According to a study conducted by a consortium of prestigious European business schools, including the School of Management of the Politecnico di Milano, Audencia Business School, Vlerick Business School/Ghent University, London Business School, Stockholm School of Economics, Universidad Complutense de Madrid and Université du Luxembourg, Italian venture capitalists show more caution than their US and European counterparts, especially when compared to countries such as France, Germany, Belgium, Spain, Portugal and Sweden.
The study reveals that funding is granted mainly on the basis of the founders' successful entrepreneurial history, while the proposed product, technology and market carry less weight in investment decisions. When investments are made through a syndicate, unanimity in the decision is most often sought and venture capitalists prefer to be remunerated with annual financial bonuses, which are less risky than percentages on capital gains, usually around 20%.
The objective of the study was to investigate whether European venture capitalists adopt the same approach as US venture capitalists, taking into account historical and institutional differences, smaller market size, such as in Italy, and different governance arrangements. The questionnaire was proposed to a representative sample of venture capitalists in Italy, France, Germany, Belgium, Spain, Portugal and Sweden, obtaining 885 responses, corresponding to 44% of venture capital investments in 2022. Of these, 44 responses came from Italy.
The survey revealed that fewer proposals are made in Italy than in Europe, with an average of around 400 proposals per year for Italian investors compared to 500 in Europe. However, Italian investors accept more proposals than their European peers, about one in 43 compared to one in 51. The key factor in the decision to invest is the entrepreneurial team. In the proposals that are accepted, eight times out of ten investors invest in entrepreneurs who have already demonstrated a history of entrepreneurial or managerial success.
In Italy, the entrepreneur himself carries much more weight than the horse (product, technology and market), at 81.6% compared to 7.9%. Although in Europe the entrepreneur is considered more important than the other factors, the difference is less marked, with a percentage of 53.1% compared to 27.6% for the horse. Italian investors value passion and effort put in by the entrepreneur more (28.9%) and sector experience (23.7%), while their European colleagues value competence more (28.2%) and also value entrepreneurial experience (19.3%).
The research also reveals that it is quite rare for a venture capitalist to invest alone, preferring instead to invest through a syndicate. However, while in Europe syndicates are mainly created to exploit complementary competences (38.5%) and to share risk (28.8%), in Italy the risk-sharing aspect is predominant (46.4%), while complementary competences account for only a third of the motivations. The need to overcome capital constraints is less relevant in Italy (14.3%) than in Europe (22.4%), as financing rounds in Italy are usually smaller.
When choosing syndicate partners, reputation and past successes are the determining factor in both Italy (45.1%) and Europe (44.9%), while sector experience seems to be more important for Italian investors (35.5% vs. 22.5%). When it comes to selecting which startups to focus on, Italian VCs seek unanimity in half of the cases (compared to 32.8% in Europe), while in Europe decisions are made by majority vote in 37.6% of cases and the search for consensus carries twice as much weight (25.9% versus 12.5%).
In summary, the study shows that Italian venture capitalists are more cautious than their US and European counterparts, more risk-averse and generally more attached to the passion and success story of the entrepreneurs they bet on. The product, the technology and the market seem to matter less than the central figure of the entrepreneur or founder. However, focusing exclusively on the personal successes of the entrepreneur could entail risks. Indeed, this attitude may reveal a lack of critical evaluation of the business idea, the feasibility of the project and the target market. It is therefore important to strike a balance between the evaluation of the entrepreneur and the analysis of the business idea in order to make informed investment decisions and mitigate potential risks.