Startup Nations
Startup has become the abracadabra of the industrial policy of all the governments of the world. The very notion of entrepreneurship ended up being subsumed by the notion of startup.
Emmanuel Macron has said he wants to make France a "startup nation" (he said it in English!), Israel already is, causing the envy of the world. In the end, one forgets the situation in which this country finds itself. Berlin, thanks to the vibrant community of start-ups that have settled there, seems to have shelved the heavy burden of history to launch itself into cyberspace. It is in competition with London and Paris. New York. San Francisco and Shanghai already exist.
All this happens thanks to the many aspiring unicorn startups on the example of Uber, Airbnb, Pinterest. Capitalism at its best. All three unicorns are cooking up billionaire deals that will pay off handsomely to all the people who have done anything to it. There are no longer even books on start-ups that approach the phenomenon from every point of view.
Even in Italy there is a lot of talk about it especially in relation to youth unemployment for which the startup seems to provide an intelligent recipe. Promoting entrepreneurship is in itself a good policy and communication strategy, but it cannot be used as the blue pill to cure the job shortage.
Start-down Nation
The Italian lag within the OECD is enormous. So much so that Gabriele Colasanto and Marco Rossella, in a recent book published by GueriniNext, replace the term start up with start down (which is also the title of the book: Start down. The crisis of digital myths and the awakening of innovation, GueriniNext — also available in ebook).
An easy-to-read book, deliberately ironic, with mocking traits for certain paradoxical implications of the phenomenon, but informed and documented like few other publications. The Italian experience appears affected by dwarfism, presumption, dilettantism and race to imitate imported models that are already declining in their original incubation environment.
For the two authors, even the start-up system on a global level no longer produces companies capable of turning entire industries upside down. Real! Even if something new is starting to see in a really heavy field for the entire ecosystem, that of food, with the "new food" start-ups.
Three graphic elaborations presented in the book by Colasanto and Rossella give an account of the Italian delay. We are pleased to present them to you below.
Commenting on this graph, the two authors write (p. 33): «Let's be clear, you are heroes. Super heroes. But if you look at the system, the truth is that there is no system. There is no money, and, if those who have some ideas in mind must find a market, they will not choose that of a country where consumption has remained stagnant for years, with weak internal demand and all the economic indicators defined, when it goes well, not in decline »
Commenting on this (p. 39): «Cap and brioche: this is roughly the price of our soul as a startupper, what we are able to attract or invest in start-ups».
Commenting on this (p. 38): « In seven of these cases the investor is foreign. In most of these situations the value of the transactions has not been published and honestly all this confidentiality is not always a positive sign ».
Two more interesting reads
Before offering you an excerpt from the volume by Colasanto and Rossella which concerns the Italian legislation in support of innovative start-ups, I would like to point out two other readings on the themes of innovation and entrepreneurship. These are works that have a precise connotation. The authors, in various roles, are people professionally involved in these issues and therefore direct witnesses of what is really happening in the living body of civil society.
The first is a work by Roberto Panzarani, Innovation journey. Inside the ecosystems of global change (GueriniNext, also available in ebook). Panzarani travels a lot and accompanies Italian companies to the main places of innovation on a global level. In the book he reviews all these places. These are companies, technology parks, universities, research centres, incubators, accelerators. They are the places where things happen: from Silicon Valley to Chilecon Valley, from Israel Valley to the Indian city of Bangalore, from Cambridge Science Park to Science Park Berlin Adlershof.
The second book is Without waiting Godot. How to quickly increase the value of your business by projecting it into the future by Alessandro Bruni (goWare). The author, who has worked in the largest Italian business consultancy firms, now carries out coaching activities for young people in discovering their professional vocation and in creating start-ups. The book, in an accessible way and with concrete examples, points the way towards a step that every start-up must face. That of the scalability of his business, i.e. the transition to a larger dimension in terms of size and excellence.
At this point we leave you to Gabriele Colasanto and Marco Rossella's considerations on how Italian legislation configures an innovative start-up and what types of support it provides. Enjoy the reading!
