How Venture Capital fared in Italy in the first six months of the year - VeM First Half 2023 Report

After a record-breaking 2022, with investments in innovative Italian startups exceeding 2 billion euros despite the global scenario dominated by uncertainty, the venture capital market in Italy experienced a sharp and expected slowdown in the first half of 2023. Slowdown highlighted in the first half of 2023 by the research Report Venture Capital Monitor (VeM). The study, carried out by the VeM Observatory active at the Liuc Business School with the contribution of Intesa Sanpaolo Innovation Center and E. Morace & Co. Studio Legale, constantly monitors institutional early stage activities in the country.

The analysis of AIFI reveals negative indicators both in terms of the amount of domestic and international investments (from 976 million euros in 180 rounds to 496 million out of 138 rounds), and in the number of transactions: 150 between initial and follow-on against 192 in the first half of last year (-22%).

There was also a slight contraction also in the investments in startups founded abroad by Italians, from 196 to 178 million. The sum of the two components brings investments in Italian startups to 674 million euros (they were 1.2 billion in the first half of 2022).

Considering only startups based in Italy, venture capital and corporate venture capital have invested 272 million on 82 rounds, the syndicated ones - including venture capital, corporate VCs and business angels - 224 million in 53 operations, with the only BAs to contribute with 15 million in 17 rounds leading the Italian early stage supply chain to invest a total of 511 million out of 152 rounds compared to one billion euros in 198 rounds of the first half of last year.

From the global context to the absence of "mega deals": why investments in Italian startups have fallen

Given the succession and persistence of 3 major crises (Covid, Russian-Ukrainian conflict and rising commodity prices), the negative semester doesn’t affect the optimism of the operators, confident for the “retention” of investments at the levels of 2021 and for the recovery in the second quarter in which operations increased from 64 to 86 (+32%).

Above all, the exits (the exit from the capital of innovative companies or the listing on the Stock Exchange) and the “mega deals” led by investors and large international funds were the main ones that failed.

The slowdown in the first half of the year of the VC, anticipated by the markets in the second half of 2022, is in line with expectations as noted by Luca Pagetti, Head of Startup Growth Financing of Intesa Sanpaolo Innovation Center.

Pagetti points out that the recovery in Q2 and the rise of the VeM index are encouraging: “Intesa Sanpaolo Innovation Center continues to contribute to the growth of the Italian market by actively participating in the development of innovation ecosystems in the territories, accompanying the growth of the most deserving startups also through the investments of Neva SGR”.

The international context and emerging innovation ecosystems

The quarterly analysis of the Innovation Ecosystem Observatory referring to Q2 2023, result of the collaboration between Intesa Sanpaolo Innovation Center and Innovation & Processes, highlights a recovery in the global VC market.

In fact, in Q2, investments are in line with those of last year after consecutive quarters of constant contraction since January 2022. The recovery is not limited to the Italian market and includes VC investments in Asia, the UK and Germany: central ecosystems in the global innovation framework.

Startup Genome Report (GSER 2023) on global innovation ecosystems doesn’t record changes in the top positions of the ranking occupied by Silicon Valley, New York and London. The rise of emerging European ecosystems such as Copenhagen, Barcelona, ​​Dublin and Brussels is significant. Milan and Rome are also in the top 100, while Turin is in the top 35 in terms of talent.

One of the fastest growing sectors globally, Healthcare and the industrial one in the vertical ones aerospace, manufacturing, biomaterials (part of bioeconomy) and energy, with numerous Open Innovation initiatives in Italy also promoted by the Intesa Sanpaolo Group focused on these issues and technology transfer.

Venture Capital investments in Italy: geographical distribution, sectors and role of Corporate VC

Returning to VeM, the total amount of investments in Technology Transfer (TT) in Italy between 2018 and the first half of 2023 exceeded 600 million euros out of 232 operations. The positive impact of the ITAtech platform funds was confirmed, with total funding of 312 million euro (including co-investors) in 143 investments.

In corporate venture capital activities, continues the considerable participation of Corporates in VC investments focused on new entrepreneurial realities or in the early stages of development (21% of total rounds closed in the semester).

Lombardy remains the Region with the most target companies (49% of the Italian market), followed by Piedmont (13%) and Lazio (8%). As regards the sectors, ICT continues to catalyze the interest of VC investors (38%), followed by the rise of ‘Energy and Environment’ and Healthcare, both with a 12% share.