Venture Capital/Analysis/

What’s cooking in Italian tech?

It took a while, but Italy's tech scene is finally finding its feet and emerging as a major player in Europe

By Federico Scolari and Ruggero Di Spigna

This piece is an accompaniment to our newly launched ranking of Italian startups and scaleups to watch for 2022. 

A late bloomer among Europe’s VC-backed ecosystems, Italy’s tech scene has been riding an exceptional growth wave in 2022. 

Things started heating up in February this year, when a momentous $497m Series B round crowned buy now, pay later fintech Scalapay as the country’s first unicorn after the dotcom boom. Then a second head grew when payments provider Satispay reached a $1bn+ valuation in September. The likes of Casavo, VEDRAI, Tinaba and Everli have also pulled in some healthy cheques in 2022. 

But outside of headline-grabbing raises, Italy’s success at every level of the pyramid has sparked a long-awaited, glass-half-full attitude to the country’s tech ecosystem. 

A brief history of Italian tech in 2022

Europe’s “boot” is one of only four countries — the others being France, Switzerland and Belgium — to have maintained a positive growth rate over the first three quarters of 2022. Some $1.8bn has been poured into Italian startups so far this year, just 12 months after investment surpassed the $1bn ceiling for the first time. 

Other than Scalapay’s round, the first half of the year featured a relatively stable funding environment, mostly following from some good traction gained in 2021. 

But Q3 2022 — an all-time record quarter for the country — has been particularly fruitful, welcoming north of $830m in fresh VC funding during an otherwise bleak time for European tech. You could sense the positivity at TechChill Milano’s first edition in September, as news of megarounds sparked chatter and wide smiles across busy meeting rooms. 

Deal types and sizes have also changed during 2022. Fewer but larger rounds are being signed off — Sifted research found that the average deal size increased from $2.9m to $6.7m over the past year, indicative of larger later-stage cheques, and in line with figures seen from top performers in Europe. 

Still room for improvement

Current trends have decisively pushed the country into the top 10 European ecosystems for the year, but Italy still lags behind fellow European countries across several key dimensions.

It still has one of the lowest startups per capita ratios in western Europe, roughly half as much as Spain and only a quarter of the UK’s, plus a shy $30 in VC funding per capita. 

Although on the up, it still only has a meagre number of active investors across the board — around 450, against almost 2,800 for the UK and around 1,300 for both France and Germany. CDP VC has led the pack in recent times, along with LVenture Group, LIFTT, Primo Ventures, Startup Wise Guys and crowdfunding platform Mamacrowd.

It also isn’t very well dispersed through the country, with financial hub Milan taking an overwhelming share of total deals — Sifted estimates that around 43% of rounds for the past two years have been signed off there, followed by capital Rome (11%), Turin (9%) and Bologna (2%). 

 

By no coincidence, fintech tops all other sectors by a long shot when it comes to VC investment, followed by health, food and real estate. The fashion industry — much revered in the country — surprisingly floats near the bottom. 

But promising growth patterns are a sign of things progressing at different institutional levels. While not immune to criticism, the government-backed CDP VC fund has pledged plenty of resources for direct and indirect investment over the next five years. Intesa Sanpaolo’s VC arm Neva Sgr’s €250m fund was followed by promising multi-stage fund announcements. 

Domestic accelerators are sprouting up too, both within and outside leading universities — including Bocconi’s B4i, Politecnico di Milano’s PoliHub, Luiss’ Enlabs, DigitalMagics or Depop’s home H-Farm. 

London-based Founders Factory has also recently set up shop in Milan, symptomatic of greater international interest in Italian startups. US fund activity has increased by 14 percentage points over the past two years, while Asian VCs have topped a record 7% share of overall funding in 2022 so far. Standing at 78% in 2016, domestic investment is down to roughly 38% for the year to date.  

So what’s next for Italy?

When Sifted asked Italian tech leaders about the current state of the country’s scene, many blamed an “old” and “safe-job” mentality issue for its current standing against other European countries. Others pointed out a mismatch between dry powder and founders and between different regions and cities. Others talked of a brain drain, pessimism and a general lack of faith in the ecosystem.

Although Q4 has so far settled on calmer waters, the country’s historical entrepreneurial spirit may be finally paying off in the wider tech space, and the enthusiasm is palpable among its operators.

Federico Scolari is an intelligence analyst at Sifted. Ruggero di Spigna is a startup analyst at Sifted

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