Italy has the fourth largest population in the E.U. and its fourth biggest economy. Ask anyone in the tech industry, however, which countries they’re most excited about this year, and few will mention it. Why?
At first glance, Italy would seem ripe for a tech rinascimento (renaissance): it has strong corporations, a solid economy and a young, educated population. But lying beneath those advantages are many more problems that have stymied the country’s budding startup scene.
Growth, for instance, has been slow: only last year did it move positively after three years of negative growth. Unemployment, too, has become a talisman of Italy’s post-global financial crisis landscape. The overall figure is 11.5%, but that leaps to a staggering 43.9% among under-25s.
Surely, then, Italy is ready for a raft of young entrepreneurs to take the helm. It has certainly worked for Roberto Macina, CEO of software developer Qurami. “I left a job to create my startup and now I have many people working with me and contributing to the success of the company,” he told Red Herring. “According to a recent OECD report, tech startups that survive the first five years are the ones creating up to 55% of all new jobs.”
Italy now boasts around 5,500 innovative startups employing almost 22,000 people. The number of innovative startups grew by 5.8% in the first three months of 2016.
But that still represents just 0.35% of the economy, in a country whose money is made largely by its big multinationals, many of which operate in the fashion, food and beverage and automotive industries.
Much of Italy’s economy is characterized by low-risk and a high-earning group of elite corporates and families, which do not lend themselves to a fast-moving IT economy. The country has one of the highest saving rates in the world, and several experts have suggested generating cash from those families. It’s a move that split those interviewed for this article.
“There is no doubt that Italian families have big savings and, in my opinion, to use them to support the development of the startup industry would be good at the beginning, but not enough in the long term,” said Emanuele Occipinti of Greenrail, a company developing sustainable railway sleepers.
Giovanni Battista Pozza, CIO of Milanese design team Figmenta, agrees: “In my personal opinion this is not sustainable. I know that the heritage of the wealthiest families that rule the industry ecosystem is partially true, but the reality is that time is over. The story of the Italian startup scene is strictly connected with innovation in the last years and innovation is far from the wealthiest families.
“Big companies should be involved in the investment process in order to support the young ones,” he added. “However the real problem is not the lack of funds, but the length of time to wait to have a loan; measures should be taken in order to reduce the process of financing so that startups can easily have access to money to support their rapid growth.
21.8% of innovative startups are based in Lombardy, the administrative region which includes Milan. The fashion capital has also become Italy’s startup capital, with a growing number of coworking spaces, incubators and shows including Talent Garden and the E.U.’s Euro-Mediterranean Centre for the Development of Micro-enterprises and SMEs (EMDC). Data4, a new data center just outside the city, has won €150 million ($166 million) funding, with the same amount promised for development in the next few years.
According to a 2014 report there were just 33 institutional investors and 1,800 startups founded that year in Italy. However Italian successes are rare, investors inexperienced and soaring taxes (the average Italian company pays 68% annually after rates on profits and labor) are hampering growth. Many business owners complain that it is impossible to navigate Italy’s tax structures without a professional accountant.
Italy can leverage its reputation for design and style to help startups appeal more to their customers, and to rise above regional competition. Companies like Yoox, BeMyEye and Drexcode have already capitalized on Italy’s fashion industry to great success, while Antlos, a boat holiday platform, and tour finder Musement, aim to cash in on a tourism industry that attracts 48.6 million people and €189.1 billion ($209bn) annually.
Given benefits like these, it baffles many entrepreneurs that Italy, with a 60m population, isn’t a bigger fixture on the startup circuit. “Italy has no major structural differences compared to France or U.K. and could easily match the same startup industry size if more investment was issued,” said Gian Luca Petrelli of BeMyEye, an app which allows anyone to act as a mystery shopper. “Italy, what’s more, has high levels of creativity in its culture, alongside outstanding developer talent at a marginally lower cost than other countries.”
“We have the money and we should try to direct them towards the most innovative sectors,” Macina said.
There are, though, bright spots on the horizon.
Only 51% of all Italians have a broadband subscription, compared with the European average of 70%, with average surfing speeds of just 6.5Mbps, far behind neighbors France (8.2Mbps), Germany (11.5Mbps) and Sweden, which tops Europe’s chart with 17.4Mbps.
But this spring the Italian government announced plans, spearheaded by state-backed utility provider Enel, to provide fiber connectivity in 224 cities, starting with the upgrade of 33 million smart meters it installed around 15 years ago. Invitalia, a government-owned group, last year launched a €100 million ($111 million) fund. And a recently created Startup Visa aims to bring talent to Italy from all over the world.
The Italian military has also been leading a tech charge, installing open source LibreOffice on 5,000 defense ministry computers. 120,000 units will eventually give up Microsoft for the platform, which has been created with the help of activist group LibreItalia. It could save up to €29 million ($32 million) per year, according to General Camillo Sileo.
“Open source software is not a software for free but is a software that has its business model,” LibreItalia project coordinator Sonia Montegiove told Red Herring. “Companies that work with open source offer services and training. Open source has a different business model than proprietary software and I think it could represent a good opportunity for italian companies.”
The government has been moving forward, with initiatives such as 2012’s Growth Decree 2.0, which simplified broadband installation, access to funding and a reduction in overall costs including labor contracts and, most importantly, tax benefits for investors.
The recent arrival of some of the U.S.’ biggest tech players will have lent a boost to Italy’s scene. In January Cisco announced a $100 million strategic investment, while Apple, which controversially received a reduction in its tax payments from €800 million ($884 million) to €318 million ($352 million), will open its first European app development center in Naples.
They, and other major tech players, will be attracted by the fact than an average Italian developer makes €25,000 ($28,000) yearly – far less than the $40,000 a British professional earns, or $49,000 in Germany.
The creation of a Single Startup Market, a plan that has been banded around Europe since last month, would help the local industry hugely, said Occipinti. A shift towards more B2C-oriented firms will also help push up value, argued Figmenta CIO Giovanni Battista Pozza, who added that it would spur greater growth in adtech, cybersecurity and fintech, a triumvirate that has won huge amounts of trade in the U.K. and Germany, in particular.
But, concluded Petrelli, “given the budget constraints, the strength of traditional lobbies and the somewhat myopic view of our politicians, I am not sure this is going to happen.” Italy may be lurching towards a bona fide startup industry. But don’t expect it to rival its western European neighbors any time soon.
Venture capital is growing in Italy. Over the past five years €415 million ($460 million) has been invested in 628 operations. A typical Italian startup has three employees and a turnover of €0.4 million ($443,000) per annum. 66% of all investments since 2011 have been made in technology, showing the increased importance of tech in the economy.
“Although still new and of modest dimensions compared to other European countries, venture capital in Italy is becoming more and more well established, with a growth trend, able to attract both…international and domestic capital,” Annalisa Caccavale, of the Italian Association of Private Equity, Venture Capital and Private Debt (AIFA), said. She points to VentureUp, a VC web portal run by AIFA and Fondo Italiano, as proof that serious progress is being made.
Good history, food, wine and sunshine might be an Italian stereotype, but for young tech professionals, it’s certainly a draw when compared to the gray skies of London and Berlin. Pozza thinks that with things headed in the right direction, the time for a tech charge is now. He said, “The economical and financial capital of Italy is stepping into the global startup scene and positioning itself as the place where high quality of life and business opportunities meets young and innovative entrepreneurs.
“Tech is part of our culture in different areas like financial, food, engineering – so there’s a big role for it, both in tech startups and both in startups that uses tech as a competition of their business.”