Why no unicorns in Italy? 🦄
It's time for builders #10
I’m on a panel about this tonight.
A unicorn is a privately owned startup company worth more than $1 billion.
Cool.
But what does that really mean in practice?
It means super fast growth.
What’s the opposite of that?
Stagnation.
And what country has been stagnating in the last 30 years, the age of the unicorns?
Italy, you guessed that right.
There you go.
Why we have no unicorns. It’s really that simple. It’s really that complicated.
Take the opposite: how come China is full of recently founded companies that are now huge?
Well, if you have 1.3 billion people going from North Korea to California within a couple of generations, growing on average 10% per year… you will get lots of entrepreneurs quickly becoming very rich.
Low VC volumes are overdiscussed 💸
In my bubble, people focus a lot on the little amount of capital invested.
I used to say that it’s a symptom, not a cause.
In the end, capital is way more mobile than other assets, and if we had lots of great startups, foreign funds would move in.
Then I realized innovation is a complex system, and there is no scientific way to break down cause-effect relations. It’s all interlinked.
Sure, VC invested is a metric, but you can also argue that in the early stages, local capital matters a lot, and the risk aversion of our VC funds (and more upstream, of their LPs), does create problems.
Still, this is only one piece of the puzzle.
Supply and demand 🔁
On a micro level, a good startup needs a kickass team and a growing market with an appetite for new solutions.
On the macro level, you have supply of and demand for innovation.
Italy sucks on both dimensions:
supply: for example, many entrepreneurs have the artisanal, low-scale mentality that helped us create great niche products, plus a scarily huge share of our top talent emigrates abroad;
demand: both companies and consumers are very risk-averse and late adopters of digital technologies, lots of markets are highly regulated, dominated by lobbies, competitive pressure is low, etc.
As you can see, it’s not that you can single out all the factors at play when it comes to the ability of building unicorns versus the overall trajectory of a country and its economy.
We get usually confused because Italy still has a significant GDP.
So it’s natural to ask why we punch below our weight when it comes to startups and VCs.
But GDP is an imperfect proxy here.
What matters is the purchasing power of potential early adopters.
In Italy, money is in the hands of 65+ retirees who don’t own a laptop, and entrepreneurs in little digitized sectors.
What about small tech nations?
It’s not about size though, you could argue.
Take Sweden, Israel, Taiwan… even the Baltic countries have more unicorns than us!
Well, first of all, their internal markets for innovation are in some cases not that bad. They have fewer people and lower aggregate GDP, but a high percentage of wealthy early adopters.
Tel Aviv is bigger than Milan.
There are as many Swedish multinationals as Italian ones in the top100 by market cap in Europe.
More importantly though, these countries have been in this situation forever. They know that to grow, they need to go abroad ASAP. And so they have developed very strong market access relations with larger countries.
Israel, which is so much intertwined with the US, the world’s biggest economy, is an extreme example of this. But you could say something similar for Taiwan, where there is a student and tech diaspora in America that matters a lot (like Jensen Huang, founder of Nvidia).
Italy is not like that at all.
We’ve been in G7 for a while and so, outside of manufacturing, we got used to the luxury of having a sizeable internal market.
Our diaspora abroad is big, but I’d argue it’s not so concentrated in tech like in the cases of Israel and Taiwan, plus the ties with the mother country are not as solid.
What should the state do?
On the panels where people make these arguments, they finish looking up to the state for solutions.
Well, I am sceptical of government intervention. Especially in Italy.
What should we do?
if you can build, build
if you can’t build, invest in or buy from startups
if you are in government
slash regulation and fight lobbies
don’t play the VC game (don’t get me started on CDP VC)
buy from startups!
The latter point is very very important.
Do you know in which ranking Italy is pretty high up?
Yep, government spending.
A lot of that means buying goods, services and public works from private companies.
Is that startup-friendly? NOT AT ALL.
I’m sick and tired of the state mismanaging its core services (tax, police, health, education), and having the arrogance to enter every sector of the economy.
Lead by example.
Fix your procurement, buy from startups, innovate for your citizens, then we’ll talk about the rest.