Why you can’t scale in Italy
I live in Italy and as you all know it is a wonderful country: nice food, wonderful cities, amazing landscapes and a gorgeous coastline. It’s also a great place to bring up a family, where the political system guarantees a great social security environment – compared to the United States at least. As Italians we strongly believe we have a great entrepreneurial material, in fact our economy is primarily sustained by small and medium size businesses (almost a million if I remember correctly). They are the Italian equivalent of start-ups, small business initiatives launched by normal people who want to make the difference in their life, creating their own business. A fraction of those companies operate in technology and process innovation, having their foundation assets on software design, and the majority of them didn’t have any institutional investor on board, no VC or angel. This is quite normal for us, because we didn’t have a strong venture capital culture in our country. We don’t have 35 or 40 years of VC funding history as Enzo Torresi states in an interview. Of course knowing how to pay the bills from day one is a good start. On the other hand, this aspect of an Italian environment prevents – or at least decreases the likelihood that – the next Google could face the market from our country. In a playground like this our start-up cannot simply scale, because to scale the way fast Internet growing companies do, you need to have the financial support of institutional investors, you need millions of dollars or better said millions of euros.
It’s not about having a negative view on things, it is about being realistic. Very often excess of positivism in my country is used to hide problems, and not actually address them. So to have a realistic approach we must say that the young entrepreneurs here cannot have the same opportunities they have in Silicon Valley. This fact is almost trivial for people working in software development, but it’s pretty rare to be admit it.
This conclusion can lead us to take two different paths to follow, in order to establish a proficient business in Italy.
The first one is to create your company here without quitting your day job, and doing everything without external help. In this case you need a lot of time to approach the market, but you will succeed sooner or later, especially in the software service business.
The second one is to raise a small amount of money from family and friends and get them to invest in building a first working beta version of your product, with the goal to use it to raise real money from investors. This case is much more difficult to address correctly, because you need to adopt a completely different approach. It requires you to take more risks and to understand from the beginning that doing everything by yourself is not the best way to proceed. It’s difficult to admit it, because it means that you have to start spending your money, the money that other people gave you, on external consultancy services. The best thing you can do is understand that you cannot have all the right answers especially if you are in your 20s with no working experience – but it applies to “40s with no entrepreneurial experience” too. It’s tough, but necessary because at this stage your idea as no assets yet you can convert in equity value for a potential investor. Ideas infrequently are a convertible asset. Once your beta version is ready, my opinion is you have to move your operation where the surrounding environment could help your growth more easily. Buy a ticket and move to the Bay Area as soon as you can and don’t even try to raise money in Italy because our venture capital background is too young, it is highly unlikely you will get the money you need. The only result you could get is to accept an inconvenient partner in your company telling you how to make things, and no real money to spend.
I really appreciate Italian firms like H-Farm that work day after day to give our start-ups a chance to be funded inside the country boundaries, but on the other hand I believe that the truth has been well expressed by Gianluca Dettori, founding partner of dPixel, who recently noted :”the most important venture capitalist in Italy is the State, which invested 1.3 billion euros in the last year in innovative initiatives. But then, where is all that innovation?“. That’s our problem.
For the moment the best way to support young entrepreneurs is to follow their dreams and keep helping them sharing our experience, in the hope that many more join us in this long term change process.