The Italian Literature Survey

IFISE Meeting

A.I.F.I.Italian Venture Capital and Private Equity Association

Roberto Del Giudice

Milan, 2nd February 2001

The evolution of the Italian Venture Capital & Private Equity Market

1900 1986 1990 1996 today

Informal VC

First Institutional VC movers

The LBO wave attracts more PE players

Back to genuine VC

The VC Market takes off

With 30 PE players the

market starts to grow

Constant growth of the

later stage market

Part of the market moves

back to genuine VC and pure

tech deals Driving forces: Telecom deregulation and Internet

Nu

mb

er o f play er s

0

15

30

38

75

Dri

v in

g fo

rces

A.I.F.I. Members

A.I.F.I.

0

10

20

30

40

50

60

70

80

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Italian Banks and subsidiaries Venture capital funds Industrial/Private Inv. Comp.

Public players Incubators

15

2822 24

30

4938

345730 31 30

58

75

55

1st Sem 2000 - Number of investments by type of investors

45

142

25

76

0 15 30 45 60 75 90 105 120 135 150

Italian banks and subsidiaries

Venture Capital funds

Industrial/Private Inv. Comp.

Public player

A.I.F.I.

1° Sem 2000 - Stage distribution of investments by type of investors

A.I.F.I.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Seed/Start up

Expansion

Buy out

Replacement

Italian banks and subsidiaries Venture Capital funds

Industrial/Private Inv. Comp. Public players

Seed/start up investments by type of investors

A.I.F.I.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

I° Sem 2000

1999

1998

1997

Italian banks and subsidiaries Venture Capital funds

Industrial/Private Inv. Comp. Public players

1° Sem 2000 - Italian Venture Capital and Private Equity Industry Concentration

A.I.F.I.

90,6%

96,9%

85,8%79,0%

68,7%

51,3%

94,2%100%

42,0%

56,9%

66,7%

74,0%

86,1%

20,0%

40,0%

60,0%

80,0%

100,0%

5 15 25 35 45 55

Number of Investors

Mar

ket

Shar

e

Invested Amount Number of Investments

1° Sem 2000 - Italian Venture Capital Industry Concentration

A.I.F.I.

97,8%

83,8%

68,1%

53,2%

100,0%

47,6%

63,9%

77,6%

91,8%

20,0%

40,0%

60,0%

80,0%

100,0%

2 4 6 8 10 12 14 16 18 20 22 24 26 28

Number of Investors

Mar

ket

Shar

e

Invested Amount Number of Investments

The convergence to Venture Capital

A.I.F.I.

VENTURE VENTURE

CAPITALCAPITAL

CORPORATEVENTURECAPITAL

Profit oriented incubators

Non profit incubators

University incubators

Corporate Venture Capital: some Italian examples

- Enel;

- Telecom Italia;

- Seat;

- …….

A.I.F.I.

Business Incubators: two different kinds

Incubator

PROFIT ORIENTED• private operators;• fee/equity oriented;• connected to the VC and PE market

NON-PROFIT ORIENTED

• public operators;•purpose of economic development (fill the gap);• use of public resources

A.I.F.I.

Main characteristics of Italian University Incubators

Distinctive features :

• absence of VC funds;

• interest on scientific research projects;

• physical presence in the university building;

• focus on universities subjects;

• incubation of ideas and projects of graduate and undergraduate students;

• strong relationships with industry that usually sponsor university research;

• patent development.

A.I.F.I.

A.I.F.I.

ITALIAN FOR PROFIT INCUBATORS

Percentage distribution of Italian for profit Incubators by Sponsor

26,70%

40,00%

6,67%

26,70%

0%

25%

50%

Corporate Financial Consulting Private Individuals

A.I.F.I.

Leaders background by %

40%

33%

27%

0%

25%

50%

Managerial/Entrepreneurial Financial Consulting

A.I.F.I.

Sources of funds raised on the market by %

47%

33% 33%

0%

33%

0%

10%

20%

30%

40%

50%

60%

VC Singleentrepreneur

Indstrialgroups

Publicoperators

Other

A.I.F.I.

Funds immediately available (Euro mil)

555

0

100

200

300

400

500

600

Funds available

A.I.F.I.

N° players7

Geographical breakdown of total funds raised by %

0%

27%

53%

20%

0%

10%

20%

30%

40%

50%

60%

Regional Italy Europe World

A.I.F.I.

Incubators main characteristics

Italian Incubators average size:

A.I.F.I.

- 307 mq of space to work

- 35 working places for the incubated companies

- 15 full time consultants

The offered services by %

87%

87%

73%

53%

53%

33%

100%

100%

100%

87%

0% 20% 40% 60% 80% 100%

BP assistance

Managerial consulting

Marketing consulting

Legal consulting

PR

Recruiting

Patenting assistance

Accounting

IPO support

Call Centre

A.I.F.I.

