Words Edoardo Gentili
February 8th 2024 / 10 min read
Culturally, historically, geographically, Italy has always sat at the heart of Europe. From the Roman empire to the Renaissance and the Enlightenment, the country has long been a crossroads and marketplace of ideas, culture, and material wealth. There’s a reason behind the expression—’All roads lead to Rome’.
But until the last few years, compared to its European counterparts in Germany, France, and Spain, Italy has lagged when it comes to technology and startup growth. Venture capital largely failed to materialise, causing countless founders to leave to set up businesses abroad.
Now in 2024, we are starting to glimpse its potential. Italy’s trajectory is hugely exciting, one which looks set to establish it as Europe’s next technology hub.
So what makes Italy such an exciting place to build and invest in startups? I dive closer into the economic and cultural history of modern Italy, and what this might indicate for its future.
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In the wake of World War II, Italy was devastated. The war left the Italian economy in ruins, with a high rate of unemployment and inflation.
Aid from the United States helped kick-start its post-war recovery, along with country-wide initiatives and the hard work of its people, setting Italy on a period of rapid industrialization and economic growth in the 1950s and 1960s, often referred to as the "Italian Economic Miracle."
Car manufacturer Fiat exemplified this spirit of Italian innovation. Like many European companies, Fiat's factories were significantly damaged during the war. Post-war recovery saw Fiat introducing cars like the Fiat 500 in 1957, a compact and affordable vehicle, often credited with motorizing Italy. It became an iconic representation of Italian design and ingenuity.
By the late 1960s, Italy had transformed from an agrarian-based economy to one of the world's leading industrial economies. For Italians, this came to define ‘La Dolce Vita’ (named after the popular film from the 60s), during which the country became used to economic prosperity. Italian brands became a hallmark of quality—Ferrero, Ferrari, and the many Italian fashion houses that gained international renown. An SME boom saw Italy, in 1987, overtake the UK economy in terms of size, becoming the fourth wealthiest nation in the world (known as ‘il sorpasso’, the overtaking).
What goes up will often come down. Italy was one of the hardest hit during the 2008/9 Global Financial Crisis, its GDP shrinking by nearly 7% in that period.
Italians gravitated towards security, swapping small business for large corporations in finance, legal, and other steadier industries. This reverberated through the education system, where the culture of risk taking and asking ‘why’ disappeared in a favour of pure academic achievement.
Not only this but the country’s top talent started leaving the country, deterred by economic and political instability, seeking jobs or looking to start their own business elsewhere. The Brain Drain was like no other.
The number of Italian entrepreneurs who left to set up businesses abroad exemplifies this. Depop, Kong, Pleo, TrueLayer, and Northvolt, to name a few, all demonstrated the quality of Italian entrepreneurial talent, but also that, to be successful at the time, you had to go abroad.
Despite its relatively small enterprise value, Italy is starting to hit the point in the curve that some of Europe’s biggest startup hubs reached before finding exponential growth..
In terms of venture capital invested, Italy is Europe’s fastest growing country (albeit from a much smaller starting point). It even bucked the trend that the rest of Europe saw, seeing VC increase from €1.1 billion in 2021 up to €2.3 billion in 2022. It dipped back down in 2023, although largely in line with the broader VC market.
This has been fuelled by homegrown Italian startup success. Recent fintech unicorns like Scalapay and Satispay have shown Italian founders that you can build billion dollar companies in Italy. The fact they were backed by tier one funds like Tiger Global and Tencent shows that international VCs are starting to take notice.
The Italian flywheel is starting to gain momentum. The mindset is shifting, with a new generation of Italians looking to create opportunities and find purpose in their work, naturally leading them to starting their own businesses rather than just taking a more risk-averse career path.
On top of this, successes of the late 00s/mid 10s are now feeding back into the ecosystem (as illustrated below). I’ve been closely involved in founding Italians in VC, a community of Italian investors looking to accelerate growth in the Italian ecosystem. This ‘payback mentality’ will prove critical for the future of Italian tech, and demonstrates a collective will to see Italy compete globally.
