Positive signs from the venture capital market despite a downturn in deals
In recent years, the Venture Capital market in Italy has remained vibrant and growing, going through a significant path of development and consolidation. However, the first half of 2023 saw an abrupt slowdown, with a 48 percent drop in investments compared to the same period of the previous year.
As emerged from the first reports published (Quarterly Observatory on Venture Capital in Italy), the absence of the mega rounds led by international investors that characterized 2022 has affected the data of these first months: both deals and capital invested are down compared to the same period last year. This trend is also partly reflected in the data that emerged from the IAG Index, a thermometer of the startup ecosystem calculated on startups that entered deal-flow.
The database is built from both potential investment opportunities for Italian Angels for Growth (IAG) members and companies analyzed by Eden Ventures, an investment tool focused on pre-Seed startups with tickets up to one hundred thousand euros.
Despite the downward trend, the index shows a venture capital market that remains active and vibrant: in recent months IAG has continued to support founders at full throttle, with more than 15 early-stage deals, 1 Exit (Here the press release: "New Exit For IAG: the success story of Ultroneo") and more than 5 million invested.
It is precisely in times of crisis that investors should not pull back, increasing the downward spiral. Under these circumstances, the best investments are made, creating the strongest relationships with the founders who are most in need of strategic coaching.
The breakdown by industry shows a greater focus on digital deals (+33%), at the expense of Life Science projects, which despite the funds allocated by PNRR mission 6 dedicated to biomedical research, show a reversal, decreasing by more than a third.
The picture that emerges from the round data is significant of the path taken by IAG in the last 12 months: on the one hand strengthening its position as a leader in seed Venture Capital in Italy, with 1 out of 2 startups among those analyzed engaged in such a round. Among the Italian seed startups that closed a round in the first half of 2023, 71.9 percent were analyzed by the IAG team at the screening stage.
On the other hand, the commitment and interest in pre-seed projects continues: the IAG Index records a significant growth (doubled share) in pre-seed deals, as a natural consequence of the start-up of the Eden Ventures program. If institutional investors focus on the Growth stages, Eden Ventures is focused on supporting innovative talent in the early stages of their entrepreneurial projects, where risk levels are higher, investment lower, but return higher. (Press release of the partnership between Eden Ventures and Vento Investments here).
Geographical analysis again shows a positive trend in deal flow from Italy, registering an 18 percent increase in the share of Italian startups analyzed compared to the same period in 2022.
The evolution of the Italian landscape is dictated both by a more mature ecosystem, which has experienced significant growth in the post-covid years, but also by the attention shown by international VC funds. In fact, in 2022, international venture capital doubled their investments in Italy: from 453 million to over a billion. This is a positive sign that underlines the interest and openness to foreign capital on the part of the government and institutions.
The figure for the share of female founders that emerges from this IAG Index shows a decline: Diversity & Inclusion theme remains a key driver in the analysis of a deal, where the team reaches its highest quality if it is the result of different experiences, skills, backgrounds and mindsets, but the result obtained shows how, despite the positive trend of the last few years, we are still far from parity.
In this regard, IAG continues with initiatives to enhance diversity and create strategic partnerships, such as the interviews conducted with members and players in the ecosystem and the Women in Tech Rooftop Party, a side-event of Italian VC week dedicated to female entrepreneurship.
ESG is confirmed as an important driver for VC investments: in the first half of 2023 business angels looked more closely (+5% compared to the same period in 2022) at startups that are compliant with respect to the environmental and social challenges of the coming years.
Investing in sustainability represents a great opportunity to differentiate oneself in an increasingly competitive Venture Capital market, and IAG, by joining VentureESG (an international community that provides resources and guidance to make ESG a standard part of due diligence), has made the search for sustainable investments structural.
Carlo Tassi, IAG President: "Despite the downturn in the venture capital market recorded in the first half of the year, the IAG Index confirms IAG's positioning as a leader in Italian Seed Venture Capital, as well as its commitment, through Eden Ventures, to support innovative talent even in the early stages of their entrepreneurial projects. Also significant is the ESG challenge, taken up by IAG with the introduction of the ESG Investment Policy. A guideline for the team and partners in the scouting, evaluation, due diligence and management of invested startups."