Financing Innovation – A Fund of Funds of Venture Capital

Autore : G. Gianfrate, A. Cordova, C. De Franceschi, M. Magrini, M. Morici, L. Scalvini, A. Piol

Data: 22-01-2014

Tipo: Policy Brief

Tematica: Innovation


This policy brief presents a proposal whose aim is to increase the capital flow towards innovative firms in Italy through the constitution of a Venture Capital (VC) Fund of Funds (FoF).

The proposal builds on the premise that young and innovative companies face by definition a higher credit risk, which limits their access to the traditional bank financing. In this scenario it is crucial to develop a strong capital market, able to supply the necessary funds for startups to grow and stand out at an international level.

New technologies are becoming the main drivers of a country’s economic development and financing innovative companies is more than ever necessary. Without a sound capital market, these firms are less likely to stay in Italy and the same holds true for foreign firms. This potentially means lower employment, lower revenues for the State, lower positive technological spillover determined by the presence of innovative entities (in terms of know-how circulation, innovation production and stimulus for new generations to pursue an entrepreneurial career).

In this respect the VC industry has always been a crucial resource for innovative startups, in terms of contribution of capital, managerial skills and market knowledge, which represent fundamental assets for these firms to grow.

Since the fundraising activity of Italian VC drastically decreased due to the current recession, we think it is important to promptly intervene. Moreover, we judge important to use public funds in order to sustain the VC industry for two reasons: (i) to absorb the drop in private investments in startups due to the contraction phase of our economy (and of credit in particular); (ii) to boost the participation of institutional investors (e.g. pension funds and insurance companies) in the VC industry, which has so far been very low, representing the core cause of fundraising difficulties for Italian VC.

The proposal focuses on the constitution of a Fund of Funds in order to open a new fundraising channel for existing Venture Capital companies to finance Italian startups. After examining the main criticalities Italian startups face in finding capitals (equity gap) and after describing the current limits of the Italian VC industry, the policy brief presents the main international best practices, in order to define which FoF structure best fits the Italian framework. The document describes: (i) its size, (ii) its governance, (iii) the resources that will finance the FoF.

In particular, we propose the constitution of a FoF through a 150-million-euro public fund injection and an amount of private investment not lower than that. The FoF can alternatively be managed by the European Investment Fund (EIF) or by the Italian Investment Fund (IIF). Its capital resources will come from national or European funds (Horizon 2020, Structural Funds, EIF).


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