What is an innovative start up
Il decree-law 18 October 2012, n. 179 (so-called «Crescita 2.0») introduces the concept of innovative start-up for the first time in Italy and formulates a definition for it.
To the way in which the legislation defines an innovative stratu, we would like to make four comments. We feel like making them, because in fact it is around this definition that the nearly 10.000 innovative Italian start-ups, present in the Register, always wanted by the Ministry of Economic Development.
One. The innovative start-up "has been carrying out business activities for no more than forty-eight months"
Are we sure that the duration of the life cycle of a start-up is universally identifiable as no more than four years? What is certain is that a startup is a company in its running-in phase. And who can say what is the maximum time for a startup to exit this phase? It looks more like a parameter that means: dear guys, I'll support you for four years, then it's your business. Four years… not even the time of an entire legislature! If you don't believe the government, let alone us startuppers voters. Kindly: four years is equivalent to saying a sufficient period for the company to be in sight of a balanced budget. Not to always shoot at the Red Cross with elegant paramedics in livery: Uber was born in 2009 and has not yet closed a profitable business. Shall we abandon her to her fate? It is true that a limit must be given. But you also have to avoid some startuppers serials pass forty-eight months in forty-eight months only for tax reasons.
Two. The innovative start-up is innovative because «its exclusive or prevalent corporate object is the development, production and marketing of innovative products or services with high technological value»
And who decides whether this condition is met? The startup itself through a self-certification! Perfect, we've streamlined bureaucracy where it shouldn't. Result: in the Business Register there is a long queue of start-ups that do not own a website. For heaven's sake, it's not that it's a mortal sin, but a couple of hours with a service is enough open source.
Three. The innovative start-up must invest in research and development
How much? At least 15% of the higher value between cost and total production value. But the production value cannot exceed 5 million, so we know that in the best case scenario the investments of a super startup should amount to at least 750.000 euros. It is a pity that the total value of production is around 961 million euros (third quarter 2018, on 2017 financial statements) for around 10.000 companies; with an average value of less than 100.000 euros, less than 15.000 euros of investment is enough. Considering that these investments may also include "expenditure relating to incubation services provided by certified incubators", we are facing a nice waltz. ùn-due-tre, ùn-due-tre, ùn-due-tre… Unfortunately we are skeptical about the definition of «research and development» and about the quality of the same: we often talk about fictitious investments of a truly questionable nature. Research in Italy is anything: discovering penicillin, subscribing to a football team, buying newspapers, going for a cappuccino and talking to the barista, buying a new computer, all these expenses can easily end up under a nice big label «research and development". Not even methanol wine was so polluted. We have seen cost items that are really borderline passed off as expenses for research and development. At least on this point, the innovative creativity of the fake is encouraged startuppers. The fake startuppers it must be unmasked, mocked as much as possible, mocked and exposed to public ridicule, to the advantage of the real one. After all, the real goal of our publication.
Four. The innovative start-up must be «owner or custodian or licensee of at least one industrial property right relating to an industrial, biotechnological invention, a semiconductor product topography or a new plant variety»
Wow, cool: patent power. Did we perhaps write "must be the owner"? Sorry, mistake. Better said, "he can be the owner", because the resolution provides that even only one of the three conditions can be satisfied: the value of the investments in research and development, the ownership of an exclusive idea or - listen, listen - «the use in percentage equal to or greater than two thirds of the total workforce, of personnel with a master's degree". Do you see that the piece of paper is needed? Everyone to work in innovative startups! Too bad that the 3.859 startups that employ staff (40% of the total) generate about 13.000 jobs, with an average of 3,4 positions each. After all, a couple of ordinary graduates is enough.
Is all lost? No!
So, is all lost? Perhaps. Or maybe not. The proposal of some market operators is recent, as mentioned in an online article by Mimmo Nesi, of LVenture Group, seed investor in digital start-ups listed on the MTA of Borsa Italiana, and Domenico Nesci, partner of LVenture Group and Kauffman Fellow, who — as much as she may seem to come from a dream book — is at least courageous. In essence, Nesi and Nesci are proposing that Italy raise the investment to five billion euros. In other words: since we understood that here you either play to win something or it's better not to play, let's try to do it ALL in. We use the dividend yields of large companies still owned by the public, such as Enav, Enel, Eni, Leonardo, Poste Italiane, Monte dei Paschi di Siena (no come on, let's leave it alone for a while) to invest in start-ups, but only in co-investment with private individuals. Five billion in five years, three of which come from this one «public purse».
