| Date post: | 09-Aug-2015 |
| Category: |
Documents |
| Upload: | matteo-baiamonte |
| View: | 41 times |
| Download: | 0 times |
Corso di Laurea In Economics and Management
Tesi di Laurea
Italian IT startup migration from Italian ecosystem to the new Berlin startup hub
RelatoreProf. Paolo Pellizzari
LaureandoMatteo Luca BaiamonteMatricola 832318
Anno Accademico 2013/2014
Table of contents
INTRODUCTION.............................................................................................................................IV
CHAPTER ONE- The Startup phenomena.....................................................................................5
1.1 DEFINITION OF STARTUP..........................................................................................................5
1.2 THE LIFE-CYCLE AND THE GROWTH MILESTONS OF STARTUPS..................................6
1.2.1 The concept phase …..............................................................................................................8
1.2.2 The seed/early phase................................................................................................................9
1.2.3 The expansion/scale phase.....................................................................................................16
1.3 MORTALITY RATE OF STARTUPS..........................................................................................21
CHAPTER TWO- Italian IT Startup landscape............................................................................ 24
2.1 THE ITALIAN STARTUP LANSCAPE IN THE INTERNET TECHNOLOGY SECTOR.......24
2.2 THE FINANCING CHANNELS IN ITALY................................................................................28
2.2.1 The Public financing..............................................................................................................28
2.2.3 The Private Equity.................................................................................................................30
2.2.4 The Incubators/ Accelerators network...................................................................................36
2.2.5 The crowdfunding platforms.................................................................................................39
2.3 THE HUMAN RESOURCES AVAILABILITY AND THE LABOUR COSTS.........................42
2.3.1 The human resources availability..........................................................................................43
2.3.2 Labour costs..........................................................................................................................46
2.4 BUREOCRACY IN THE CREATION AND DISSOLUTION OF AN INNOVATIVE
STARTUP IN ITALY..........................................................................................................................49
CHAPTER THREE- Berlin startup hub landscape.......................................................................54
3.1 BRIEF HISTORY OF BERLIN STARTUP HUB........................................................................54
3.1.1 Key figures about Berlin startup landscape...........................................................................55
3.2 FINANCING CHANNELS IN BERLIN.....................................................................................60
3.2.1 The supporting projects offered to IT startups .....................................................................60
3.2.2 Incubators and Accelerators network ...................................................................................64
3.2.3 The Private equity..................................................................................................................67
II
3.3 THE PURCHASING POWER, SUPPORTING INFRASTRUCTURES AND CULTURAL
AMENITIES IN BERLIN..................................................................................................................69
3.3.1 Cost of living and purchasing power.....................................................................................70
3.3.2 Coworking spaces..................................................................................................................71
3.3.3 Supporting infrastructures.....................................................................................................72
3.3.4 Cultural amenities..................................................................................................................74
3.4 HUMAN RESOURCES AND LOCAL COMMUNITIES IN BERLIN.....................................75
3.4.1 Universities............................................................................................................................75
3.4.2 Research centres and local communities...............................................................................77
CHAPTER FOUR- Survey on the Italian Digital community of startuppers in Berlin “DigItaly”
............................................................................................................................................................80
4.1 BRIEF DESCRIPTION OF THE SURVEY AND THE SAMPLE..............................................80
4.2 DEMOGRAPHIC INFORMATIONS ABOUT THE ITALIAN ENTREPREENURS IN
BERLIN..............................................................................................................................................81
4.3 MAIN FEATURES OF THE STARTUPS...................................................................................83
4.4 ITALIAN LANDSCAPE OF IT STARTUPS..............................................................................84
4.5 BERLIN IT STARTUP ENVIRONMENT...................................................................................88
CONCLUSIONS...............................................................................................................................94
ANNEX A..........................................................................................................................................97
REFERENCES...............................................................................................................................104
ONLINE REFERENCES..............................................................................................................108
III
INTRODUCTION
“It's not about ideas. It's about making ideas happens”Scott Belsky, Behance Co-founder
The aim of this paper is to analyse the phenomena of migration of start-ups in the Information
technology sector and of entrepreneurs from Italy to Berlin start-up hub.
