Start-ups: what do investors value most?
Innovation element, soft and techno skills of the team
The creation of new companies is an economic phenomenon that is extremely relevant, especially in a conjunctural phase such as the current one with a pressing global economic-financial crisis also due to the Covid 19 health emergency and the war in Ukraina.
In this scenario, the constant growth of the industry related to digital innovation indicates the need to support and encourage a sector with the highest growth rates. For economic systems, innovation, understood in its broadest sense, is a physiological necessity that stems from the need to continually strive to increase the ability to compete in the market in the long term.
In the knowledge economy, one of the phenomena that has taken on great importance in recent times, even in Italy, is that of start-ups, young companies founded to develop a unique product or service, put it on the market and make it irreplaceable for customers.
The role that young digital companies have taken on within the global economic-financial system has brought about significant changes in the entrepreneurial ecosystem: numerous studies highlight precisely how start-ups are responsible for a substantial part of GDP growth.
Start-ups in Italy
According to the analysis carried out by the Ministry of Economic Development in collaboration with Unioncamere, InfoCamere and Mediocredito Centrale, the trend in the last quarter of 2021 towards a strong push towards innovation in our country with regard to innovative start-ups and SMEs is confirmed. In fact, in the fourth quarter of 2021 there were 14,077 innovative Startups registered in the special section of the Companies Register, with an increase in share capital compared to the third quarter (+€24.5 million, +2.68%), averaging around €65,000 per company.
Governments since 2001 have allocated various incentives to help these businesses. One of the main instruments for supporting innovative start-ups continues to be the SME Guarantee Fund, which handled 746 operations in the fourth quarter of 2021 for a total of around EUR 150 million in funding potentially mobilised in the quarter.
To understand how start-ups also represent a positive stimulus for the Italian industrial system, we met with Giacomo Salvanelli Author of the Rome Business School Research Center Report: “Il Lavoro in Italia. Le sfide di dipendenti, imprenditori e startupper” who told us:
“In Italy, doing start-ups means being a leader of an innovation to be included within a context that is evolving. Today we are living in a particularly proactive and opportunity-rich evolutionary phase, which could have been seen in other countries 30 or 40 years ago. So we are in a super proactive phase. It is enough to look at the numbers that the National Observatory on Innovation of the Milan Polytechnic also shared recently. On average, every year there is a growth in the number of innovative start-ups, or at least those with a high technological impact, in the order of 20, 25%. In Italy, there has never been such a strong push for innovation, and it is therefore the right time to confront the market because the attention of investors – including Business Angels and Venture Capitalists – who are then the fundamental vectors for the growth of a start-up ecosystem, is high.
However, we are still a long way from the numbers that other countries have, Anglo-Saxon countries first and foremost, but we are growing very fast. Just one example: in Italy, the entire amount of capital invested in companies with high growth potential corresponds to the entire amount of investments that have been made in Germany to Berlin start-ups alone. But as I was saying, the landscape is changing and we are witnessing a very interesting phenomenon: large foreign investment funds, venture capitalists and angel investors are also looking at Italy on the global radar of countries to invest in”
The skills of start-uppers
In the collective imagination, the word start-up immediately evokes the professional stories of Steve Jobs and Mark Zuckerberg. However, we must overcome the stereotype of the image of willing and ingenious guys who, starting from a simple intuition, managed to create globally successful enterprises. Start-ups, in fact, operate in unknown and risky contexts and their development, therefore, implies overcoming a series of problems. The rational and lucid planning of a start-up’s process then becomes crucial in order to achieve objectives, the first of which is not to succumb to the market. At the basis of every technological venture there is not only the business idea, but also the professionalism and dedication of the start-upper.
“In my experience, the skills that every start-upper should have can be grouped within two macro categories: soft skills and techno skills. As far as soft skills are concerned, you need a lot of resilience: today, an aspect that is too often underestimated is the speed with which some start-uppers think they will achieve success and consequently significant profits. Today there is the myth of the unicorns: the desire to take one’s company to a valuation of over a billion and this is, according to the National Observatory on Innovation, the motivation for which more than 80 per cent of young people or founders take the plunge. To achieve success, on the contrary, it takes intelligence and maturity to understand that without perseverance the result will not come and, perhaps, may never come.
As far as technical skills are concerned, it becomes essential to have business and management skills, because in growth – from birth to the stabilisation of a company’s business model – there are at least 3, 4 or even 5 intermediate phases that presuppose constant work: preparing a product, putting it on the market, validating it, verifying feedback, and going back to the reprogramming phase. So it’s a continuous back-and-forth where the metrics and also the ability to analyse what is market feedback are not only direct, but also indirect.”
