Article extracted from Yoram Wjingaarde's speech during Italian Tech Week 2021.

Today we will talk about startups and investment: so, where is Italy at? First we will talk about why startups matter in the first place, then I'll talk about where Italy is in the European context and I'll follow up with some conclusions and recommendations.

Why do startups matter in the first place, why do we care? So, we're in the entrepreneurial age and startups are special kinds of new companies but not every new company that starts is a startup: startups are special companies that are designed to grow fast. Startups in aggregate do grow really fast but they are also risky. In fact only 30% really become successful, but in aggregate they grow 3 times faster than the traditional economy. In the cities where we investigate the growth rate of startups by number of jobs is 10%. Most startups nowadays, almost all startups actually, are VC-backed, at least all the startups that become successful.

In the San Francisco Bay area, for example, almost all jobs now are in VC-backed companies with a percentage of 68%. Across the US the data is 24%, in the EU 1.8% and Italy 0.01%. These VC-backed companies are becoming really big companies such as Apple, Microsoft, Amazon, Google, Facebook. They were all VC-backed back in the days and they've become really big and as a result Europe’s share of global equity is going down from 30 to 15% in the last 20 years.

And it's not only about the shares of equity today but it also has strict long-term strategic implications. Old big research and development badges are now concentrating around digital and healthcare, and that's where the US is very strong but also Asia, Germany to some extent, but the rest of Europe not so much. But that's another really good reason that Italy needs Italian startups to become big tech companies. Nowadays here, in Italy, there’s a very low R&D expense in percentage of GDP.

This can seem really pessimistic but now comes the good news: you might think that in tech is all about big monopolies, actually there is a lot of concentration but big tech is also a huge enabler for creating disruption and to give platforms to the entrepreneurs willing to grow their businesses. For example Google has 90% of the search market share, Facebook 70% of social networks market share but those platforms are the ones that startups exploit to scale their businesses. So because of Google and because of Facebook, or AWS in the cloud services, there is instant and infinite distribution available to any startup and their entrepreneurial projects can have access to instant scalable infrastructure.

All tech companies combined globally are now worth 35 trillion-dollar, some of that are big tech companies but not everything: there is an economic dynamism that makes startups actually stronger than ever, creating just as much value as the older ones. Furthermore there are more unicorns being created now than ever before by farSo there is a concentration in tech but they're not monopolies and actually the mortality risk of companies has increased and the average life of companies is going down.

Now let’s look where Italy is at: Italy is the fourth Europe's economy, part of the G7, but it's only number 12 by VC investment in Europe. If we look at the combined enterprise value of the tech ecosystem, so that the combined value for startups, Italy ranks 14 behind Belgium, Ireland, Finland, Denmark, Poland, Norway etc. probably not where it should be. There are very few unicorns so far: 2 unicorns out of Italy that have actually moved and relocated to other parts of the world and there also very few future unicorns so far. But some steps have been taken recently like CDP Venture Capital and the National Innovation Fund, and other initiatives so there is a turning point happening.

Venture capitals are skyrocketing now in Italy today, with a growth of 2.6 times in the first half of this year and the combined enterprise value of all Italian tech companies founded after 2000, so startups, is now 22 billion which is significant. If you compare that with Spain, Sweden or France, for example, Italy is about 4 to 5 years behind Spain and about 7 years behind France. So what needs to happen now is to get the flywheel spinning, to get a few high-profile exits which attracts global investors, to create new skilled talents etc. Once that happens things can change very very fast..

So ending with my conclusions and recommendations on this. The first point I think it's very important: when you look at the data they can look very discouraging but in tech the tables can turn really fast. Sometimes, like it happened in Romania or the Netherlands, something comes out of nowhere and starts growing very fast. That actually has also happened already 20 years ago in Berlin, known as a very cheap city at that time and that's why some entrepreneurs started to build tech companies from there and made the city skyrocket. Also regulating big tech is not the answer to close the gap, it's not a substitute for competing. The third recommendation is to avoid too much top-down government involvement, France has shown that the government support can help for branding and to send a strong message to the ecosystem. Focus on the bottom upwith ease of doing business and employee ownership. Italy’s leadership at the highest level needs to send strong signals, with real measures. My last point of advice is to listen to people from the industry, but the ones that are truly successful, with the heart in the right place and those who really care for the success of the Italian ecosystem.

If you think all these observations are quite depressing it’s because there’s a need to create a sense of urgency in the Italian ecosystem. There is a perception that is the moment for Italy, that this is the right time to invest in this country. Nowadays VC have become global, because of the pandemic people invest remotely, there’s a lot of interest in investments in Italy and it’s the moment to become more competitive and catch all the opportunities.