Business

Sorry, but Italy is no startup paradise

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Massimiliano Magrini just wrote a post offering a panoramic view of the “State of the Union” in the Country of the Dolce Vita. He talked about the number of startups in Italy and suggested that a current lack of available capital meant big opportunities for investors in the country. Interesting perspective indeed, but maybe a little more context can help. First, while Italy is not lacking startups, it’s also not lacking capital; but that’s now true all across the world. Capital is being commoditized, and the cost for starting something (anything, actually) is at an all-time low.

But in Italy are there 33 institutional investors plus 1,800 startups that set up shop in the last 12 months? That’s impressive, particularly if compared to Silicon Valley, where, according to Mattermark, there are fewer than 100 active VCs and slightly fewer than 12,000 active startups. And according to a recent Forbes’s article, there are 51 new startups launched every month in the San Francisco Bay Area — 610 new startups every year.

So Italy launches three times as many startups compared to San Francisco and has a third of the institutional investors in Silicon Valley? Holy sh*t: Startup paradise! Well … not really. And while the numbers may be correct, quality and quantity are two very different things. I know something about it: Since January 2010 I’ve cofounded two startups and invested in 10 others, occasionally mentoring dozens more (mostly in the 500Startups network).

Three things go into the mix, with several angles for each one: the ecosystem, the founders, and the investors. Let’s take a quick look at the ecosystem first:

- Italy has one of the highest unemployment rates of Europe. It’s a staggering 43.3% for people below 25 years (yep, you read it right). That’s a scary figure, and it’s of course deeply connected with the political situation of the country. When startups are all the rage, “being an entrepreneur” is the new “being unemployed”. Easy as that.

- Italy is the least business-friendly place in Europe. Let’s face it: 68% taxes on businesses — as reported by Der Spiegel — is probably not only the highest in Europe, but worldwide. Plus you can’t really fire anyone because they’ll sue you a minute later. And how can the new incentives compete with U.S. law (in Delaware you pay less than $1k per year until you’re profitable) or the situation in the U.K. (which de-risks up to 100% of the angel investments made in tech startups)?

- Italy’s tech ecosystem is not there (yet). While Germany and the U.K. have vibrant tech communities recognized globally, Italy is nowhere near that. You can literally count the Italian success cases on the fingers of your hands (and you have to go back several years to do it). They’re exceptions. They succeeded regardless of the ecosystem, not because of it. How many Italians made 1 million users in one day? Or raised more than $50 million funding? Or exited for more than $250 million cash?

Then, of course, if you are an Italian investor, if the challenges above weren’t enough already, you face specific issues:

- Founders don’t have a real track record. It’s incredibly rare to find someone who’s done it already and is doing it all over again. Someone who knows how to make a buck, or — God forbid — sell a company. There are several reasons behind it, but the result is that the usual conversation is with a first-time founder, with all the implications that this brings to the table. How easily can you trust an inexperienced entrepreneur? It’s not about being risk-averse, it’s about getting your money back.

- Founders don’t have a specific background. Making a great product is not the same thing as making a great company. And while Italians have coding skills definitely comparable to the ones in the EU or the U.S., they usually lack the knowledge needed to put together a real product solving a real need. And what about customer development? Or user experience? Or fundraising? Ideally, they should be great at least at one of these, but they rarely are.

- Founders don’t have enough ‘war scars’. Not only haven’t the founders succeeded enough, they haven’t fail enough either. Or if they did fail, how is their failure predictive of success? While this is kind of the egg-chicken problem (failure is not seen yet as a necessary path to success), from the investor’s perspective the real question is, why should I pay for the education of these guys with my money, increasing instead of decreasing my risk of losing it?

And then, of course, there is the founder’s perspective. Their point of view of Italian investors is not flattering either:

- Investors do not make fast decisions. The average investor takes weeks, not days, to give you a meeting. And takes weeks, not days, to follow up with you. And you have to chase them, and they don’t answer email (or the phone either, for what it’s worth). And when you are able to reach them, there is always something else keeping them from being able to make a decision. That’s a deadly sin, as you’re wasting time that could be dedicated to other investors.

