Monday, January 24, 2011

Venture Capitalists in the Italian Internet Startup Scene: Who They Are and How to Approach Them

As this is my first blog and first post, I would like to  provide those who are interested on venture capital and Internet startups with guidance about who invests (business angels, VCs) in Italian startups and on how to approach them in order to present an innovative idea when searching for a way of financing it. Enjoy it :)

As Internet has turned into a lucrative and successful marketplace for both web 2.0 entrepreneurs and venture capital firms, and as the latter are becoming more aggressive in seeking out disruptive technologies, it is probably fair to say that the internet start-up scene will be one of the fastest growing sectors worldwide for the years to come. This trend is already visible, since a decade, in the Italian Internet start-up scene where plenty of web 2.0 would-be entrepreneurs (or webpreneurs) are continuously hunting for fresh capital in order to transform their innovative ideas into successful startups. Likewise, more and more venture capital firms are investing in web 2.0 companies, therefore diversifying away from their traditional investment sectors (Financial services, Consumer products, Constructions, Telco, Chemistry etc.).

In Italy, as elsewhere, "before approaching and sending out business plans to a potential VC firm or business angel, it is very important - for (Internet) would-be entrepreneurs - to understand what VCs are looking for",

as Luca Lani stresses in his analysis on Italian venture capitalists. As known VCs are specialized depending on the stage of the business initiative: business angels step in when there is only the idea, and usually by personally investing between 20k and 100k. Instead, who does seeding or "early-stage" investing, steps in when the idea already exists and perhaps also the prototype, and the money is mainly used to set up the company and take the first test with consumers or customers. Here the volume of the investment is generally between 50k and 500k. When it comes to higher investment volumes with financing rounds (usually 1 to 3) ranging from 500k to 2 million euro (at least that's the average range in Italy) the biggest venture capital firms join the game.

Business Angels

There are many business angels in Italy, but mentioning them is impossible since operating privately this would require their consent. However, in Italy there are associations of business angels such as IAG's Angels (see below).

Seed and Early Stage
Directed by Gianluca Dettori, dpixel is a well known and very active VC company among Italian seed capital firms. By typically investing between 70k and 350k dpixel is among the most focused VCs in digital and internet investments. Among others, dpixel has a remarkable portfolio which includes major investments such as Glomera (WebTV), Ibrii (web content sharing), Seolab (Web Marketing, SEO consulting and Keyword Advertising), Sounday (a global digital music label), just to name a few of them. Its team of analysts, who all well know the web inside out, is open to proposals in a way which renders the submission of the pitch very simple and easy. In the old version of the website, the team had personal profiles, while now after the restyling, it shows a simple list of names, which does not really disclose information on their profile as the old version of the website did. However, for a total stranger, generally speaking, they seem to be very open and accustomed to investments in web initiatives as their pitching submission process is really straightforward.

After resigning as Country Manager Italy at Google, Massimiliano Magrini founded  Annapurnaventures together with 20 key players of the Italian internet startup scene with the clear ambition to "create a real Silicon Valley in Milan". The company operates primarily in the digital economy investing, in the typical range of seeding and early stage, on startups which focus on Web services, enterprise software and mobile technology. Young is portfolio as young are the companies, (an online credit brokering platform) and the promising Paperlit (a multiplatform publishing and advertising solution) in first place. In picking up which companies to fund, Annapurna selects new firms in the early stage of their life-cycle providing them with financial support, analytical and entrepreneurial coaching. The great background of the Annapurna team coupled with its remarkable knowledge of the internet sector surely facilitate the presentation of new innovative projects. Ways for the submission of ideas do not go beyond a contact form, but in general they result quite convincing.

Italian Angels for Growth is an association of business angels (almost a hundred), and very active with a good number of transactions per year. IAG operates not only in the internet and digital sector but also in biomedical and others. They generally invest in the centre/north of Italy, but also in foreign companies geographically close to Italy. With a well-prepared team (which benefiting from the background of the various members is very extended), the process for the submission of business plans, is a bit particular in what a core team examines, on a singular basis, the various startup projects and submit them to the other members (angels) at certain times of the year. Then, after a short speech of the founder of startup, are the angels who individually decide whether, how much and when to invest. The process lasts at least 4-5 months and the range of transactions goes from generally 200k up to 1 million € approximately, although in this period more prudentially they can reach 500k € (as stated on their website). As a result, the role of IAG is highly strategic and acting as a linking junction plays a role often overlooked, but important.  Therefore, the image of this business angels association is very convincing.

Founded by Donadon (former CEO at E-tree), H-Farm - the first Italian private incubator - halfway between an incubator and VC, fascinates not only for the location in Ca' Tron (Treviso) but also for its "penetrating" investment approach in startup ideas. Indeed, this venture capital incubator, with offices in Seattle (USA), London (UK) and Mumbai (India) was born in the countryside of Ca' Tron, near Treviso, location which Donadon choose in the middle of the countryside because he "wanted to link high tech thinking with the slow life of the country" as Margaret Greenberg observes. Start-ups on which this venture incubator invests are initially incubated and provided not only with financial backing but also with technological, logistical, as well as consulting support. Definitely an interesting fact, able to create a very positive image. Moreover, since December 1, 2010, H-Farm opened a window of 90 days (expiring on March 1, 2011) within which H-Farm collects start-up projects to "cultivate", so if you think that your idea is going to change the world and you want to be the next generation "webprenuer", than check this out!

