition, university spin-outs are gaining traction, with a total value of more than $2 billion - a figure that has tripled in the last five years. However, Italy still lags behind other European countries in turning academic research into successful startups. While 11 unicorns have emerged, there are no decacorns, and the graduation rate - the percentage of startups that go from seed to Series A - is only 18%, below the European average of 24% (as detailed in Charts 4). To overcome this, Italy needs to focus on scaling its startups through increased late-stage funding and better access to global markets.

To delve into the low number of Italian unicorns, we spoke with Diyala D’Aveni, Head of Vento (a project to find and support the best founders by building and investing in companies, funded by Exor Ventures). She shared her insights on the factors that could boost the percentage of unicorns in Italy in the coming years.

“The truth is that there is no exact recipe, but we do know that there are some key factors that we need to invest in over the next few years. It all starts with people. We need to invest energy and resources in attracting more talent to this ecosystem. We need to give them the skills they need to build successful businesses. On the one hand, this means attracting tech companies to our territory to develop their products here (as DeepMind is doing in Paris), creating a new generation of tech founders in Italy, and on the other hand, bringing a new mindset that pushes them to be ambitious and think 'big' from day one. In addition, we must continue to invest in attracting foreign capital and increase our capacity to invest in the entire lifecycle of a start-up. Finally, there is of course the issue of the 'country system', and there are many open fronts here: from visas to the labour market. But the truth is that as the startup and venture ecosystem becomes more and more important, the system will only be able to adapt to this growth.”

Unlocking Italy’s full potential

Data tell us that Italy’s startup ecosystem has undergone a remarkable transformation over the past decade, positioning the country as a rising force in the European tech scene.

“There are several factors that have contributed to this growth” says D’Aveni. “On the one hand, the emergence of a new generation of founders with international experience and a background in scale-ups has certainly matured the ecosystem. On the other hand, the emergence of so many new players, both public and private (such as B4i and Vento), who have started to inject new capital into the market, has created new opportunities for founders. Finally, the emergence of the first success stories has attracted the attention of international investors and created the first "mafias" of early employees who, having experienced first-hand the possible rewards of an entrepreneurial choice, have decided to leave these companies to build a new generation of startups.”

But what about future?

“For the next four years, despite the difficult macroeconomic context, there are reasons to be optimistic,” continues D’Aveni. “In fact, the Italian market is still undersized compared to other European countries. Although Italy is one of the largest European economies, if we look at venture capital investments made so far in 2023 and 2024, we are number 10 in Europe. This means that there is a lot of room for growth. The interest of international investors in Italian startups continues to grow, we have already seen the first pre-seed and series A rounds led by foreign investors and there are reasons to believe that this phenomenon can only grow in the coming years. Finally, the maturation of the ecosystem will lead to a maturation of skills, so that the average quality of founders will continue to rise”.

Thanks to Diyala D’Aveni for her contribution to the analysis. Download the full report for more insights into the state of Venture Capital in Italy and the opportunities that lie ahead.