- Investors do not have an international network. In a world where money is commoditized and you can raise with the same ease/difficulty in Italy or in Australia, that investor is competing with the rest of the world. And the same dumb money is, well, dumb money. What you’re really interested in is if these guys writing you a check can also help you with specific expertise, finding clients, further funding. Everybody says they can, but usually that’s not the case.

- Investors ask for unreasonable terms. It’s relatively common to see a round of $250k taking 40% of equity in the company. Investors will try to do that because, well, they can; founders will accept it because they can’t afford better. But the result is that when the company tries to expand beyond Italy, every potential following investor will look at the cap table and run like hell. And both the investors and the founders will be screwed.

So, is it all doom and gloom? No unicorns or rainbows? Is there no hope for Italian entrepreneurs and investors? Not exactly:

- NETWORK: There may be no network in Italy yet, but there is already a network of Italians around the world, both investors and founders. They wouldn’t come back to Italy for all the gold in the world, but they’ll be more than happy to connect and help; they’re just a Skype call away.

- BENCHMARKS: While 20 years ago the industry knowledge was fragmented and not standardized, that’s definitely not the case anymore. Just turn on your laptop and study the best practices of the rest of the world. As they say: In the information age, ignorance is a choice.

- ACCESS: It’s not only about talking to the Italians around the world, nowadays everyone is just an email away. With the right hustle, you can accomplish a lot: access to more interesting deals, access to more interesting investors. Go for it, but know the rules of the game.

- TALENT: The hard truth is that Italy has talented developers that cost more or less as much as the Eastern-European ones. It’s cheap talent with low turnover. In the hyper-competitive world we live in, that’s actually gold. You can accomplish a lot more with a lot less.

- DESIGN: Finally, even if the typical developer costs as little as an Eastern-European one, Italian people do have a design sensibility than can be leveraged to give a personal touch to what’s being built. And design, nowadays, has become an unfair advantage that can make or break any company.

Bottom line: Italy is not — and probably will never be — a startup paradise, but in the globalized world, Italy can definitely find its new positioning with relatively low effort, turning its current weaknesses into strengths while providing cheap design-sensible resources and connecting more and more with the outside world. Opportunities are everywhere if you are just able to see and seize them.

Armando Biondi is cofounder and COO of AdEspresso, a Saas Solution for Facebook Ads Optimization. He lived in Italy until 2010, and while he has now relocated to San Francisco, he still spends 2-3 months a year in Italy. He previously cofounded Pick1 and four other non-tech companies. He’s also an angel investor in Mattermark and 10 more companies, is proudly part of the 500Startups network, and is also a former radio speaker.


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32 comments
Federico Migliorini
Federico Migliorini

The image of Italy with a ancient window and a flag ...like in a movie of 40 years ago don't help to think about Italy in the right way. it's good for the article, but not for Italy that is always remembered as something completely different from the reality, anyway...


Sure Italy it's not the paradise for Startups... maybe the number you provided is optimistic, because contains startups with 1000 active users.


According to RocketCompanies, there are only 130 Startups with more than 20000 monthly unique visitors in Italy. 


The Italy problem start from a taxation.  68 % of real taxation for entrepreneurs..., continue with bureaucracy, and a missing respect of the entrepreneurship effort  (the real engine for every economy), all problems that we know very well.


5/6 years ago... "startup" was a niche term... far from entrepreneurial life 

Now many things changed...and Startup Virus is everywhere... 


It's the right moment to change the "Status Quo"

Marco Trombetti
Marco Trombetti

Armando,


Thank you for opening this discussion.


I think that Massimiliano Magrini was optimistic, but I don’t see anything wrong with it.


I am a tech serial entrepreneur and active angel investor (my investments)

All the business I’ve started are global, but I’ve always been based in Rome, Italy.

From Rome, I have done business with companies in the Silicon Valley for almost 10 years. 


