Thank you Giuseppe for being here today, it’s a great opportunity for us to know more about venture capital. We would like to kick off by asking you what was you your path like and how did you end up in the Venture Capital world?
I got my Master’s degree in Telecommunication Engineering from Pisa University as my main interests were Mathematics, Physics and Data. After my degree, my first job was as a researcher in a project of data compression for radio transmission. I did software programming for one year and then I started to think if it was really what I wanted to do: coding keeps your mind busy 24/7, even when you go to bed. Then, by chance, I got a job offer from the largest Telecommunication company at that time (I’m referring to what is now Telecom Italia or TIM) to work in their strategy department. When I joined the company, they sponsored me an internal MBA and this is when I first approached finance, venture capital, business strategy and marketing. Since then, my career totally switched: after three years, I got an offer from 3i Group, one of the most important private equity company in Europe.
After 3i, I moved to HSBC in London, where I did principal investments, always on the buy side. Eventually, I came back to Italy and I joined P101 in 2014; for all of you that don’t know us, P101 is one of the most important Italian, and also Southern European, VC focusing on early stage investments in the digital, innovation and technology sectors.
As you can see from my background, It is not easy to define the ideal path for venture capitalist.
Would you recommend going straight to work in a venture capital fund rather than having a previous experience, for example, in consulting?
My suggestion is, for instance, to have a short experience, even an internship, in a start-up before joining a venture capital fund, this allows you to have an idea of what it means working in this world.
What do you think about the 2-billion investment made by CDP in venture capital: are we going in the right direction or is something still missing?
It is a complex question, to answer you I need to go back in time: venture capital faced a slow-down in Italy in 2002-2003 due to institutional issues and then it restarted in 2012. For this reason, we had a ten-year gap in which there were only few angels and small seed investments made by private individuals, whereas countries like France, Germany and UK never stopped. This is to say that we’re 10 years late compared to other countries. In Italy, venture capital started gaining traction only about 2-3 years ago thanks to CDP and, before it, Fondo Italiano di Investimento. Now, the key aspect where we should focus on is: how can they support the development of the VC market in Italy? By investing public money in funds. In fact, given their bargaining power, an eventual direct public investment would be completely disrupt competition as they would have way better terms than us.
Then, the question moves to where to invest. They should analyze the value chain of venture capital, from technology transfer to late stage. By doing that, it would be clear that we’re missing capital on the pre-seed side and on the late stage.
If you look at the US, they have all the stages covered, even the IPO. We can’t say the same about Italy, where the IPO market is much less developed, consequently making it difficult to attract late stage investors.
Moreover, these 2 billion by CDP will have a positive impact also because they will generate leverage effects. The more money you put, the more you catch the attention of international investors. Then, the Government, as Macron did in France, should push organizations like insurance companies, endowments, fund of funds to invest more in VC.
Finally, to make the ecosystem work properly, we also need a mix of capital: entrepreneurs should invest more in start-ups because we, as P101, are institutional investors which expect start-ups to already have some metrics, whereas business angels do not always have such requirements.
It is a complex scenario to forecast, the positive thing is that money is coming, let’s see how it goes in terms of implementation.
What’s stopping people from investing in Italy?
We live in a globalize world with capital mobility: about 5-10 years ago capital was attracted by the VC world of Silicon Valley. The reason is very simple: they make money.
But now, if I was an investor, I would look again at the Italian market as the quality of founders is improving massively, especially thanks to a new generation’s mindset, much more entrepreneurial. Today if you believe in a project, it is irrelevant if you are in Italy or in the US. What is relevant is that tech and innovation are disrupting the old economy. So, if I was an entrepreneur, I would pay attention to these sectors and I would re-invest my personal money in start-ups as a way of observing what’s happening in the market. This is the kind of mindset of the Silicon Valley. For instance, I’m dealing with a start-up that has an unconventional cap table including no less than Bill Gates. This is because he understands that re-investing is not just a way of making money, but it allows you to watch what’s going on in the market, considering that all the technologies, will be disrupted in the future.
It is very interesting the fact that investments, at least in Fintech, have moved from B2C to B2B. Have you seen this trend also in other sector?
If you had asked this question 6-7 years ago, I would have answered no because, especially in countries like Italy, start-ups are more visible on the consumer side. On the contrary, B2B is more complex: you need to have experience, founders and an ecosystem that supports you.
Now the situation is changing in Italy, I would say it is probably 50-50. However, in Fintech it is not as easy: in some cases, you can find the coexistence of B2B and B2C within the same company and this is not wrong as long as there are synergies. But, in my opinion, the maturity of the ecosystem must go through more B2B companies.
Considering costs and risks, investors may be scared to give money to start-ups. How can they avoid this?