Startups have been a subject of many researches and papers, due to their importance in job creation
and innovation progress; this importance is also enhanced by the overall Worldwide economy, in
which jobs creation process is fundamental.
However, the high mortality of startup businesses in IT sectors, mainly for the uncertain and
unverified business model and for the turbulent situation of the economy Worldwide, forces
entrepreneurs to move towards better environments, in which key factors of growth are more
developed.
Keeping in mind that Europe overall is struggling to reach the level of competitiveness of U.S start-
up hubs, leaded by Silicon Valley, I will focus on this paper on startups and startuppers migrating
from Italy to Berlin start-up hub, that in the recent years gained more importance and international
interest, becoming one of the most important startup centres In Europe, with London and Paris.
Using Berlin as benchmark for evaluating the Italian landscape for startups, it will be possible to
answerer questions such as “In which way Italy can improve in order to match Berlin landscape?”
and “In which way Italy and Public Authorities can create clusters of innovation renoned at an
international level?”.
The methodology I used for this paper starts with the comparison of Italian and Berlin landscapes
trough the analysis of some key factors determinant for the growth of the startup in order to get the
first quantitative and qualitative results. The next step of the method is carried out by a survey on
the Italian community of digital entrepreneurs in Berlin “DigItaly”; through the questionnaire, it has
been possible to collect direct feedbacks not only about the key factors of both environments but
also on the main reasons why of their migration.
IV
CHAPTER ONE
The startup phenomena
1.1 Definition of startup
The main purpose of this research is to analyse the issues at the basis of the migration of IT
start-ups from Italy to Germany; in particular, Berlin, location of a high growing startup
environment
The word “startup” has become mainstream and very famous since the dot.com boom in the
end of the 90’s and the beginning of the 2000s with the dot.com bubble1
It is important, first, to give a definition of a start-up since the common knowledge considers a
startup only a business merely related to the high technology sector and at its initial phase only
(examples can be: web platforms or e-commerce businesses or mobile applications). According to
the definition of Eric Ries, a startup is a “a human institution designed to create a new product or
service under conditions of extreme uncertainty”2. This is a very broad definition, in which no
business model is specified, so that even a new way of serving ice cream, a no-profit organizations
or a project inside well-established companies may fall within the realm of this definition. The
definition of startups of Eric Ries also highlights the fundamental features of a product such as the
values offered to the customers, the novelty and innovation related to the product. Few examples of
successful startups can be:
Airbnb, a website for people seeking a temporary accommodation all over the world.
Founded by Brian Chesky, Joe Gebbia and Nathan Blecharczyk in 2008, the website
“pioneered the market of community consumption and peer-to-peer accommodation
1 The “dot com bubble” was a phenomenon – occurring at the beginning of the year 2000 – when, due to the increasing enthusiasm surrounding the web revolution, the stock prices of internet companies publicly traded reached remarkable peaks also encouraged by the those banks encouraging such investments. Given the fact that many of those companies did not have any sustainable business model, they ended up in bankruptcy and the burst bubble led the stock prices at an incredbly lower value. (Zhu Wang, “Technological Innovation and Market Turbulence: The Dot-com Experience”, 2006, pp1-5)2 Eric Ries, “The lean Startup”, Crown Pub, 2011
5
rentals”3. Even though the fierce competition that is facing day after day, Airbnb raised a
considerable financial capital of $119.8m, and it has a wide range of active users, more than
10 million people, over 26,000 cities in 192 countries4.
Tetrasun, is a startup that promoted a new technology for photovoltaic systems able to save
up until 21% energy at a low cost rate thanks to an innovative silicon architecture. The
startup ended its life in 2013, when it was acquired by First Solar, one of the main
worldwide photovoltaic company.