I had many opportunities to move to the Valley but I’ve decided not to, even if I love the culture and the people there.

I did it because I always saw a better long-term opportunity in Italy for my family and for me.


Your points are all correct, but most of them don't apply well to what we are doing here in Italy.

They would apply if the people here were trying to replicate the Silicon Valley, but they are not.

To understand what I mean, here are the 4 points that motivated me to stay. It’s a personal view.


--- 1) Think big on the future of technology.

I think that we are still at the very beginning of how technology is interacting with people.

Today when I look at engineers in the Valley, I see a very exciting and vibrant community of miners looking for gold. Once they find a nice piece of gold they remove the dust and they sell it.

In the future we need to evolve from gold miners to Bulgari.

Technology must evolve into something more empathic, beautiful and inspiring, not something that just solves a basic problem. In Italy we do have the sensibility, capabilities and the inspiring framework to achieve it.

Worth trying hard…


--- 2) Think big on people.

In the Valley people have salaries much above the average.

In Italy with Valley salaries, you have access to a quality of living that my friends and colleagues in the Valley simply cannot achieve. But it Italy, today, you cannot get those salaries.

Smart people work in the Valley and the lucky ones will retire in Tuscany.

Today, people create and spend the money in the same place. They don’t take advantages or obvious arbitration opportunity that exists in global and well connected economies.

Can we invent better and more appealing work conditions? 

Is it possible to create companies in Italy that makes money globally and have Valley’s salaries?

The result will be great.

Worth trying hard…


--- 3) Trends

Talents

5 years ago we had big problems in retaining talents in Italy

2 years ago, this negative trend stopped.

This year I have seen a few talents coming back.

Ideas

3 years ago fundable Startup pitches in Italy were very rare.

Recently I went to the 500Startups demo day in San Francisco and the Enlabs Demo day in Rome. The pitches of the companies in Rome were in general better than 500 Startups. I was very surprised, could not understand how that happened so quickly.


--- 4) Taxes and Government.

First you have success, after you care about taxes.

The valley is far from being a tax paradise.

Local taxes are often irrelevant for corporations. Global tech companies are never operating in a single country.

Google is in Mountain View, but pays taxes at ~3% instead of California’s 35%.


Conclusion:

It's funny that I learned the Think Big and Try Hard attitude in the Valley, but today this great way of thinking is making stay in Italy.

I don’t say it's a paradise, we are very far that but please give all the Italian start-uppers the “Good Luck” they deserve.


P.S. Armando, once you are done, come back home and help us, we will warmly welcome you.

Will Smith
Will Smith

But aren't you the ones who said it was?

Alessandro Tondolo
Alessandro Tondolo

Even if the author is a little bit too negative It is not possible to say that the overall picture is not true

Claudia Doppioslash
Claudia Doppioslash

(disclaimer: expatriated Italian here) Who is supposed to set up a culture for help? Italy's problems and the inability to tackle them are rooted in Italian culture itself. Other countries have similar problems, but they are more likely to admit and try to fix them.

Claudia Doppioslash
Claudia Doppioslash

The article may be pessimistic, but it's certainly realistic. I doubt Italians (like me) are offended by it, so I'm not sure why other people are. Italy's problems are compounded by a complete reluctance to even admit them, let alone try and solve them. The root of Italy's problems is in the culture itself, so they are unlikely to go away any time soon.

Abbas Abbass
Abbas Abbass

Is this journalism? Ridiculous! I m not from Italy or any way related but this article seems so bias and clearly author or organisation holds some sort of grudge against Italy. Or its just me who is missing the point here.

