The Italian venture capital market is coming of age, and with the boost of the new Budget Law it can grow even faster

Andrea Di Camillo, Managing Partner at P101 SGR | March 12th, 2019

The new Budget Law comprehends several innovative measures that, if well directed by the Implementation Decrees that should see the light at the end of March, will give new impetus to the Italian market of Venture Capital.

These measures all serve the purpose of helping the ecosystem of VC develop, an ecosystem which in 2018 proved that it could come out of the childhood it had been living in for the previous 8 years. At the end of 2018, indeed, Italian VC investments amounted to 4 times the previous six years’ average – that was 130 million euros. The time has come for the Italian government to fuel the fire of a development that has started without public intervention.

Let’s have a look at the government’s pro-innovation measures.

The new PIRs (the Italian individual savings plans)

PIR operators will have to invest 3.5% of their portfolios into VC funds. In the last two years, PIRs have collected around 20 billion euros: even though at the moment they are in standby, waiting for the Implementation Decrees, the assets inflow into VC could potentially amount to 700 million euros.

Deductions for startup investors

In addition, there will be an increase in deductions, from 30% to 40%, for any natural or legal person investing in startups. This regulation has also been extended to people or companies investing into innovative SMEs, after being authorized by the European Commission.

Deductions for corporations acquiring innovative startups or SMEs

Besides, any corporation that acquires 100% of a startup or innovative SME for at least 3 years will obtain a corporate income tax deduction of 50%. This measure won’t have a direct impact on VC, but will be functional to venture capital as it will favour the development of a startup ecosystem.

A government fund that aligns Italy with the rest of Europe

The last yet maybe most important decision in support of Italian venture capital is the creation of a Government Fund, which will be managed by Cassa Depositi e Prestiti (CDP). CDP is planning to take several important steps in the field of venture capital over the next three years, including a merge operation with Invitalia Ventures. Public intervention will also consist in the provision of 15% of state holdings dividends to venture capital.

A potential boost for the Italian VC market

The sum of these regulations represents a big incentive for Italian venture capital. And, as we said at the beginning, they all come at the end of a year in which the Italian VC market has experienced a significant change of pace. First of all, in terms of size: according to a report that collects and compares the records of three Observatories by Politecnico di Milano (Hi-Tech Startup, Startup Intelligence and Digital Transformation Academy) by the end of November 2018, 598 million euros had been invested in startups, including 215 million euros by formal investors (counting VCs, which had doubled their share in a year’s time from 103 million euros).

Speed up

Above all, the Italian VC market has experienced some quality changes over the last few years. Larger deals have signalled that, finally, investors are willing to take their game to a later stage: “the financial statement of the year 2017 shows that 46% of rounds exceeded the symbolic threshold of one million euros,” stated Polimi. Besides, the participation of international investors is becoming more and more significant: last year, it was a share of 229 million euros out of 600 million euros total investments.

At the same time, Italian venture operators have increased their number and funding capacity, due to the launch of new, bigger funds. We have done so ourselves with P102 (which aims at collecting 120 million euros). Furthermore, in 2018 we have witnessed the first Italian exits from investments, a turning point in the development of an efficient market. Among P101’s exits, are Musement, which was acquired by the German giant TUI, the Spanish ForceManager, which merged with the Italian starup Sellf, as well as Viralize recently joining the Italian company Vetrya.

Lastly, there has been a significant increase in the number of innovative startups: 15,000 of them have been registered to date. However, once again, there has also been a change in terms of quality besides quantity: a significant improvement of the quality of ideas and a widening of the basket from which VC can pick and choose.

So, we just need to press the gas pedal and keep on racing. With the measures contained in the Budget Law it’s likely that, by the end of 2020, the Italian VC market will reach a value of two billion euros, competing – not on equal terms but surely getting closer – in the European arena against France (whose VC market is worth 4 billion euros), and Spain (almost 2 billion euros).