The leitmotif of a startup is “innovation”; namely, the fact of having a new idea and being able
to develop it. However, innovation also embodies a large set of improvements based on added
values to the final users, while giving the developers an advantage necessary to emerge between
other start-ups and compete within an evolving market. The survival of a startup, is therefore based
on its ability to be flexible and able to adapt to the changing environment of the markets and the
taste of customers.
The pathway of entrepreneurs that want to create a start-up has been described as “the hero’s
journey”5, an expression that emphasizes the fact that nothing is sure during the initial phase: not
just in terms of surviving, but also in terms of growth. Due to the uncertainty related to the success
of a startup, it is necessary to identify a rational approach towards two main topics:
entrepreneurship and durable growth. With regard to durable growth, in particular, it is necessary to
highlight that, together with variables that are within the startup itself and related to management
techniques, the context where the startup develops plays a fundamental role.
1.2 The life-cycle and growth milestones of the start-up
Increasing opportunities and reduction of costs, mainly due to the possibility to outsource
some key activities, lead the IT sector to be characterized by a huge competition between startups,
Competition is even worse especially for the web and mobile based platforms, in which start-ups
have to compete globally with each other. For this reason, it is important to emerge as a leader in
3 http://www.econ.ucla.edu/sboard/teaching/tech/Airbnb.pdf4 "Airbnb Fact Sheet, http://assets.airbnb.com/press/press-releases/Airbnb%20Fact%20Sheet_en.pdf5 Steve G.Blank, “The four steps to epiphany”, K&S Ranch, 2007, iiii
6
the market segment in which the start-up operates.
Due to competition in contending scarce resources, both financial and human capital, start-ups are
forced to use different management techniques than the usually employed by traditional enterprises;
in addition, startups need at each phase of their life-cycle a startup-frendly environment, that gives
the possibility to startups pursue a sustainable growth. For this reason, the entrepreneurs are forced
to reach as soon as possible better environments in order to differentiate their startup business from
the competitors.
The main growth milestones, needed in order to create an innovative product/service able
tosatisfycustomers,are:
Figure 1: Growth phases of a start-up, Source: “The four steps to epiphay”, Steve G. Blank
Problem solution fit is the “first step to understand if the product is something worth
doing”6, understanding if the needs that the start-up wants to satisfy are really crucial to
customers.
Product/market fit means “being in a good market with a product that can satisfy that
market”7; it is the most important milestone of the growth process, in which the final
product developed by the start-up has found a good position in the market niche with a great
reaction by customers
Scale phase, In which the start-up is seeking expansion, both in customer pool both trying to
serve new customer segments
In the next paragraphs, I will analyse more precisely each growth phase, highlighting the new
management techniques used as well as the needs of start-ups from the external environment, that
are critical for the overall growth process.
6 “Running lean”, Ash Maruya, pag 21, 20107 Marc Andreessen’s blog, Pmarca Guide to Startups
7
1.2.1 The Concept Phase
To reach the first milestone, the Problem/solution fit, it is useful for a start-up to follow a process
called Customer Discovery 8, aimed at confirm the initial vision about the possible market and
customers for the product; it consists of Interviews and contacts with possible early customers,
focusing only on a small market segment, in order to understand if:
They are aware of the problem that we want to solve
The problem is enough important for them in order to set up a business and if they are aware
of the problem
They would pay for that problem to be solved
They are looking a solution in the market for that problem
If the result, after those interviews, is that there are enough people with those characteristics, the
start-up has just found the most important source of learning: early visionary or enthusiastic
customers, also called by Steve G. Blank “earlyvangelists” to emphasize their role in developing the
product and in spreading the start-up vision.
However, even in this initial phase, the start-up benefits from a start-up friendly environment; in
fact, it is fundamental, at this phase, to belong to an inclusive start-up community, with a start-up
culture inclusive oriented rather than exclusive, in which:
Experienced entrepreneurs, also called serial entrepreneurs, share their experience with
others to collaborate through an informal mentoring process, a birth of a new start-up9
Regardless any background of the entrepreneur, the community of entrepreneurs accepts
incumbents in their networks.10
A necessary condition, not just for achieving the Problem/solution fit, for the creation of a vibrant
start-up community is to operate in a technological lively environment, in which the
implementation of new ideas, successful or not, is incentivized rather than looked with suspect.