Incubators internal competences by %

80%

73%

73%

67%

67%

67%

60%

47%

0% 20% 40% 60% 80% 100%Strate

gy

Busine

ss Ana

lysis

Admini

strat

ionMar

ketin

gFina

nce

Human

reso

urce

sStartu

pper

Other

A.I.F.I.

Average time to start the activity*

13% 13%

50%

13%

0%

10%

20%

30%

40%

50%

60%

< 1 week 7-30 days 1 month - 3 month Places ot available

A.I.F.I.

* Between the approval of the business plan and the entrance of the company inside the incubator.

Average amount invested and average number of companies

2,50

5,20

0,56

1,13

0 2 4 6

Average number ofcompanies

Average amountinvested (Euro mil)

Incubators VC

A.I.F.I.

Number of incubated companies and average time spent inside the incubator

38

11

0

10

20

30

40

Number of italian incubatedcompaniese

Average time spent inside theincubator (months)

A.I.F.I.

Average stake into the company

33%

40%

14% 13%

0%

0%

10%

20%

30%

40%

50%

60%

< 10% 10-30% 31-50% 51-80% more than 80%

A.I.F.I.

Distribution of investment sectors* by %

100%

67%

60%

40%

27%20%

13% 13% 13%

0%

20%

40%

60%

80%

100%

Internet Software Telecom Other ICT Logistic Consumerrelated

Biotech Energy Hardware

A.I.F.I.* Multiple choice

Internet business focus*

100%

67%

47%

33%

7%

0%

20%

40%

60%

80%

100%

B2B B2C Infomediary Other B2G

A.I.F.I. * Multiple choice

Revenue model by %

20%

60%

20%

0%

10%

20%

30%

40%

50%

60%

70%

Fee Equity Mix

A.I.F.I.

Available capital

Fee

Eq

uit

yM

ix

Financial

Corporate

Consulting

Private Individual

Italian incubators: reference model Variables: Incubators sponsor

Referred capitalNo capital

Incubators sponsor

Available capital

Rev

enu

e m

odel

for

sta

rt

up

s

57%

50%

33%

67%

50%

50%100%

50%

43%

A.I.F.I.

Available capital

Fee

Eq

uit

yM

ix

Entrepreneurial/managerial

Financial

Consulting

Italian incubators: reference modelVariables: Leaders Background

Referred capitalNo capital

Leaders Background

Available capitals

Rev

enu

e m

odel

for

sta

rt

up

14 %

50%

33%

67%

50%

50%100%

50%

72%

A.I.F.I.

14 %

Some final issues

…concerning incubators

A.I.F.I.

There are many networking opportunities between incubators,

venture capitalists and other institutions;

cooperation can be based on a structured network;

the incubators industry is still in its start up phase, leaving many

spaces for new entrants;

there are many basic services over which it would be important to

reach scale and scope economies;

incubators are important in the internationalization process of

enterprises;

incubators are deal selection facilitators for VCs.

… concerning the high tech start ups: the main weaknesses

1. lack of a synergic dialog and relationship between the

worlds of research, enterprise and finance;

2. lack of adequate human resources on the enterpreneurial

side;

3. difficulties on technology auditing activities;

4. inadequate legal framework.

1. Lack of a synergic dialog and relationship between the worlds of research, enterprise and finance

Universities, venture capitalists and entrepreneurs just

started to work together, in order to create a creative

entrepreneurial context;

The distance between these fundamental actors has created

a strong gap;

To fulfill this gap, it is necessary to work hard to better link

finance, enterprises and research.

2. Lack of adequate human resources on the entrepreneurial side

It is necessary to push the Italian Universities in mixing

technological knowledge and entrepreneurial capabilities;

In a recent survey conducted by the EVCA and the

University of Antwerp, Italy has been defined “hesitator” in

opening the university context to the business community*.

* ENN – EVCA Network News – No. 1 December 2000, EVCA Zaventem, Belgium

3. Difficulties on technology auditing activities

The absence of an extended network of technology auditing

firms makes it harder for the VCs to make the necessary

evaluations of high tech start ups;

Even if there could be a great potential in terms of

“brains”, these brains too often move to those countries

where technology is considered a strategic resource,

providing added value to their Nations.

4. Inadequate legal framework

In the recent past R&D laws were too old to take the pace

of the great evolution of high technology;

The Italian law is too old in terms of bankruptcy issues:

If an entrepreneur fails with its first venture, the Italian legal system does

not give another chance;

No VC likes to seat in the Start ups’ Board of Directors, due to the risk of

being personally prosecuted in case of failure.