Creative app studio Bending Spoons is the perfect example of this. Italian founder Luca Ferrari launched the business in Copenhagen, but relocated their headquarters and operations to Milan. In 2020, they were chosen to develop Italy’s COVID track and trace app. The business has now raised over $700m and made several notable acquisitions including Evernote, Splice, and Meetup.
Three factors drive ecosystem success in tech: physical capital (a market), financial capital (institutional and angel money, plus government incentives), and cultural & intellectual capital (talent and growth mindset). Italy is showing signs of all three.
First of all, physical capital, by which I mean a receptiveness and market demand for certain products and services. Italy has proved that it can produce companies with a global demand. 67.5% of Italian exports are capital goods and intermediate goods in electronics, robotics, materials, and more.
Secondly, financial capital. While Italy has experienced economic turbulence, its GDP has been on the rise and there still remains a tremendous pool of capital. This comes in the form of generational wealth from Italy’s oldest institutions, now manifesting as family offices eager to spot upcoming opportunities. These include Exor Ventures (backed by Fiat’s Agnelli family), H14 (the Berlusconi family office), and Milano Investment Partners (family office of Moratti family, who owned the Saras energy multinational).
This is backed well by the Cassa Depositi e Prestiti (CDP), an Italian government development fund who have backed 187 startups since 2015. Not only is this providing funding across the startup lifecycle, it is also acting as a catalyst for other financial institutions to channel money into venture.
Venture capital is of course growing year on year, and we’d expect 2023’s drop to be little more than a hiccup. Much of this comes from the ‘pay forward mentality’: wealthy expats who are now coming back to invest in the ecosystem. But as well as this, large VCs are now taking note and eager not to miss out on the next Italian unicorn. Last year, Insight Partners led a Series A for mental health app Unobravo, a huge moment seeing a big US fund investing in an Italian startup. None of the big international funds have established an office in Italy yet—in this sense, we are still early movers.
Finally, the talent is exceptionally strong. Italy’s universities remain prestigious and coveted—and compared to last decade, more students are staying to work domestically after they graduate. This is a huge pull for startups to launch in Italy—a chance to source from a high calibre talent pool at a comparatively lower cost to the rest of Central Europe. The fact that this generation currently joining the workforce is more risk oriented is a positive indication for entrepreneurial activity.
The Italian economy is structured around deeply-linked regional networks of agile and high calibre SMEs, surrounded by larger group businesses.
To unlock the entrepreneurial power of the country, we must leverage what is foundationally Italian, while also recognising the transformative power that new deep technologies can bring to old industries. Take, for example, the energy sector—where Italy has become one of the leading countries in terms of installed solar capacity. This is a result of a range of economic (high cost of electricity), political (incentives for solar energy producers), as well as geographical factors (the sunny climate) that set Italy up for success. Similar success in other industries must take inspiration from Italy’s existing infrastructure.
We believe there is tremendous value in situating ourselves on the ground in Italy—and in doing so, we are one of the first global early stage investors to set up shop in Italy. Our value-add is manifold. One, we are bringing an operational expertise which is harder to come by in Italy, given the nascency of the ecosystem. We are giving founders access to some of Italy’s leading corporates (Fastweb and Mediobanca), whose perspective on their respective industries is unparalleled. On top of this, we are acting as a bridge between Italian founders and a global technology ecosystem which will prove instrumental for their success—in terms of investment, scaling, and more.
During the last Renaissance period, Italy took centre stage, responsible for some of the great academics, scientists, technologists, and artists of the time. We are now entering a similar inflection point, where not only is technology transforming exponentially (in particular AI), but so are the problems that we’re looking to solve. Italy, with a long seated culture of innovation and with the right ecosystemic factors lining up, can once again be at the forefront of this movement.
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Edoardo Gentili is an investor at Founders Factory. Hailing from Milan, he has long been an advocate of Italian talent and startup growth. He is the co-founder of Italians in VC, a global community of Italian investors, With a mission to connect, share and educate the next generation of Italian Investors and founders.
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