A Questionnaire for the Italian Venture Capital Players

IFISE Meeting

A.I.F.I.Italian Venture Capital and Private Equity Association

Roberto Del Giudice

Pavia, 16th October 2001

Methodology and Criteria

• Data referring to the period: June-September 2001.

• Double purpose:

1. Interview a relevant sample of Venture Capitalist operating in Italy;

2. Analyze problems engaged during the VC activity.

• Sample made up of 21 Venture Capitalist:

1. Stage of Investment: mainly start up.

2. Sector of Investment: High Tech focus.

3. Market Share: 80% of the total amount invested in 2000;

70% of the total number of operations in 2000.

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The Questionnaire and Data Pooling

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• A three sections questionnaire was used to conduct the mapping activity;

• First section: survey of the state of the art perception of VCst

about the normative and institutional system in Italy;

• Second section: survey of the main barriers for VC investing in Italy;

• Third section: identification of possible solutions to create a favorable institutional context for High Tech Start Up investing.

• First step: VCst selectioned for the sample filled the questionnaire;

• Second step: data pooling and processing .

The Result:

Question 1: Is your venture capital firm satisfied with the current Italian

financial system?

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Completely satisfied 0.0%

Satisfied 19.0%

Not completely satisfied 61.9%

Unsatisfied 19.0%

No opinion 0.0%

Some comments:The Financial Scenario

• About 62% of VCst feels not completely satisfied with the financial context;

• The remaining 38% is half satisfied and half unsatisfied;

• The major unsatisfactions seems to come from “New Comers”;

• Favorable events: A. the launch of “Nuovo Mercato” (1999) and the Star segment (2001), facilitates the way out for VCst;

B. Italian Government is becoming more committed to promote tax and legal reforms for VC (in line with OECD/EVCA white paper).

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Question 2: If Unsatisfied, please state which are the main barriers to a more

flexible and satisfactory financial environment?

The Result:

Bureaucratic barriers 57,1%

Absence of specific incentives 42,9%

Fiscal barriers 23,8%

None of the above 9,5%

Political barriers 0,0%

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• Bureaucracy related to enterprise creation is seen as the most relevant obstacle for development of VC;

• The lack of specific incentives for VC-especially lowering risk oriented-is the second barrier ;

• Result: Italy is behindhand in comparison with other EU countries;

• But: 1. simplification of red tape practices has been made;

2. number of the authorization and registration procedure for enterprise creation decreased (from 21 to 11 for commercial companies);

3. the Company Law is going to be revised in order to foster VC.

Some comments:Barriers for VC investments

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Question 3: Concerning high tech investments, do you feel that the Italian

financial scenario is favorable to this kind of investment?

The Result:

Completely favorable 0.0%

Favorable 57.1%

Not completely favorable 55.0%

Unfavorable 40.0%

No opinion 0.0%

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•Reason for the delay of institutional context:

1. Small amount of money committed by enterprises in R&D activities;

2. Absence of communication between University, VC and firms;

3. Absence of public incentives;

4. Absence of an efficient public incubation system.

Some comments: Normative and financial context for High Tech

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Question 4: If Unfavorable, please state which are the main barriers for the

development of fast growing high tech investment market?

The Result:

Absence of a useful dialog between finance, enterprise and research centers

52.4%

Absence of public incentives specifically destined to lower risk perception

42,9%

Absence of a structured public Incubation system 19,0%

Absence of internal competencies to evaluate high tech investments

9,5%

High risk perception 4.8%

None of the above 14.3%

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•First: absence of efficient communication among VC/University/Firms•Second: absence of public incentives to lower risk perception in

NTBF investing; •In particular: 1. VC vs. Researchers: different objectives to perform

lead to difficult coordination and cooperation;

2. Researchers do not know how to set up a business;

3. Uncertainty in scientific discovery property attribution;

4. Lack of public incentives for VC activities for depressed areas/sectors.

Some comments: Barriers for NTBF investment market

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Question 5: Do you think that there are some measures to establish the right

environment for a sustainable high tech oriented financial system?

The Result: 90% said that new policies to support VC for High Tech are necessary.

First: reform of the Bankruptcy and Company Law in order to take into consideration the high risk of default of High Tech VC investing;

Second: civil board liability. VCst have a relevant role in the board of directors and often they are liable for “non controllable”

company events.

Third: Small VC funds regulation for High Tech and University spin off.

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Question 6: Concerning High Tech investment selection,

the assessment is made by?

The Result:

Local team 62%

Specialised consultants 48%

Parent organizations 29%

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• Problems in technological audit:

1. lack of specific know how in emerging sectors;

2. different “language” spoken by VCst and potential entrepreneurs;

3. difficulties on “long term” forecast;

4. need of deep in itinere monitoring activity.

Some comments:Business Idea Selection Process

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Question 7:Concerning the High Tech investment activity, did you

invest in enterprises that have received public financing?

All the investors answered:•NO, or•I DO NOT KNOW.

And that probably means that the information is considered completely NOT RELRVANT for their activity.

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Question 8: Did you invest in these areas?

The Result:

Lombardia 81%

Emilia Romagna 38.1%

Sicilia 9.5%

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• The data clearly show an high concentration in Northern Italy.• BUT: there are not particular reasons for investment shortage in Southern Italy.

• LACK of capital for the South: 1. Small number of investor based in the South: VCst prefer to invest where they have their steady offices (i.e. North)

2. Lack of significant investment opportunities (shortage of

research Centers); 3. Cultural and Infrastructural

barriers for VC.

Some comments:Geographical areas

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Some comments:Geographical areas - The Vicious Circle

The financial market does not seem to be so “Global”:

1. Absence of a financial culture in the South;

2. People looking for VC tend to move to the North;

3. Vicious circle: no demand – no offer!

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Some final issues…

… concerning the high tech start ups: the main weaknesses

1. lack of a synergic dialog and relationship between the

worlds of research, enterprise and finance;

2. lack of adequate human resources on the entrepreneurial

side;

3. difficulties on technology auditing activities;

4. inadequate legal framework.

1. Public/Private Co-investments schemes;

2. Small VC funds with regional focus for Start up;

3. “Rethinking” for public non profit incubators;

4. Technological Audit Centers made up of teams of researchers, investors, and legal professionals;

5. Entrepreneurship training activity for people coming from technical studies.

Possible solutions

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What are we going to propose

?

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