“The Italian venture capital has been suffering from a structural delay and hence it has fallen behind both on a dimensional and on a regulatory level. But, at least on the former, we are catching up. As for the latter, something is moving, even though slowly.” We interviewed Alessio Conforti, Head of Institutional Client Relationships of the European Investment Fund (EIF), who told us about the state of the art of an industry that now seems ready to become the real driver of the development of the Italian economy. Conforti speaks from an insider’s position: in the last 20 years, EIF has been the leading public provider of risk capital, and in particular of venture capital, to young and innovative European startups: the investment activity backed by the Fund represented 41% of total investments in Europe.
In 2018, the Italian innovation ecosystem showed signs of a change of pace both in quantitative and qualitative terms. It is likely that the EIF had already noticed the Italian potential, considering that Italy has always benefited from significant investments by the institution.
EIF works with all countries and does not apply a quota-based system: rather, it looks for the best opportunities wherever they are on the continent. This is because the funds managed by EIF are public, since they come either from EIB or from the European Commission. So, if the best practices are in Italy, this means we go there: we go wherever we can find marketability and business value.
Hence, Italy has an interesting potential for innovation. The quality of our businesses, then, has never been a problem.
Never, but we have always lacked knowledge sharing: we need to share the knowledge of Italian startups’ quality. Although Italy has not yet reached the market volumes of France or Germany, not to mention the United Kingdom, it is a relevant reality, it has always been, from a qualitative point of view. And this must be communicated.
How does the EIF’s investment process work?
For 25 years, EIF has collected funds by mandate of both Member States and EIB. From September 2017, we have also started to collect capitals by private counterparties, such as pension and insurance funds.
EIF is a twofold investor: we have a commercial orientation, but our shareholder base is 90% public; 60% of which is made up by EIB and 30% by the European Commission, the remaining part are private individuals such as banks and national institutions (in Italy, they are Intesa Sanpaolo and CDP). Thanks to this structure, we can translate Europe’s will for cohesion into commercial terms.
More concretely, you identify a good idea, and then how does the investment happen?
EIF intermediates its investments and provides risk capital to SMEs, in particular to technology-oriented startups. It also offers guarantees to financial institutions, such as banks, to cover their loans to SMEs. So, it operates both on the equity and on the debt side, but, not being a bank, it invests through banks and other financial intermediaries, such as VC funds.
How do you choose VC funds?
Through a due diligence process. If from the startup side there has always been a strong ferment, this energy is now channeled through the expertise of professionals like P101, which managed to stand out in a landscape that is no longer just national. It has passed our due diligence process, demonstrating that it has aligned its standards to the European ones, and for this reason it has been funded by EIF. In general, all those who are open to improve their strategy and/or growth objectives can have a dialogue with us.
In 2018, 600 million euros were invested in the Italian ecosystem of start-ups, compared to the 130 million euros that had been the average of the previous six years. Moreover, in 2018 deals were bigger than usual. What do you think?
These improvements give us space for hope: we must support Italy so that this trend won’t be interrupted and will become a tool for the country’s growth. From EIF’s point of view, we cannot force anyone to align themselves with the best practices, but we try to make it clear that the due diligence analysis that we request is not a survey, rather, it’s a useful tool to improve their business case and an essential tool for VC funds to grow in terms of base. However, Italy’s path is very long: getting to the numbers of France, Germany and England implies a paradigm shift.
The latest Budget Law, however, introduced various measures that can boost the Italian VC market: what do you think about them? What is your “recipe” for Italy in this sense?
The United Kingdom’s has a set of swift rules that enable the creation of a start-up company. In Italy, apart from the recent and targeted measures that can be effective in the short term, there are bureaucratic inefficiencies impacting on the actual growth of the ecosystem. I am referring here to the administration of justice, to the channels of access to capital, to the rules of supervision. All these need to be optimised in a long-lasting way if we want to reach higher numbers in terms of venture capital and in general as a country. Even creating funds with a huge capacity can have a boomerang effect, as then they may not be able to be absorbed by the market: if the market capacity is 600 million euros, thinking about an ambitious 4-billion-euros project could be nonsense. Italy’s priority, in my opinion, is to facilitate the ecosystem on the normative side first, in order to encourage the market’s activity and the interest of international investors.