STARTUP ACADEMY #3: MORE FINANCING INSIGHTS

Clients

Friday 06 November 2020

06 November 2020

Day two of a course on startup financing focused on business angels and venture capitalists, and the different phases of capital raising by startups

2:00 Min

With Marco Bicocchi Pichi, Entrepreneur and Business Angel with more than twelve years of experience, we explored the characteristics of this figure, essential for investment in startups, generally of the “seed” type, i.e. when the business idea is still on paper, in a conceptual or very early prototype phase.

The motivations that push a great investor to become a business angel may be purely financial, but sometimes they are more linked to the desire to express a professionalism, to remain connected to the business world, in some cases they are guided by praiseworthy aspects, such as the recognition of a form of “give back” to the company. Some data depicts well the approach of a business angel: investing no more than 5% of its liquid assets in startups, to be diversified on a portfolio of about 20 startups. The average ticket of a business angel is very variable in relation to the category (e.g. super angels with family office, club deal with other business angels, individual business angel) and the stage of development of the startup from which the valuation and the share acquired is derived.

"The difference between having a new partner or a simple venture capital contribution is what makes the difference for startup founders, finding a real business angel as opposed to a simple investor looking for diversification in their asset allocation strategy. Both are useful, but the contribution they can make to the new business is very different"

Marco Bicocchi Pichi, Entrepreneur and Business Angel

Diana Saraceni, Co-founder & General Partner of Panakes Partners, explained how Venture Capital works: you start by scouting for projects, you find ideas with very high potential and you make “venture or work capital” available to them by acquiring a minority share of the company. This is how the shared growth path begins, destined, after a few years, to the investor’s capitalisation of the financing with an “exit”.

The expectations on the results of the companies in the funds’ portfolio are very high from the outset: results in hand then, multiples range from 1 to 5 for about half of the portfolio and for a smaller portion of the portfolio (about 20%) multiples higher than 5 are obtained. The testimony also allowed us to study in depth the trading techniques of a Venture Capital investment and the clauses it involves – preferred stock, reverse vesting, liquidation preference – as well as other instruments to protect the Venture Capital’s investment, such as the anti-dilution clause.

“Everyone understands how important is innovation in Life Sciences, as the outcome affects everyone’s life. Investing in it has a strong ethical profile and virtuously also generates excellent returns”

Diana Saraceni, Co-founder & General Partner of Panakes Partners

Francesco Inguscio, CEO of Nuvolab, with a wealth of experience in corporate operations – entry and exit – and startups, shared his lessons learned in the field.

Exit, typically, takes place through the sale to an industrial or financial player (trade sale) or through listing on the stock exchange (IPO). The reasons for exits are many: from the need to make a profit to the need of the founder to diversify their activities. What do you need to do to make an exit a reality? Firstly, explore the market to find buyers. Secondly define the expectations: timing, economic conditions, constraints on key people in the company, governance, deal breakers, etc..

The necessary considerations must also be given to legal, commercial and accounting aspects related to the startup. And prepare for a negotiation phase, in which it is important to remain calm, mediate mutual expectations, pay attention to details and tax aspects.

"Good things done well must be paid well... and when it comes to getting paid as well as you have done well, especially the exit must be done well!"

Francesco Inguscio, CEO of Nuvolab

We therefore focused on the role played by the Central Guarantee Fund in Italy and on the European tools available to support innovation. Together with Fabio Melzani, coordinator of UniCredit’s Capital Light Factory, we explored the process and the requirements for access to the Fund, established in 1996 with the aim of facilitating access to credit for Italian SMEs and encouraging, among others, investment in innovation. UniCredit is now a leading institution in the use of the Fund.

With Antonio Carbone, Head of Innovation Department of Apre, one of the main experts on European financing, an excursus on the facilitated finance instruments was made – many non-repayable – available at European level: real opportunities for start-ups, which allow projects at different stages of development and in different sectors to draw on important resources. These include the Accelerator and the Pathfinder for Advanced Research of the European Innovation Council of Horizon Europe 2021-2027, through which the European Commission intends to identify and then grow the most promising start-ups on a European scale and accelerate their growth processes.

"High competition for ambitious start-ups. It is important to invest and focus attention on these tools in a strategic logic for the company, never forgetting the value of a team that starts to be multidisciplinary and that knows how to make the right partnerships with key players"

Antonio Carbone, Head of Innovation Department of Apre