Start-up founders should immediately think internationally and not nationally: if in Fintech it is better to have a local dominance in the market, in other sectors it is preferable to spread costs among different countries in order to diversify.
What do you think about the new approach to investments of Sequoia Capital?
We’ve realized that, in order to increase the probability of success, it is better to keep the company in our portfolio longer. Consider our closed-end fund with 10 years tenor: this means that in 10 years we need to invest and to divest. The most important thing for us is timing: we don’t want to arrive at the end with someone else looking after our company. So usually this is why the first 5 years are called “investment period”, the last 5 years “divestment period”, not because we divest necessarily in the last 5 years, but because it’s when we have to find an exit.
Sequoia is trying to be a flexible holding company: this means giving back money to investors without keeping a company for 10-20 years.. I have to stress the fact that Sequoia can do it because they are massive. To start something similar in Italy, you need to have funds that cover the entire spectrum. If they succeed, this is going to be the next big thing in this sector.
Flexibility is a key point of exit strategies: what about it in the Italian VC funds? Which are the problems and where do we need to improve?
As of now this is the biggest problem, even bigger than filling the gap in all the value chain. The more exits you have, the more rumours there will be around VC and the more you will attract investors. A few years ago exits in Italy were difficult, but, fortunately, the situation is now changing: we’ve done some exits and we’re going to announce more in the following months, and the same is true for other funds. In addition, I think that we will be able to see unicorns soon.
One of the reason why we don’t have massive exits is the strange approach to VC of Italian corporates. They call it “open innovation” but the meaning is not clear: it might mean that you do a small investment or that you start a partnership. At the end of the day, if after a period you don’t buy a company or if you think you can buy it cheaply, you damage the ecosystem. On top of it, Italy suffers from the lack of IPO, the AIM (Alternative Investment Market) is not very liquid and there is not a proper tech coverage.
COVID 19 highlighted some deficiency in tech and digitalization, but also opportunity of investments. Which ones in your opinion are the hottest areas of interest?
COVID 19 was the trigger of a massive digitalization: e-commerce, fintech and cybersecurity benefited of a great acceleration because people, forced to stay at home, started to use more the online, whereas before they were even afraid to use their credit cards on websites. This is the typical paradigm of how innovation works: until you are forced, you will not do it. So there must be a pioneer that looks further; for us Silicon Valley’s fund were the ones. These trends, even if in some cases we could observe slowdowns, are here to stay.
Anyway, a few years ago there was hype around AI and Blockchain. We, as a fund, don’t want to invest in buzzwords: these trends are already consolidated and we should consider them in terms of enablers into a value chain. For this reason, it doesn’t make any sense to invest in AI and Blockchain per se. Looking forward, there is a massive amount of data coming in the next years, so the company that will be able to collect and analyse them will have an advantage.
Who are the investors of Italian and European VCs?
The mix is always the same: public and private. The former are CDP and other regional institutions, while on the private side there was a big shift: starting from mainly high net-worth individuals, now it is becoming more likely to have fund of funds, pension funds, banks, insurances, more specialized units of financial institutions and corporates. It is important to find the right mix: in my opinion, it is not worth to have 80% public money and 20% private for instance, as you risk seeming dodgy. Overall, in Europe it is the same. The real difference is in the US where, for instance, the endowments from Yale, Stanford and Harvard put massive amounts of money.
P101 is directly involved in VC Hub Italia: is it having any positive spill-overs in creating awareness of the VC world?
Absolutely, it was at the right moment, at the right time. The awareness we created was highly perceived and we had a massive impact on the market. Up to that moment, the VC market was seen as a small part of the PE market but by working hard . we managed to catch the attention of institutions and stakeholders.
Moreover, putting together VCs, start-ups and shareholders was very interesting in terms of synergies, brainstorming and sharing ideas. To be transparent with you, we’re trying to do what France Digitale is doing in France and hopefully one day we will have some prime minister saying that also Italy wants to become a “Start-up Nation”, like Macron did in France.
Do you have any advice regarding our careers, in particular in the VC world?
You are lucky to live in a very dynamic world, so don’t get focused on a stereotype career path: follow your inclinations and forget pre-determined path. You can follow a particular path and then for whatever reason it can be disrupted. You should always be open to new technologies, trying to understand what’s going on in the market and what you can do to fill the gap: this is the advice I always give to start-ups founders.
I did exactly the same: my choice to do Telecommunication Engineering was not because I was a genius, but because I thought that in the next 5-10 years Telecommunication would have changed the world. It was not random that I ended up In VC: I had the feeling that in the following years there would have been more and more entrepreneurial activities.
In every field you should think as an entrepreneur: ask yourself what will be missed in the market and then you will find the path.