VCs at growth funding rounds

Growth funding round (also referred as series A round), differentiates itself from seeding and early-stage investments, in the interest of generating a return through an eventual realization event such as an IPO or trade sale of the company. At this level, the Italian venture capital market is characterized by the presence of really few strong actors active in the Internet arena.

Located in Turin, Innogest SGR with €80 million of committed capital is the largest seed-financing and early stage fund in Italy. It allocates funds to enterprises already set up, which have been in existence from one to three years (high-tech start-ups) with investments ranging from €500,000 to €3 million for each individual transaction. The fund invests primarily in innovative and rapidly growing companies, but prefers businesses which come into existence as international or with international expansion. Among others, it has invested in TheBlogTV (profession video production from user-generated content) and Mobando (free sharing of consumer generated contents for mobile phones), both entirely digital realities.

With offices Paris and Milan, 360° Capital Partners is an Italian-French Fund investing almost exclusively in France. The company was founded in 2007 by Fausto Boni, Diana Saraceni and François Tison. Interesting is that in 1997 Fausto Boni founded, together with Michele Appendino, Net Partners one of the earliest venture capital funds in Europe  to begin operations by exclusively focusing on financing seed and early stage initiatives related to the  Internet and online services (so maybe I should have included Net Partners in the "Seed and Early Stage" session). Famous venture investments which Net Partners brought to success include some of the best European Internet companies such as Self Trade (online stock brokerage company), BFinance (technology-enabled broker of non-quoted financial services), Accucard (today DPT Global - a European credit card company) and Freever  (provider of wireless services). However, all these transactions were done outside Italy. Inded, in Italy 360° Capital Partners (the same management team of  Net Partners) has accompanied a transaction with the listing (online mortgage broker). Their website provides all the information in a systematic way and shows a large and varied portfolio covering the CleanTech sector, IT, Software, Internet, telecommunications. The Board is large and each of the members puts his face and skills; clear the conditions for submitting a proposal to be financed with the very nice descriptive session called "how to submit your business plan" on both websites (Net Partners & 360° Capital Partners).  Put short, everything is there to get a first general idea, but by  comparing the two websites they look pretty similar ad as potential webpreneur I wouldn't  know which one to approach first. However, it seems to me that one differentiating factor  might be the greater Pan-European scope of Net Partners. What is sure is that both funds are very distinctive thanks to their sector focus (Internet) and to the entrepreneurial approach of the management team.

Good news for startups located in southern Italy: settled at the foot of Vesuvius (volcano) in Naples, with mixed capital (private and public), Vertis SGR invests in companies that are at least located in Southern Italy. It has a large team who, according to what one can read on their website, is well prepared. However, judging from their website, it can be said that they could do more on the side of communication: they do not stand for image or perceived sense of openness. No details on how to submit a startup idea: one-way communication is likely to result in detachment.

It takes a lot of good will to overcome the initial suspicion generated by surfing the Quantica website. A true pity since the portfolio is remarkable all the useful information and functions available for those who want to propose an idea are provided. The team of Quantica who, among others, has invested in Liquida - the first Italian blog and UCG (user generated content) collector - has a good understanding of the digital market. However, for a large capital base (partly public) and a newly dedicated fund investing almost entirely in the south of the country, it does not correspond a strong corporate image. One could argue that business strategies are others and that they do not necessarily unravel on the web, but if Quantica will invest more in Internet startups in the near future it should find a better way to communicate with their counterparts. The company is located in Milan.

The Italian banking Intesa Sanpaolo Group has a vehicle, ATLANTE Ventures, that has two funds (one in Milan and the other in Naples), of which one is dedicated to the Southern part of the country - funded with public money - and is subject to the same afore-mentioned rule, i.e. the would-be webpreneur must be located in southern Italy. The other fund, with investments all over the country, is only partially used. The investments are mostly on bio-medicine, process innovation, and only partially in the internet sector.

Francesco Michele Associati
More than a pure VC firm it's actually something halfway between a fund and a family office. It 's the investment team of Francesco Micheli (co-founder at e.Biscom, today Fastweb) and his son Carlo (Born4shop). Well-qualified, but worth visiting only if there is a very solid plan, they are knowledgeable about the Internet since they've had experience with born4shop now merged with Saldiprivati (Banzai). Presence in Milan.
The above listed companies are the main actors active in the Italian startup scene. Based on this, what can be concluded is that Italian venture capital funds whose team members come from the Italian (and international) Internet tech scene are more keen in accepting business models which try to rock the Internet, while those (Italian) venture capitalists coming from other (traditional) sectors are still at their initial stage in investing in Internet startups as this reflects also they ways to approach them. Therefore there is enough room to believe that more of them will invest in the Italian startup scene in the years to come, and that the best way to make it happen is maybe to meet them "halfway", in the sense of not limiting oneself in sending an e-mail or fill in a contact form with the hope (sometimes) remote to be contacted but also trying to get in direct contact with them by going for example to one of the many venture capital industry events and conferences. After all, the personal approach is also way the best one, don't you think!? 

For this post I got the cues from the analysis conducted by Luca Lani on "Italian VCs and Startups Financing" as well as from the reflection followed to Luca's post, made by Gabriella Infante in which she discusses how to communicate with and submit an innovative idea to Italian VCs. Aim of my post was to present this information to non Italian speakers and those who ever wondered from who Italian webpreneurs receive financing and how to approach them.