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Start-ups Ecosystem, SMEs and family businesses in Italy

By 2023 The venture capital fund market in Italy will exceed 1.6 billion euros. SMEs and innovative start-ups the real engine of Italy.
28/06/2023 Divulgatory Research Download PDF
  • In 2023 higher revenues of +6.3 percent for small-to-medium family businesses, they will grow more than large family businesses, which will record +4.1 percent in revenues.
  • Innovative start-ups in Italy are increasing: by the end of 2023 there will be as many as 16,256 (1,503 in 2013). They are concentrated in the information and communication sectors (50.6 percent), greater development for e-commerce and fintech. Lombardy and Lazio primates, Campania stands out (from 70 in 2013 to as many as 1,392 in 2022).
  • In Italy for 2023 venture capital (VC) investments are estimated to grow by 38.1%; there will be 730 new VC investments, increased in number by +47% between 2021 and 2022.
  • Extraordinary growth of EuroNext Growth Milan (AIM Italy): share issues by Italian SMEs are increasing, it is estimated that capital raised in 2023 may exceed €1 billion (1168 million) with 230 companies listed.
  • In 2023, the number of green minibond issues in Italy is set to exceed 100 issues on an annual basis (138 for 2023, representing a placed amount of 352.6 million euros).
  • By 2030, the green transition in Europe would be worth a net economic benefit of 1.8 trillion euros. Italy leads the European ranking for circularity trends, first Tuscany and Trentino Alto-Adige, last Molise and Calabria.

Innovative startups in Italy are growing, venture capital investments are increasing by 33.4 percent in the past year, and companies are increasingly adopting sustainable initiatives that boost the circular economy. This is the current landscape of business innovation in Italy, where family businesses, SMEs and innovative startups are driving the transition, thanks to investments made by venture capital and through the capital market.

These are the findings of Rome Business School’s research, “Ecosystem of start-ups, SMEs and family businesses in Italy: current landscape and opportunities related to innovation, financing and sustainability,” edited by Francesco Baldi, Lecturer in Corporate Finance and Valerio Mancini, Director of Rome Business School’s Research Center, developed together with the consulting firm Global Management Group (GMG). “The increase in the number of innovative start-ups operating in our country – whose number is set to exceed the threshold of 16 thousand companies – the increase in Venture Capital (VC) investments, which are expected to exceed 1.6 billion euros and the expansion of the SME stock market that could result in raising capital in excess of 1 billion euros, all during 2023, open up exceptional opportunities to promote sustainable economic growth according to the now-dominant strategic paradigm inspired by ESG (Environmental, Social & Governance) logics,” says Francesco Baldi, among the authors.

Innovative start-ups in Italy

In Italy, there are about 14,708 innovative start-ups registered at the end of 2022, data reveal a cumulative growth over the period 2013-2022 of +879%, about +28.8% per year. They are mainly concentrated in information and communication services (50.6 percent), professional, scientific and technical activities (23.1 percent) and manufacturing (14.5 percent). Examining their dynamics, the authors noted that in 2013 startups with a production value of less than 100 thousand euros accounted for 67.5 percent, but thanks to technological advancements and market evolution, today they are only 27 percent. They grow more in number of innovative startups with production value between 1 and 5 million euros (from 13 in 2013, to 2263 in 2022, +25.7%), while only 0.3% are those with production value over 50 million. The remainder have production values between 100 thousand euros and 50 million euros, 48.7 percent.

Overall, between 2013-2022, Italy recorded an annual increase in innovative startups of +25.6 percent. Lombardy is confirmed as the country’s innovative engine with 3,933 innovative start-ups, while Lazio ranks second with 1,790 (up from 151 in 2013). Campania’s positive evolution stands out: innovative start-ups have risen from 70 in 2013 to 1,392 in 2022, with an average annual growth rate of 39.4 percent, a higher change than the Italian average.

The financing of innovative SMEs and start-ups: between venture capital and the capital market

Surprisingly, the shock related to Covid-19 and the Russian-Ukrainian conflict did not stop the process, but rather amplified the growth of venture capital investments: in 2022 in Italy, the number of investments by venture capital funds increased by 47% compared to 2021, showing a doubling of the amount invested: €1,179 million in 2022 vs. €587 million in 2021, +101%.

For 2023, the authors estimate that there will be a 38.1% increase in the number of investments by Italian venture capital funds, which should translate into an increase in the amounts of capital invested of +33.5%. Thus, the venture capital fund market in Italy could exceed 1.6 billion euros by the end of 2023.

Also worth considering is the Euronext Growth Milan market, which welcomes Italian SMEs with growth potential. In 2022, there were 190 listed companies with a market capitalization of 10.6 billion euros (data from Borsa Italiana). Since the pandemic, the market has experienced 95 percent growth in market capitalization and 26.1 percent growth in the number of listed companies. In fact, in 2022, 901.5 million euros were raised through the issuance of shares by Italian SMEs (up 85 percent from 2021). According to the authors, in 2023 the capital raised could exceed 1 billion euros.

