The air in venture capital is one of “cautious optimism”, in a global market which is now increasingly mature and consolidated and which – after the all-time highs of 2021 was Covid19, with 621 billion dollars of investment and 959 new unicorns globally – expected to return to a “new normal” in 2023.
This was confirmed in the last edition of theIPEM, the international exhibition held every year in Cannes in September and with its figures it can be considered more than representative of the international investor ecosystem: 618 LP (limited partners, i.e. those who offer money, investors), 711 GP (general partners, i.e. those who take money and then invest in companies), 52 countries represented, 400 speakers, 5,343 participants, including 40% women, testifying to the growing importance that gender diversity has taken in the field of finance to support the company.
Venture capital 2022, international trends
Here are the main takeaways I brought home:
- the macroeconomic context and therefore also that of investors is obviously strongly conditioned by perfect storm in place: war, energy and raw materials crisis, general rise in prices and interest rates, phenomena of de-globalization and recession which are almost upon us. This problematic image has led to a downward correction, particularly in the United States, of the valuations of technology companies; fund managers are now paying more attention to so-called fundamentals, “discounting” startup growth prospects and thereby reducing pre-money valuations;
- Institutional LPs are thus reviewing their asset allocation strategies, not only because of general macroeconomic uncertainties but also because of a “denominator” effect: the devaluation of so-called liquid investments (for example those on the listed technology stock markets) compared to illiquid investments (venture capital and private equity funds) determines a ratio that must be revised, to correct the consequent overexposure of these last vis-à-vis first.
- It’s harder for startups to close funding rounds on time and at increasing valuesmany companies, including former “soonicorn” companies (the quasi-startups valued at $1 billion) have been abandoned by investors following the decision to refocus their portfolios, which requires preserving available cash, d extend the so-called “run way” (i.e. the number of months beyond which the startup has no more money).
- For managers, especially teams just starting out – first-time funding for the timing of Fund raising they lengthen. For example, in the second quarter of the year, the number of funds that made the first close reached the lowest number in the last 5 years, excluding the Covid period.
Venture capital, the recipe for the future
The recipe of the future it consists in developing investment funds with clear and easily recognizable orientations, also at the level of sectoral niches in order to be counter-cyclical; venture capital funds that must be managed by teams with skills aligned with investment strategies and with a serious and solid approach to ESG issues and sustainability in general. David Dana from the European Investment Fund (the leading European venture capital investor) highlighted during the work of the IPEM, for example, the areas of intervention of the new InvestEU investment policies: deeptech, space, energy transition and gender diversity.
Crowdfunding: what it is, how it works and the best platforms
Without wanting to reach the 2,000 venture capital funds present in China today, it would suffice in Italy to follow the example of France which, a few years ago, decided “institutionally” to become a startup nationinvesting in the ecosystem in general and calling on the country’s institutional investors to do their part, allocating ever greater capital to French venture capital.
The result is now there: Paris becoming the second technology hub in Europe immediately after Berlin, 28 are French unicorns (more than Sweden and the Netherlands), 11 billion investments in startups in 2011, 830 funding rounds, 20 new unicorns from 2021 and 4.4 billion euros raised by French funds. Figures to envy by us Italians, which we only reached in 2021 (also thanks to the decisive role of Capacity Building from CDP Venture Capital) the psychological threshold of our first billion investment in startups.
Venture capital, what to do in Italy
10 years ago, thanks to Corrado Passera as Minister of Economic Development, today a happy entrepreneur, the Start-up actwhich had the sensational result of creating a ecosystem friendly for startups, undoubtedly today one of the most advantageous in Europe from an administrative and fiscal point of view. The results are beginning to arrive: international investors increasingly present in our best start-ups, who manage to complete funding rounds that were previously unthinkable: note therefore the recent cases in the digital sector of Satispay (320 million euros , valued by Unicorn) and Bending Spoons ($340 million). Only discordant note: the Italian venture capital funds do not see themselves in the captabilites of these former startups. But we will talk about it another time, hoping to make a healthy and constructive self-criticism.
And then we need phase two, which can guide us through the next 10 years, to also consolidate the other side of the coin, namely that of venture capital funds which – before trusting startups such as those mentioned – must raise capital from institutional and non-institutional investors. In a historical context where HNWI (high net worth individuals) and Corporates start to do their part, there is a need to increase the allocation of resources by institutional investors such as pension funds, pension funds, insurance companies. It is necessary to guarantee (also by means of a “virtuous public hand“Like the one implemented in the last two years by CDP Venture Capital SGR) that at least two to three billion per year reach the Italian venture capital sector, which is still very fragmented and absolutely microscopic in size compared to European countries .
In short, there is still a lot to do but the road is marked. Let’s just hope that the startup theme remains strong and clear on the agenda of the next government.