IFISE

Starting to plan for Seed and Start-up Capital Sources in Italy

Vittorio Modena

University of Pavia

IFISE - Third Meeting, Pavia October 14-17

Outline

IFISE

1. Administrative decisions and project status (in short)

2. Second meeting objectives

3. Existing programmes for high-tech enterprises fostering in Italy.

4. Major planning guidelines-Brainstorming

5. Seed Capital Sources Planning-Brainstorming

IFISE

Administrative Issues

1. Ending Phase 2 - Field Surveys;

2. Starting Phase 3 – Planning for public programmes

3. Light Delay – Are we asking for more time?

4. Second Interim Report has been sent to the EC

IFISE

2nd Meeting Objectives

1. Results presentation

2. Planning guidelines

3. Issues to be clarified for better planning from each team

IFISE

General Planning Issues

1. Relating to general Italian R&D situation (“preliminary phase”-According to Morris)

2. Integration of our recommendations with existing legal framework, optimal planning or both?

3. Separating seed from start-up capital according to the continuity of public intervention (following the Israeli scheme)

IFISE

General Planning Issues

4. Public seed capital– hardly existing – to be created

5. Start up capital (Venture Capital Funds): Existing, to be shaped or directed (geography/sectors etc)

IFISE

General Issue – Low R&D (I)

Government R&D expenditure as a percentage of GDP

0,970,9 0,9

0,83 0,82

0,72 0,72 0,7

0,580,53

0,44 0,420,36

0,32

0,22

0,78

0,59

0,00

0,20

0,40

0,60

0,80

1,00

1,20

S F FIN NL D DK A EU UK I P B E IRL GR US JP

High (Over 20% of EU mean) Average

Low (Below 20% of EU mean) Italy

1998

IFISE

General Issue – Low R&D (II)

Business R&D expenditure as a percentage of GDP

2,77

2,06

1,531,38 1,31 1,26 1,21 1,2

1,11 1,030,83

0,55 0,49

0,14 0,13

2,042,18

0,00

0,50

1,00

1,50

2,00

2,50

3,00

S FIN D F B DK UK EU NL IRL A I E P EL USA JP

High (Over 20% of EU mean) Average

Low (Below 20% of EU mean)

Italy

1998

IFISE

General Issue – Low R&D (III)

18,4

15

12,3 11,9 11,611

9,4 97,8

6,1 5,94,7

3,6

0

2,5

5

7,5

10

12,5

15

17,5

20

FIN S F DK D NL EU B IRL I E GR P

High (Over 20% of EU mean) Average

Low (Below 20% of EU mean)

Italy

Total R&D personnel per thousand labour force 1998

IFISE

General Issues – Sectoral Specialization

•Low specialization in the classic High-tech sectors

•Specialization in the mechanics/industrial automation sectors

IFISE

General Planning Issues – Geography

•North much better than South.

• No international level HT clusters

•Milan, Rome Pisa are interesting (but not in a single field)

•Many small and medium sized cities throughout Italy mostly with a technical university

•VC and private incubators concentration in Milan

•Many Italian potential entrepreneurs…overseas !!

IFISE

General Issue – Geography (II) Figure 4.1: Inventors in all high-tech sectors per Local Labour System Source: Univeristy of Pavia elaboration on EPO data.

1 - 6 7 - 21 22 - 44 45 - 84 85 - 229 230 - 826

Number of Inventors

IFISE

Law 297 and the existing framework (I)

Fast Changing Programmes

•Law 297

•Startech

•European Programmes (BICs, ETF…)

•Regional Programmes – Lombardia Fund of funds and law 35/96.

•Sicily - mostly implementation of National or European Programmes

IFISE

Law 297 and the existing farmework (II)

Law 297

•Enacted 8/1999 started operation 2/2001

• Up to 0.5M Euro

•50% of eligible research cost ; 25% of precompetitive costs

•Only Public employees are eligible (professors, researchers Ph.D Students), but other entities may join them (funds, banks, financial institutions)

IFISE

Law 297 and the existing farmework (III)

Law 297 performance February-September 2001 : 3 Proposals (for new start-ups) !!!!

Possible reasons:

1. Scarce potential (but start-ups do exists)

2. For public employees only

3. Undefined academic regulation+no conflict of interest available

IFISE

Startech Programme by Sviluppo Italia

•Very new programme (Started May advertised only since September 15,2001)

•Investing in ventures smaller than 2.6 ME

•Investing up to 0.5M Euro

•Disinvesting within 5 years

•Not for profit (can get money back at most)

•Regional teams of consultants/evaluators

•Around 150 proposals received hitherto

•Everyone is eligible

IFISE

BRAINSTORMING – GENERAL ISSUES

15 minutes think

3 ideas each

presentations

IFISE

LONG LIST - General

BRAINSTORMING – GENERAL ISSUES

1. For a limited time University of Pavia should not consider the conflict of interest (see L297). Creation of few success cases.