This kind of environment, often, can be found near Universities or Research centres; In fact,
universities has always played a key role in fostering start-up communities to take root, and they are
“Feeders that, at minimum, generate a steady steam of new young community into the start-up
8 Steve G. Blank, “the four steps to epiphany”, K&S Ranch, pp 27-339 See supra, pag 14710 Brad Feld, “Startup Communities”.Brad Feld,
8
community” 11.
Famous examples are Stanford university, which in the end of the 50's, namely, “created” the
Silicon Valley, fostering innovative projects; In fact, two Stanford students, Bill Hewlett and David
Packard, founded Hewlett-Packard company, an important company for the development of the IT
sector. Another example of how universities can contribute in the creation of a fervent startup scene
is New York, where thanks to the building, during these years, of a campus, that is technology and
entrepreneurship oriented called ConellNYC Tech, thanks to a joint venture between the Cornell
University and the Technion-Israel Institute of Technology, has made possible for New York to
become the third startup centre in US and the fifth globally in few years.12
However, at this early phase, called concept phase, no funding are required, being the interview
carried out personally by the entrepreneurs.
1.2.2 The early/seed phase
After the Problem/solution fit has been achieved, the continuous learning principle is now
applied to learn what people wants, that is exactly the aim of the most important growth milestone:
the product/Market fit. This can be achieved by using a tool, called the Build-Measure-Learn loop,
in which a minimum valuable product (MVP)13, that can be a working prototype with the main basic
feature or just an image of it, is offered, sometimes it can be sold, to the earlyvangelists, getting
feedbacks directly from them.
Figure 2: The “Build-Measure-Learn loop”; source: Eric Ries, “The lean model”
Every time the loop is completed, through the collection and the measurement of feedbacks, we can
learn useful informations about possible features to include that our target customers perceive as
11 “Startup Communities”.Brad Feld, 12 Maria Teresa Cometto, Alessandro Piol, “Tech and the City”, Angelo Guerini e Associati, 2013, pp-6613 Eric Ries, “The lean Startup”, Crown Pub, 2011, pp 82
9
fundamental.
The aim of this loop process is to understand if our strategy, e.g. our market segment or our
customers profile, is correct, meaning that the entrepreneurs have taken the right path and they can
persevere; if it results to be incorrect, the strategy must be changed or, more precisely, there is the
need of a pivoting.
In this phase of life-cycle, including the seed stage and the startup phase, the presence of a startup-
friendly environment is a greater concern than the previous phase.
In fact, besides the needs of mentoring from other entrepreneur and of a vibrant technological
community, the seed and the startup phases are characterized also by a strong need of fund raising,
especially in computer hardware and computer gaming.
Differently from traditional enterprises, startups, can not depend upon traditional financing, for
example on bank loans, in which the principle called “ belt and suspenders”14 still dominates the
investment decisions. For this reason ,in the seed phase, new informal types of investors play a key
role in the growth process:
Friends and relatives of the entrepreneurs15
Business angels investors
The latter type of investor is a peculiar figure of the startup environment, because they are a high
net worth individual, acting alone or in a formal or informal syndicate, “who invests his or her own
money directly in an unquoted business in which there is no family connection and who, after
making the investment, generally takes an active involvement in the business”16. Very important is
the fact that their time schedule about their exit strategy is very flexible, leaving the pressure of fast
returns on the entrepreneurs.17
They choose in which project to invest following some criteria:
It must be near their residence, in order to increase the direct contact of the angel with
14 The “belt and suspenders” principle is the necessary condition of repaying the debt trough their operative cash flowor tangible assets. (Hardymon, F. and A. Leamon, "Silicon Valley Bank.",Boston: Harvard Business School Publishing,2001)
15 Wilson, K. and F. Silva (2013), “Policies for Seed and Early Stage Finance: Findings from the 2012 OECD Financing Questionnaire”, OECD Science, Technology and Industry Policy Papers, No. 9, OECD Publishing. (http://dx.doi.org/10.1787/5k3xqsf00j33-en)
16 Mason and Harrison, “Business angel investment activity in the financial crisis: UK evidence and policy implications”, Environment and Planning C: Government and Policy, 2008, pag 309
17 Jon Hoyos Iruarrizaga , María Saiz Santos, “The informal investment context: specific issues concerned with business angels”, 2013,, pp 180-183
10
entrepreneurs
It belongs to a sector In which the angel investor is experienced, reducing the information
asymmetry between entrepreneurs and angels
Angels investors are crucial not just for the cash that they supply to startups but also for :
providing knowledge to entrepreneurs, about the know how and the best practices
creating a network between the startup and possible suppliers or possible strategic partners
filling the investments gap between the early stage and the later stage in which more formal
investor invest only at a less risk level.18
Signal the quality of the projects to the market, increasing the probability of getting funding
at later stages.