The importance of sustainability and the circular economy

Integrating the concept of Corporate Social Responsibility, where companies compromise to take into account the social, environmental and economic impacts of their activities, can bring Italian SMEs benefits in terms of reputation, risk management, revenues, market share and innovation capacity. In fact, “sustainable design offers benefits to businesses, consumers and the environment, improving the competitiveness of products and economic systems,” says Valerio Mancini, among the authors of the research.

Italy leads in circularity trends among major European economies, registering the greatest increase in circular economy performance according to the 5th Report on the Circular Economy in Italy (2023), which evaluates several indicators such as waste recycling rates, resource productivity and land consumption. The most developed regions in terms of circular economy are Tuscany and Trentino Alto-Adige, while at the bottom of the ranking are Molise and Calabria.

Starting on a path toward the green transition pays off: according to the Diversity Brand Index 2022 Research, companies with stronger ethical cultures outperform their competitors by 40 percent in all measures of business performance. Not only that, focusing on ethics is especially important for Generation Z, which will represent 27 percent of the workforce by 2025. Moreover, according to European Parliament figures (2023) this approach could not only bring environmental and social benefits to Europe, but could generate a net economic benefit of 1.8 trillion euros by 2030.

Financing an increasingly sustainable economy

The growing interest in a more sustainable economy offers new opportunities and challenges especially SMEs. In the debt capital market, the evolution of green minibonds has been astonishing: in just 3 years (between 2020 and 2022), this market has grown from a placement of just under €70 million to over €200 million at the end of 2022. Specifically, the 42 green minibonds issued in 2022 made up 17.6 percent of the total 238 minibonds placed by Italian SMEs (Italian Stock Exchange data).

Francesco Baldi predicts that there may be “further development of this market segment, corroborated by an ever-increasing investor interest in sustainable finance instruments. In 2023, the number of green minibond issues is set to exceed 100 issues on an annual basis (138 for 2023, representing a placed amount of 352.6 million euros).”

According to Francesco Baldi, in order to take full advantage of ESG (Environmental, Social, and Governance) opportunities, it is necessary to “transform the Italian entrepreneurial system into an ecosystem at the forefront of compliance with climate, environmental, gender inclusion, and internal cohesion directives.” To achieve this goal, specific economic policy and policy measures are needed, and it is important to centrally coordinate the investment activities of Italian venture capital funds, which are currently primarily managed at the regional level.

In addition, “there is a need to strengthen the R&D orientation in Italian universities to promote innovation and technological skills of researchers and encourage the creation of academic spin-offs. The National Recovery and Resilience Plan (PNRR) can play a key role in this process,” adds Valerio Mancini. Indeed, there would be a need to boost the investment of Italian venture capital funds through financial interventions to support innovative start-ups and SMEs, both in the early stage and in the expansion phase, regardless of their sector, and to promote co-investment between venture capital funds, business angels and business incubators/accelerators by providing facilities for these collaborative activities. “Co-investment would increase the flow of capital and knowledge to early-stage Italian startups, with greater risk sharing by qualified investors,” they conclude.

Finally, Francesco Baldi adds that “it would be useful to provide for the extension of the corporate purpose, which is required for new companies to register as innovative start-ups and is now limited only to high-tech products or services, to all the rest of the types of productive activities as well. This would allow Italian VC funds to invest not only in technology start-ups but also in start-ups with more traditional businesses (e.g., clothing/fashion, furniture design).”

These measures would help create an environment conducive to innovation, investment and growth of Italian companies, promoting a cutting-edge entrepreneurial ecosystem.

Family businesses: the foundation of the Italian economy

Family businesses not only represent tradition, they are also agents of innovation. At the end of 2021, there were as many as 17,897 companies in Italy with revenues over 20 million euros, of which as many as 12,500 were family businesses, representing 69.8 percent of companies in this revenue bracket. At these firms 74.2 percent of total employees in Italy are employed, with non-family firms accounting for the remaining 25.8 percent. According to the authors’ analysis, done on AIDA (Bureau Van Dijk) data, a major database of Italian companies, over the 2013-2021 period, small-to-medium sized family firms experienced higher revenue growth than other firms with different ownership structures (+38% vs. 35%). In addition, the sales revenues of Italian family businesses are expected to increase by 6% by 2023 and there is a 4% increase in the number of employees. The provinces of Milan and Rome concentrate the largest number of family businesses, with 2,696 and 896 businesses respectively (2021). 57.3 percent of family businesses turn out to be small to medium-sized (with revenues between 20 and 50 million euros) and 42.7 percent are large (with revenues over 50 million euros), and these are businesses that continually demonstrate their ability to adapt in the face of adversity, thanks in part to the diversification of the sources of financing they resort to.