Massimiliano Carli
Massimiliano Carli

hey guys (dear out-of-italy investor world),
listen me.

beyond the picture this article gives about italian founders limits (I absolutely don't feel to be in the pic - I'm a long-time little innovator), the problem I have seen in the last 14 years of (my) interest to be funded lives in the italian investors approach to ICT innovation: here in Italy investors are able to read and mind-read only simple simple ("1 hop") business projects which they must be able to understand without having nor business experience nor technological awareness about and in ICT - or at least who pre-select the business plans. if you have a great invention here you can die.


e.g. I have invented, created, expanded, made some business (producing business apps) with my true-realtime Internet model -> centric NetOs Application Server and its (my) programming language (which enables online software marketplace to a new frontier of Internet Opportunity[1]). I started this long-long-term work in 2001 (yes, when the Internet-people was speaking only about static and dynamic web pages I was already working at realtime Internet - which is not yet born - which I call true-realtime Internet, recently rebranded by myself as "Internet+").

after 14 years I still not have found money for my r&d&p (research, development, production) and I have a couple of top-level online platform projects still to develop with my Internet technology. (I will not tell you what happened to me in these 14 years, with non clear taxes, sometime not good fiscal experts, terrible problems with connectivity from a day to another in the middle of the business and so on --- now I also have my 'war-scars').

(of course I have tryied for a long long time to fund the grow of my big project by myself working 1-M with small customers (working a piece after a piece to my business software platform while in parallel producing apps for my customers using the platform under development) but it was impossible to me to hire somebody (to be able to do more) with my 1man-company cash flow and the fiscal pressure we have here in italy.)

Here I can't find 400k euros for a business which would require ~1,5ML euros to startup (but I can do it alone rather than not doing it) and points to get more cash than facebook (the project can be considered the worldwide most techological software community platform of online realtime services for small/medium/big companies and active citizens. it is a big challenge).

I'm still trying to rise money improving my docs (nobody here seems to understand ICT[2]) but it seems it is coming the time to rewrite all the doc in english and expose my work to the wordwide community of investors because here in italy I can't get the right attention (investors with me must be passionate and a bit forward-looking: if they ask me the wrong questions I get pissed).

Please guys, go to http://docs.mc2labs.net if you are able to read (or translate) italian - there is also something in english - an help me to be fund!
(or send me an email to get in touch till the english doc is ready) /spot


best regards,

Massimiliano Carli

Mc2Labs RealTime Industries

----

[1] http://en.wikipedia.org/wiki/Real-time_web - p2: True-realtime web (an "alternate" model)

[2] in 2011 Piemontech (yoohoo, a known italian ICT VC) answered me [realtime ]videocollaboration is not a marketplace of interest. e.g. 


Giuseppe Frustaci
Giuseppe Frustaci

A country launches more startups than a city..... Ok, am I missing something here? What's the story in this?

Daniel Silva
Daniel Silva

Rafael Schouchana Donato Ramos Natasha Hazan

Mario Bucolo
Mario Bucolo

it's just as for my comment in the original article.

Armando Biondi
Armando Biondi

Hey Abbas! No grudge at all. I love my country and want to see it succeed, but I also see all the wasted potential and it's kind of painful. The point tho is that the situation is not unicorns&rainbows but require work and dedication to be improved. Even more importantly: there are things that can be done already now, without waiting for things that won't happen by themselves. Hope helpful :)

Giovanni Landi
Giovanni Landi

@Massimiliano Carli You must have been very optimist if you waited 14 years for an english translation of your docs... I think that the point of this article is that italian entrepreneurs/strartupper are often a product of the baroque, lazy and crony business  ecosystem they grow in.

Armando Biondi
Armando Biondi

Hey Giuseppe, that's part of the reason for the article. I do not have hard numbers on the italian activity, but it does sound unlikely. Still, that's not even the point IMHO: the point is that quality matter more than quantity, and that there are already several things that can be done to improve it now... without waiting for things that won't happen by themselves. Hope helpful.

Massimiliano Carli
Massimiliano Carli

@Giovanni Landi optimistic :-) nice. not exacly.