Even if the number of Business angels (Bas), working independently or in networks (BAN) is
increasing annually at a fast rate, especially in Europe where the BANs increase by 14% in number
annually, and even if the trend of total amount invested shows an increase in volume of investments,
according to the results from the European Business Angels Network (EBAN) survey in 201219,
only 16 startups out of 100 business angels gets financed.20
For this reason, startups can increase the probability of getting financed by Bas in a context in
which business angels are very active, forcing them to migrate towards more developed seed
financing system environment.
Due to the low probability of getting backed by business angels, a startup can not only depend
upon them as the major funding channel; for this reason, new kinds of investment and institutions
emerged, especially in flourishing technological areas:
Type of investment Features Amount invested and phase of
investmentCrowdfunding
platforms21
Through web platform, crowdfunding
platforms employs users as investor for:
Investments mostly in the early
stage of financing cycles
18 See supra, pp 18319 European Business Angels Network (EBAN) 2013 survey (http://www.eban.org/e5-1-billion-market-shows-
european-angels-on-the-rise/#.U-aSXPl_vzt)20 European Busines Angels Network (EBAN) survey, 201321 Oliver Gadja and James Walton, “Review of Crowdfunding for Development Initiatives”, Department for
International Development, 2013 (http://www.europecrowdfunding.org/wpcontent/blogs.dir/12/files/2013/10/EoD_HD061_Jul2013_Review_Crowd
11
Financing the project, using
equity based, loans, reward,
donation or a combination of
them22
Developing the product, making
them choose between different
products or even allowing them
to develop it by themselves
Creating open discussion between
investors for what concerns
possible improvements about the
product
Averages for:
Equity based: 150,000 US $
Loans based: 5,000 US $
Reward based: 5,000 US$,
wth great variation between
some small projects and some
huge financed projects
Combination: it depeds on
the startup project that has to
be financed
Incubators23 Institutions, that can be private or public
owned, aimed at offering to the new
born startup services in exchange of
equity stakes. The services that they
offer are:
Working spaces in their location
Seed Funding from the incubator
itself or through their network of
investors
Mentoring and coaching the
founders
Human resource and legal
Seed stage and startup stage
Funding.pdf)22 Equity based crowdfunding is a model of crowdfunding in which the investors receive equity stakes for their
contributions. Loan based crowdfunding is based upon private loans, where interests will be paid by the startup. Reward based crowdfunding consists in giving incentives and rewards to the investors ; those rewards can be of different types, depending also on the amount invested. The donation crowdfunding model, instead, is used typically by non-profit organizations and social causes, does not bring any financial reward to the investors
23 Centre for Strategy & Evaluation Services (CSES) for the European Commission’s Enterprise DG, “Benchmarkingof the Business Incubators”, 2002,
12
support
Contact with other startups,
creating a flow of knowledge and
networks between entrepreneurs
(network incubators)Accelerators24 Institutions, that can be private or
public, offering a “intensive acceleration
programs” to startup at the seed stage, in
exchange of an equity stake, averaging
between 6% -10%. The accelerator
programs are characterized by:
A high selections of projects and
teams (max. 3 persons per team)
A Defined time period in which
the firm can be part of the
program, between 3 and 6 months
More intense coaching and
mentoring than incubators
A Final presentation to possible
investors
Usually the possibility to working space
Seed stage
Average investmets: 50,000US $
Table 1: Crowdfunding, Incubators and accelerators characteristics
The importance of those new kinds of financial resources, in order to substitute the lack of
business angel backing, for a startup is clear; in fact, those financial channels showed worldwide a
constant growth, both in numbers of , both in the total amount invested.