Some market operators are proposing to raise public investment in innovative start-ups to 5 billion in five years, drawing on the dividend yields of large publicly-owned companies such as Enel, Eni, Poste. A public fund in co-investment with private individuals.
But is it really credible that this ever happens in Italy?
A similar proposal also emerged from the Startup Day organized by Agi close to the start of the 2018 electoral campaign, which was attended by 40 representatives from the world of innovation, investors, business angel, entrepreneurs. Gianluca Dettori, president of the Primomiglio fund, did not mince words: «In Italy no one can say they have earned with a fund venture capital, we are in year zero and explaining what we do is complicated».
The few funds present in Italy are unable to support the growth of the sector. The State is therefore asked to intervene through an industrial policy action that also attracts private investment, and therefore the proposal: a five-billion-dollar co-investment plan over five years that also leverages individual savings plans, also involving large Italian companies.
It's been a whole century, it's a whole generation that couldn't wait, can't wait for anything else: to finally think big. Being told it's really up to them. It would mean using startups to deliver this message. But it won't happen, the usual enclave of boiled fifty-year-olds will react to preserve their own species, and then we have every right to go down hard.
An “old” nation
This proposal could help overcome another of our limitations: Italy lacks domestic demand. Italy lives in the memory of the post-war economic boom, when a fervent market in supply combined with a high and widespread demand helped build the foundations of the seventh economic power in the world. We are old: zero birth rate and stagnant domestic demand they condition us.
In the third quarter of 2018, Istat found that disposable income for consumer households increased by 0,1% compared to the previous quarter and by 2,2% on an annual basis. Good news then. But no: consumption remains practically stationary, with a quarterly growth of 0,3%: against a purchasing power that has fallen by 0,1% compared to the previous quarter, households have maintained an almost unchanged level of consumption, thanks to a slight reduction in the propensity to save. However, the number of Italians inclined to save remains high (about 86%). It will not be a coincidence that Italy is among the first countries in the world for private savings (unfortunately also for public debt).
If this is the climate, it can be deduced that a small business, a start-up, if it wants to develop and do something more than survive, cannot turn to the internal market alone, but must open up to international markets,mission impossible in the absence of investment. The company must present itself to investors with a strong solution on the domestic market, but at least equally successful on the international one. Only in this way can he think of attracting investments from venture capitalists.
A startup that wants to expand significantly must necessarily open up to international markets where large venture capital operates.
Is the new government serious?
With the new government measures, the tax credit for 100% acquisition of a start-up can be 50%.
The Government in office since 1 June 2018 seems to have taken these requests seriously. In the budget law it was introduced - even if only in rush final – an investment plan in startups. The first measure defines that from today the State can invest directly or indirectly in venture capital, through own funds or existing private funds. With reserve resources - 90 million euros between 2019 and 2022 and another 20 million between 2022 and 2025 - the Mise aims to play an active role in the Innovation Fund.
The Invitalia Ventures fund will flow into Cassa Depositi e Prestiti, which will open its own fund of around 600 million.
5% of individual savings plans (Pir) will be invested in venture capital; someone - with all due respect to savers - would say "risk capital", but not unlike what happens in other more advanced countries on this front. At the same time, the State will invest 15% of the profits deriving from the investee companies. These two maneuvers should generate about 400 million each.
Finally, the tax credit in favor of exit. For companies that acquire 100% of a start-up and keep it for at least 3 years, tax deductions of 50% are envisaged, while 40% for simple investments.
If all these actions were to be implemented, Italy would go from 300-500 million investments to 1,5 billion: an ambitious goal, to say the least, necessary to bridge the gap, but nonetheless still a long way from 5 billion that opinion leader of the sector deem necessary. For complete integration, the current distortion would still need to be straightened out, according to which a start-up today cannot become a supplier to a public body because it does not have the budgetary requirements to join this market.
