Venture Capital: Finally the Right Time Has Come

Venture Capital in its various forms (seed, start-up, and early stage financing) represents without doubt the boldest kind of equity investment, since it directly finances experimental projects aimed at producing business ideas which will then be turned into viable companies. Or it supports the early steps of new entrepreneurial activities fueled by the great ideas and enthusiasm of the young teams working on them. There is near unanimity among researchers, policy-makers, and entrepreneurs about the usefulness of venture capital in sustaining the economy.

Market data concerning Continental Europe give pause for thought. Although growing, today only 9% of private equity investment goes into venture capital. The picture is rosier in the States, where the correspondent percentage has been stable at a structural 25% for some time. In other terms, in Europe and Italy venture capital has been more invoked than developed, and it has been struggle to break out of the narrow-minded vision that sees it as an area for specialists, devoid of any connection with the overall economic system.

However, there is a widespread sensation that venture capital initiatives are finally coming of age, and that they are able to produce positive spillovers outside their realm of intervention. The factors pushing in this direction are essentially four: generational renewal among startuppers, with digital natives coming onto the scene, people for whom the creation of projects and solutions becomes a second nature rather than an exceptional act of transgression; growing international mobility of students, which not only enlarges the network of reference for potential startuppers – essential to forge personal alliances and joint-ventures that generate ideas – but also enables interaction with the international hubs of venture capital that appeal to young entrepreneurs; the need for additional growth in economies recovering from the recession, where new business creation is seen as the only viable option, to be driven not only by youth self-employment, but also by public and private initiatives supporting this line of action; excess supply of global capital, which in a zero-inflation, zero-interest-rate world is hungry for new asset classes to diversify investment portfolios.

If this historical configuration finally gives venture capital and start-ups the opportunity to finally become key drivers of economic growth, the real challenge then becomes to stabilize their presence and the whole ecosystem in question. This means that all the entrepreneurial steps need to be assisted by dedicated forms of venture capital, from the embryonic stage of an entrepreneurial dream to the early phases of product launch, without any discontinuities in financial support.

This also means renouncing to take one-sided or, worse, ideological approaches to sustain the birth of new firms (Should the priority be given to incubators? Business angels? Government intervention?), leaving business actors the possibility to freely experiment with a widening of the range of possible solutions, which will then meet their natural destiny as market successes or failures. More than any other industry, venture capital is made of experiments, collaborations, exchange of ideas, rather than fierce antagonism and mutual suspicion. What's especially needed is to work toward changing the cultural values that underlie the whole venture capital environment in Italy and Europe.

In this sense, universities play a decisive role. First of all, on the educational front they can lend authority to the idea that the entrepreneurial choice is a desirable and practicable option by young people. They can appropriately support, based on the scientific or economic vocation of the university in question, the responsibility for taking entrepreneurial risks and create a business. The drive towards international mobility also becomes an essential component in the DNA of future entrepreneurs, who can in this way enlarge the spectrum of possible collaborations, by having access to human capital and financial resources that can sustain start-up projects. Most of all, direct intervention in the construction of dedicated infrastructures, be they business incubators, venture capital funds, marketplaces to facilitate the match between demand and supply, engenders a social transformation that is in the service of the country. In this sense, universities increasingly share the entrepreneurial ambitions, as well as the risks, of their students.