The importance of the team for investors
Raising capital for a start-up company can take place in different ways and is a very delicate moment, because, as mentioned, the percentage of non-survival in an uncertain environment is very high, which is why it is more difficult than for other companies, especially when it comes to financing.
The first act is usually dedicated to structural investments aimed at ensuring the company’s operability before moving on to the realisation of the business idea behind the start-up. Very often, self-financing is not the primary choice of start-ups, which, depending on their business model, tend to rely on different modes of economic-financial intervention. The main existing funding vectors capable of supporting an early-stage business are, among others, business angels, venture capitalists, clud deals, family offices, incubators and accelerators.
For instance, business angels are non-institutional private investors who decide to invest in the financing of a new venture, also taking on management responsibilities alongside the start-upper. Venture capitalists, a phenomenon that originated in the United States of America, are companies that raise funds from private or institutional investors and invest capital on their behalf: they do not limit themselves to the disbursement of money but often take an active part in business and management decisions. Incubators/accelerators, on the other hand, provide managerial assistance, access to finance, enable the use of technical support services, helping start-ups to survive and grow in their most critical phases.
“Investors nowadays value two major aspects. The first of these, which goes beyond even the innovative element of the project, is the team, the importance of which is also recognised by Gartner, the largest international player that collects data on how investors approach start-ups. The team must be competent, engaged, multi-faceted and multi-skilled, because a start-up, unlike a large corporate, moves 100 times faster and horizontally with a large sequence of processes and procedures.
For a company that does not have such a constituted team with the aforementioned characteristics, it is statistically much more difficult to raise funds, unless of course it is a start-up that offers a product on the market that is so niche that it does not need any particular limitation. In fact, start-ups in 99% of cases adopt the Lean approach, a very fast test trial method, where (A) you test the market, (B) you test it, (C) you collect feedback and (D) you go back to internal processes, and to do this you need very different skills that can be integrated, but all of them are important for the consolidation of the project. That is why the team must be multifaceted in terms of skills in order to assure investors that you have all the know-how, technical capabilities and soft skills, the first of which is leadership, to face and overcome critical moments.”
The life cycle of a start-up
The business idea guides the star-upper in its actions and strategic and operational horizons.
If the business plan is the tool that can provide indispensable evaluation elements for correct and rational managerial responses to market challenges, it is the business model, which describes how a company creates, distributes and captures value. In other words, it is the tool that allows the start-up’s actions to be governed and adapted to the constantly changing market environment.
“The first phase is definitely the idea, which generally corresponds to about 5% of the process of building and validating a start-up’s business model. One can have the most innovative and ingenious idea in the world, but if it does not pass the validation phase, through the realisation of a mimum viable product, (MVP), the idea remains as such.
Then follows the phase of identifying the target market to understand who might be interested. Then comes the delicate testing phase: the product is shown to the target bayer, feedback is gathered that could even change (A) the business model and/or (B) the product (MVP). At this moment, the start-upper must also be prepared to change direction completely, and this is where the attitude of resilience and perseverance comes into play, which means not falling in love with one’s own idea. Once these hurdles have been overcome, the moment of go-to-market finally arrives: the start-up has come to life and is fully operational.”
“Based on my path I would like to transfer the concept, so as not to make mistakes, that doing start-up and producing money, income, profit is not easy or immediate: you have to be deeply committed to the realisation of your project.
Secondly, it is essential and fundamental to invest in training: in management, business and IT to acquire those methods and skills that are necessary for the internal management of one’s company, for example from a financial and strategic point of view. There is never a limit to training, because the market changes and the manager must be able to intercept its variations, detect them sometimes even before they manifest themselves in a concrete manner and eventually change the company’s course so that it can survive. Finally, build the team with wisdom and empathy: surround yourself with resources with different skills, who are truly committed to the project, who have the same vision and enthusiasm.“
He is a Crime Analyst (BSc, MSc) and Entrepreneur. After completing his academic career, straddling the UK and the US, in crime analysis, he worked as a Crime Analyst at Portsmouth University (UK), first, and the Università Cattolica del Sacro Cuore in Milan, then. At the end of 2020, he founded Mine Crime, a deep tech company (participated in 2021, through investment, by the Bocconi University of Milan) operating in the sector of ‘big-data analytics’ with which he offers innovative solutions, in the field of risk analysis, to the security management departments of corporations.