Giovanni,


A) my strategy wants my online platform(s) to grow up to the wordwide marketplace but starting from Italy and its related first business model milestone (to complete). I don't produce "apps", I produce large-angle online platforms which wants to work with people and companies of my lands as first: my technological business plans have a strong society-oriented soul (=help companies and people to work online), so it is quite logically obvious that if I want to work for the worldwide society I have to start doing it from the society of my country (that I love and know in deep).

and for me in these 10+ years was again quite obvious to look for an italian investor/VC (this also helps to setup in the plan his exit way: when we are ready to definitively scale the business, the model [and the server farm] to wordwide).


B) in last few years all over the world have seen what it is becoming our Italy - speaking in general as a country: a shit[1]! 

in this field, yes, after 14 years of my Internet+ business way I'm not more optimistic (and I have stopped voting): now may be it is time to look around for me but only about investors, and now an international VC can understand why a 1-man-company with a huge in-builing tech project and which want to start working from Italy before to go worldwide can look for funds outside of Italy. isn't it?


max

----------

[1] e.g. ICT people wordwide must know who is working on our Internet plans at the goverment in today:  

Mediaset (berlusconi company), Espresso Publish Group, SIAE, Sky Italia


from our fb forum:

https://www.facebook.com/photo.php?fbid=10152274154563264&set=gm.746108015427790&type=1&theater

Federico Migliorini
Federico Migliorini

@Giovanni Landi 


I don't know how you can say this. In the top 10 London Startups there is Italian Startup .. many italian startuppers are in SF bay... other in Berlin... it's because they are lazy?  mhh

Massimiliano Carli
Massimiliano Carli

@Giovanni Landi

Giovanni,


A) my strategy wants my online platform(s) to grow up to the wordwide marketplace but starting from Italy and its related first business model milestone (to complete). I don't produce "apps", I produce large-angle online platforms which wants to work with people and companies of my lands as first: my technological business plans have a strong society-oriented soul (=help companies and people to work online), so it is quite logically obvious that if I want to work for the worldwide society I have to start doing it from the society of my country (that I love and know in deep).

and for me in these 10+ years was again quite obvious to look for an italian investor/VC (this also helps to setup in the plan his exit way: when we are ready to definitively scale the business, the model [and the server farm] to wordwide).


B) in last few years all over the world have seen what it is becoming our Italy - speaking in general as a country: a shit[1]! 

in this field, yes, after 14 years of my Internet+ business way I'm not more optimistic (and I have stopped voting): now may be it is time to look around for me but only about investors, and now an international VC can understand why a 1-man-company with a huge in-builing tech project and which want to start working from Italy before to go worldwide can look for funds outside of Italy. isn't it?


max

[1] ----(deleted part of the post, since somebody did not like some words about ICT and the italian government)---

Massimiliano Carli
Massimiliano Carli

@Giovanni Landi optimistic :-) nice. not exacly.


Giovanni,


A) my strategy wants my online platform(s) to grow up to the wordwide marketplace but starting from Italy and its related first business model milestone (to complete). I don't produce "apps", I produce large-angle online platforms which wants to work with people and companies of my lands as first: my technological business plans have a strong society-oriented soul (=help companies and people to work online), so it is quite logically obvious that if I want to work for the worldwide society I have to start doing it from the society of my country (that I love and know in deep).

and for me in these 10+ years was again quite obvious to look for an italian investor/VC (this also helps to setup in the plan his exit way: when we are ready to definitively scale the business, the model [and the server farm] to wordwide).


B) in last few years people all over the world have seen what it is becoming our Italy - speaking in general as a country: a shit[1].

in this field, yes, after 14 years of my Internet+ business way I'm not more optimistic (and I have stopped voting): now may be it is time to look around for me but only about investors, and now an international VC can understand why a 1-man-company with a huge in-builing tech project and which want to start working from Italy before to go worldwide can look for funds outside of Italy. isn't it?


max

----------

[1] e.g. ICT people wordwide must know who is working on our Internet plans at the goverment in today:  

Mediaset (berlusconi company), Espresso Publish Group, SIAE, Sky Italia


from our fb forum:

https://www.facebook.com/photo.php?fbid=10152274154563264&set=gm.746108015427790&type=1&theater