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Startups and Investment in Italy: Summary

Why Startups Matter

Startups play a crucial role in creating net new jobs, with new companies generating significantly more job growth than existing ones. For example, since 2017, startups contributed 10% to job growth, compared to 3% in IT and communication, and negative growth in sectors like financial services. Startups are defined as companies designed for rapid growth and innovation, leveraging technology. While most seed-funded startups fail to reach Series A funding, failure is acceptable for learning and iteration. Startups grow about 3x faster than the traditional economy, making venture capital-backed entrepreneurship a key job engine globally. However, in Italy, VC-backed companies employ very few people, with Italy having less than 0.01% of such jobs in the EU-27, compared to 68% in the US Bay Area.

Italy's Position in Startups and Investment

Italy is a major economy, ranked #4 in Europe and part of G7, but its venture capital investment is comparatively low. Between 2016-2021, Italy's VC funding per capita was among the lowest in Europe, with countries like Sweden and the UK leading (e.g., Sweden had €15.7B funding, vs. Italy's €3.6B). Italy ranked #14 in tech ecosystem enterprise value per capita and #12 in unicorn and high-exit companies, with only 2 unicorns and 2 exits in recent years. Its combined enterprise value for tech companies is €22B, significantly lower than leaders like the UK (£627B) and France (£180B). Italy's R&D spending is low (0.7% of GDP in 2020), highlighting the need for startups to drive innovation in tech and other sectors.

Big Tech's Role and Italy's Needs

Big Tech companies dominate key tech areas (e.g., Google controlling 90% of search) and enable startups through platforms like cloud hosting and ad services, reducing entry barriers. However, Italy's ecosystem is fragmented due to concentration issues. To compete, Italy must foster more startups with early venture capital, skilled talent, and higher-quality funding standards. While some progress is evident (e.g., growth in H1 2022 with 2.6x increase in VC funding), Italy lags behind peers like Spain and France, suggesting it could catch up with continued efforts.

Conclusions and Recommendations

• Startups can drive rapid economic change, as seen in other regions like Berlin and Miami.
• Regulating Big Tech is not the solution to closing Italy's gap; instead, focus on bottom-up strategies to stimulate a dynamic ecosystem.
• Avoid excessive government involvement but learn from cases like France, where targeted support can help.
• Prioritize ease of doing business, employee ownership, and attracting skilled talent and capital to achieve sustainable growth. Italy's tech ecosystem could grow to levels comparable to Spain or France with strategic interventions, supported by recent initiatives like new venture capital funds.