2. Grants to companies that let people go, promise to take back the person in case of failure of the project

3. Assistance in preparing a plan and advice on how to continue

4. Compulsory courses (in scientific faculties) preparing to the steps necessary to establish a company.

5. Invite venture capitalists at university

6. Simplify the law (L297)

7. Public funds to university incubators (around 20 – selection). The incubators should admit also projects from outside university.

IFISE

LONG LIST General - Continued

BRAINSTORMING – GENERAL ISSUES

8. More money to PhD students

9. Add to Technological transfer offices an educational role

10. Specialised small incubator on biotech investing in the projects

11. Stage also abroad in R&D units of large companies

12. Multidisciplinary courses

13. Make pressures at political level especially at national level for the creation of incubators

14. Connecting the diffusion of incubators to excellence centres in universities

15. Incubator in Pavia

16. Programmes addressed to Italian specialisation, avoid state overspending

IFISE

LONG LIST General Continued

17. Manager of start-up different from the inventor

18. Incentive to industries in spending more in R&D

19. Create incubators in Italy with high reputation

20. Act on a regional level

21. Find partnership with key players within the community

22. Theoretical recommendation or pilot implementation?

23. Define a budget

24. Focus on pre-seed activity. Set up a centre which can provide training on business. This could be a pilot and then repeated.

25. Matching fund for all VC that invest in seed. (deal by deal)

BRAINSTORMING – GENERAL ISSUES

IFISE

LONG LIST General Continued26. One more year to scientific faculties’ students to evaluate their work

from a market perspective

27. Set up a vice chancellor committee to report in 6 months key actions to support entrepreneurship from the Italian science base and to detail key barriers

28. Set up a national scientific business plan contest sponsored by industry. 10 awards per year, minimum 50,000$ each

29. Set up and fund competitively a scientific entrepreneurship teaching program, where by scientific university and business schools can bid for 10m$ each for 5 years.

30. Help creating groups of people through specific courses

31. Set up spin-off offices assisting who has ideas to develop

32. Help investors to evaluate projects technologically. Regional basis

BRAINSTORMING – GENERAL ISSUES

IFISE

LONG LIST General Continued

BRAINSTORMING – GENERAL ISSUES

IFISE

Seed Capital Planning (I)

Do we accept the general philosophy of the Technological Incubators Programmes ?

•Integrative incubators (funds-consulting-monitoring, office space etc)

•“Offering a chance to any good idea”

•Centrally governed

•Quite generous

IFISE

Sponsor/initiating Institutions

1. Universities

2. Industries

3. Local Authorities

Seed Capital Planning (II)

IFISE

Seed Capital Planning (III)

Size of grants to projects – A few indicators:

1. Israeli incubators – 300K$

2. Israeli Most Frequent Israeli Raising (0.3-0.6M$ - see graph below)

3. Israel Biotech First Raisings (0.4-6M$)

4. Italian Biotech Needs (Potential Entrepreneurs) – 0.5-10M$?

5. Italian Potential Entrepreneurs (design houses sector) 0.6-1M

IFISE

Seed Capital Planning (III)

Fund raising patterns

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

<50K <150K <300K <600K <1M 1-2M 2-3M 3-5M 5+M

Co

mp

an

ies

Seed capital

Round 1

Round 2

Source: Arie Sadovski

IFISE

Seed Capital Planning (IV)

? Sectoral / Non-Sectoral / Focused Incubators ?

1.Sectoral are more efficient

2. Non sectoral will not lose an opportunity

3. Focused usually provide for a “natural specialization

4. What about a special Biotech incubator?

IFISE

Seed Capital Planning (V)

Sectoral Specialisation Strategy

• In a big city/university a combination of one general Incubator + 2-3 sectoral?

• What about smaller centers (Catania) or Medium-sized (Bologna)? Efficiency or fair opportunity?

IFISE

Is it important that?

1. Decision are made quickly (1 month in the Israeli incubator ; 3-5 month in for the Italian 297/99 law)

2. There is a central management for all incubators

3. The incubator’s manager gets incentives/share for success.

4. There is a net of experts at national level

Seed Capital Planning (VI)

IFISE

BRAINSTORMING – SEED CAPITAL ISSUES

15 minutes think

3 ideas each

presentations

Seed Capital Planning (VII)

IFISE

LONG LIST Seed Capital Planning -Continued

1. ……

2. …….

3. ………

IFISE

LONG LIST Seed Capital Planning- Continued

1. ……

2. …….

3. ………

IFISE

LONG LIST Seed Capital Planning -Continued

1. ……

2. …….

3. ………

IFISE

1. Small and isolated center

2. 1000-1500 researchers in one sector

3. Minimal private venture capital operation

4. Strong public incentives

Planning for Seed Capital Sources in Greater Catania

IFISE

Ideas for Catania

1….

2……..

IFISE

Further Information

1. From Israeli teams

2. From Italian teams

IFISE

How do we proceed?

1. Roberto is presenting VC planning issues

2. After the meeting completing and refining reports

3. “Planning on line”