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The wind of innovation blows from the Mediterranean

Giuseppe Donvito, P101 Partner | October 17th, 2018

Madrid, Lisbon, Milan, Athens: here are the next VC capitals. The startup ecosystem of Southern Europe is worth as much as the Northern one and is attracting increasingly more investments.

In Southern Europe you can breathe the fresh air of innovation. Finally the local startup ecosystem is showing signs of consolidation. This is what emerged at the South Summit in Madrid, one of the most important conferences in Europe (and not just in the South), now at its seventh edition. Founded in 2012 by Spain Startup together with the IE Business School – which, while the crisis was hitting hard, found in entrepreneurs the ideas that could boost the economy – the Madrid summit is today a global platform that works as a link between investors, startups and corporates. Probably even more importantly, it has uncovered the Pandora’s box of innovation that lives and proliferates in a part of Europe that was traditionally considered gregarious.

South Summit is a place where startups and creativity from Southern Europe show themselves to the world. And where meetings and handshakes are quickly transformed into investments and business. One of those necessary places for innovation not to remain a dead letter but to turn into companies and wealth.

The most interesting startups that attended the summit this year are B2C and B2B businesses operating in the digital and healthcare sectors. One theme that has emerged is the aggressive competition between venture capital funds in Northern Europe (Germany, France, Sweden and Denmark) which is leading to extremely high valuations that are not always supported by fundamentals. Another theme is the Northern trend to over-fund startups, which is not necessarily a good way to create value. This is one of the reasons why the Southern European market has very appealing features, showing small prices and a generally healthier ecosystem.

We have already talked about it and this trend has been clear for at least a couple of years, but now the indicators are multiplying. The climate has been heating up and it’s not only due to the weather – in the words of Tech.eu (which also lists Greece, along with Spain, Portugal and Italy, along the innovative countries in the Mediterranean ecosystem). Figures by Invest Europe confirm this upwards trend: at the end of 2017, Southern Europe raised funds for 4.6 billion euros, which means slightly more than 2016 but well above the 4 billion euros of 2014 and 2015. The Southern trend is in line with that of the rest of the continent (record funding of 91.9 billion euros and +12% year on year; 7.7 billion euros by venture capital: similar to 2016 when, for the first time, an average 100 million closing has been recorded – about twice the average of the previous 10 years). The new feature of 2017 is that 13% of VC investments were directed to the Mediterranean area, while the Northern countries only got 9%. Moreover, 386 Southern startups have been funded with 400 million euros, compared with 300 million euros for 248 Nordic startups, 800 million euros for 562 French and Benelux companies and 1 billion for 381 UK and Irish companies. Speaking about exits, in 2017 Southern Europe ones amounted to 5 billion against the 5.7 billion euros of the area including Germany, Austria and Switzerland.

If we cross this data with those about the weight of VC in national GDP (which is in the order of 0.00% for Spain and Italy), we can see how much unexpressed potential is still present in the area.

And in Italy, Milan can act as a leader of this evolution, just like Madrid.

In the first half of 2018, Italy scored a funding record: according to the Aifi data that show the trend of both PE and VC, total market and captive funding was 1.9 billion euros, 55% more than in the first half of 2017. The early stage segment grew by 122% (96 million euro) and by 23% if you consider the number of transactions – which were 80, i.e. half the total number of deals. On this blog, we have shown that startup investments in Italy have exceeded 300 million euros by September 2018, and may grow to half a billion by the end of the year. A big jump, considered that the annual amount had been 130 million euros for the previous six years.

It is not just a matter of numbers: China has chosen Milan to build its European innovation hub. An agreement between the Milan Politecnico Foundation and Tsinghua University in Beijing has provided for the establishment of the Chinese giant Tus Star (the largest incubator globally, with over 5,000 companies, 30 of which are listed on the stock exchange) in the Bovisa complex. And the Milan Fintech District – the first urban area designed to attract startups, entrepreneurs and companies offering innovative financial services based on new technologies – is already one year old.