OPINION |

What Startups Are for

THERE ARE FEW OF THEM, THEY DO NOT CREATE MANY JOBS AND GENERATE EVEN LESS REVENUES. BUT THEY ARE A VITAL RESOURCE THAT NEEDS TO BE NURTURED, BECAUSE THEY OFTEN REPRESENT THE FRONT LINE OF INNOVATION AND TECHNOLOGY THAT OPENS THE WAY TO PROGESS

by Francesco Saviozzi, Dept. of Management and Technology, Bocconi
Translated by Alex Foti


In the springtime of the Italian ecosystem of entrepreneurship, you can hear the chirp of startups loud and clear. Incubators and accelerators are blooming, financial institutions are awakening from their slumber, and policimakers’ initiatives are sprouting. Today there are 1,600 registered “innovative startups” (half of them established in 2013), most of which are operating in the ICT industry and located in Central and Northern Italy. As we hear from the other side of the ocean the splash made by the multibillion acquisition of WhatsApp – the startup that in less than three years has brought a revolution to the SMS market, with telcos in the role of passive bystanders, a sense of expectation is growing for an economic equinox in Italy that will bring forward a new generation of globally competitive entrepreneurs.

But the picture is not completely rosy, if we take a look at other European economies. For instance, there are only €80 million of venture capital investment in Italy (AIFI data), while Germany attracts €680 million, and the UK €480 million, accounting for 0.004% of the country’s GDP, with respect to a EU average of 0.02% (EVCA data). So Italian startups are dynamic, but still frail if we consider that the total revenues they generate are comparable to that of a medium-sized firm, and that 80% of them have a turnover of less than €100,000.

If one applied the usual metrics of industrial economics – the number of existing firms, number of employees, and share of GDP produced – he/she could wonder why startups should play a central role in economic policy. However, by thinking like this we would fall into a methodological error: startups play a role that goes well beyond their puny size. They represent the early foundations of new and growing markets, the entrepreneurial avant-garde, which through innovation generates new supply segments and catalyzes new consumption processes. They are the fresh blood of our economic system, particularly with respect to SMEs. They are the playgrounds where entrepreneurs emerge in a stagnant economy, and this is true for younger generations, as well as for more mature generations suffering from impact of the crisis who find it hard to reposition themselves in the job market.

Three are the policy issues that need to be addressed so that the investments and efforts made do not end up into mere media hype. Firstly, shifting the focus from business plans to actual firms: if today much of the resources are focused on incentives to new entrepreneurship, additional resources need to be found for supporting growth – for instance, through the creation of a fund of venture capital funds – and developing the exit market by providing incentives for the acquisition of startups by other firms. Secondly, shifting from supply-side subsidies to support for the generation of new markets, by acting on the levers of simplification, liberalization, and the adoption of new technological standards (think of open data or electronic payments). Thirdly, stimulating technological spillovers in the traditional economy, by pushing small and medium firms, today more than ever in need of more innovation and international projection, to collaborate with emerging ventures, so to foster the birth of new firms in Italy’s traditionally strong sectors.

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