The Italian startup ecosystem is going through a maturing phase despite challenges related to the slowdown in venture capital activity and the contraction of investments due to the reduction of mega rounds.
According to data from the latest Quarterly Observatory on Venture Capital in Italy by Growth Capital and Italian Tech Alliance, in 2023 investments in startups and innovative companies in Italy amounted to €1.17 billion in 325 funding rounds, registering a decline by amount invested of 37 percent compared to the previous year - mainly due to the lower incidence of mega rounds (17 percent vs. 38 percent) - with the number of rounds substantially stable (339 in 2022 and 325 in 2023).
On the other hand, the significant increase in the number of investors active in Early Stage, with the emergence first and foremost of several funds in this sector (such as, for example, Italian Funders Fund) and the contribution of vertical accelerators promoted by CDP, has led to a strong growth in the number of Pre-Seed rounds (92 in 2023 vs. 55 in 2022).
A point that also emerges from the data of the IAG Index, a thermometer of the startup ecosystem and calculated on the large deal flow of startups analyzed in the selection of investment opportunities of Italian Angels for Growth (IAG), whose focus is precisely on the Early Stage.
In fact, despite the overall market contraction, Early Stage has recorded substantial deal numbers. In pre-seed and seed, a slight increase has been noted, in line with the expansion of rounds, attributable to two main factors: venture capitalists have moved toward Early Stage with larger investments than 'informal' investors (such as Family, Friend & Fool), and many pre-seed rounds have been led by serial founders, known to attract considerable volumes of capital early on. Both of these elements are positive signs of market maturity.
IAG, sensing the changes in the market, also launched Eden Ventures in 2022, an investment tool focused on Pre-Seed startups that has already invested in more than 12 startups and is a concrete support to top class teams through a methodical, streamlined, rapid and valuable approach to investment for entrepreneurs from the earliest moments of the development stage of their ideas.
According to the IAG Index, the average size of pre-seed rounds is €0.8 million, up 20 percent from 2022. The average size of seed rounds is €2.4 million, up 15 percent from 2022. As the size of rounds increased, company valuations increased accordingly. Relative to pre-money valuations we report an increase in valuations, despite the lower number of rounds in general. This trend is related to the fact that the market has become more selective and competitive. Given this premise, we can say that as investors are allocating capital to higher valuations, they are showing confidence in the potential growth of companies, including in the Italian market.
Specifically, the IAG Index 2023 in fact shows that 62.3% of the deals analyzed involve Italian companies. This result reflects the maturity of the Italian market with Italian companies increasingly attractive to foreign investors as well, thanks in part to the commitment of public institutions in supporting the startup ecosystem, including, the intervention of CDP's International FOF, which is helping to attract foreign investors to Italy, as evidenced by the investment in the ParTech fund, which has already deliberated an investment in SmartPricing.
Regarding female entrepreneurship, IAG 2023 data show a share that is still far from gender parity, stopping at 22.4 percent. However, compared to the European average (12.6 percent), Italy is above, signaling a more significant presence of women startup founders.
Another interesting aspect is the sustainability of startups: 70.3 percent of the startups analyzed in 2023 reported having an ESG (Environment, Social and Governance) policy in their business model. This trend is particularly evident in the Life Science (94.9%) and Deep Tech (78.3%) sectors. In contrast, deals in the Fintech sector are less ESG compliant (42.9 percent), probably influenced by the more traditional nature of this sector that is still evolving in terms of sustainability.
Carlo Tassi, IAG President: "The ecosystem is becoming more selective, which is a sign of market maturation. In addition, the creation of several funds and increased competition indicate that investors strongly believe in the development of the Italian venture ecosystem. Having understood the changing dynamics of the market, our engagement with Eden Ventures is helping to increase the share of Italian pre-seed rounds. Likewise, it is important to emphasize the increasing focus on female entrepreneurship and ESG compliance, both of which are crucial factors in promoting the sustainable development of the ecosystem."