In fact, for what concerns crowdfunding platforms, it is observable a sustained growth in the
amount of total investment trough such platforms, reaching 2.7 billion dollars in 2012 globally25
and in the overall number of crowdfunding platforms worldwide:
24 http://www.dutchincubator.nl/uploads/Documents/49.pdf25 “Crowdfunding industry report”, Massolution,2013
13
Figure 3: Total amount invested through crowdfunding platforms; Source: Crowdfunding industry report”,
Massolution,2013
Figure 4: Percentage growth of crowdfunding platforms worldwide from 2008 to 2012; Source:
source:http://www.statista.com/statistics/251567/growth-r-of-crowdfunding-platforms-worldwide
For what concerns the incubators and accelerators, there have been seen a boom in their
numbers, with 29% annual increase since 2008 as we can see from the data relative to 10 European
countries26, highlighting their importance for startups:
26 The research was focused on Czech Republic, France, Germany, Ireland, Italy, the Netherlands, Slovakia, Spain, Sweden and the United Kingdom. (Eduardo Salido, Marc Sabás and Pedro Freixas,“The Accelerator and Incubator ecosystem in Europe”, Telefonica, 2013)
14
Figure 5:Accumulated number of incubators/accelerators since 2001; Source: Telefònica Global affairs and newventures, 2013
In this early phase, beside the funding channels described previously, also the public entities has
proved to be very important in order to foster innovation and in supporting startups with its catalyst
function of investment.
In fact, an evidence of that can be found in America's biotechnology sector, in which right after the
approval of the Bayh-Dole act, permitting publicly funded research to be able to obtain a patent, the
sector saw a boom in pubic andprivate investments in this sector, reaching 30.1 billion dollars in
2011, fostering the following boom of new born startups in the Biotech,27
However, getting financed and supported is not the only factor that helps startups in this early
phases; in fact, because startups, at this stage, have low profits or, more probably, losses, they
need a more flexible tax system.
The building measure loop, in fact, is usually financed by the sells of the first prototypes or trough
the bootstrapping of entrepreneurs; if the tax system is too aggressive, the most important resource
of startups, cash, risks to be burned before getting the market/product fit, forcing the startup to sell
their assets, if any, or to go bankrupt.
It is not a case that London, one of the biggest and most renowned technological hub for startups,
has created several tax incentive to the startups and, at the same time, tax credits up to 50% to
investors, increasing the flow of capital to startups, especially in the IT sector.28
27 “Startup myths and obsessions”, The Economist: http://www.economist.com/blogs/schumpeter/2014/02/invitation-mariana-mazzucato
28 http://www.entrepreneurial-insights.com/startup-hubs-around-world-london/
15
The flexibility of the tax system not only encourages entrepreneurs to set the operation in that
location, but also helps it growing during the first difficult periods by allowing the startup to retain
more liquidity;a flexible tax system also on investments in risky startups helps to increase the flow
of capital towards start-ups.
However, if the startups must fill the bankruptcy pathway,as it occurs often in those early phases, it
needs to take little time in order for the entrepreneur to be able to create another startup in less time,
instead of carrying the burden of failure for years, undermining the creativity and passions of the
entrepreneurs, reducing dramatically the probability of creating another startup, keeping in mind
that a heavy burden is also carried by investors who invested or lended money into a failed
business.
1.2.3 The expansion/scale phase
After the startup has been able to achieve the most important growth milestone, the
product/market fit, in which the business model has been validated ad the product is able to satisfy
the first customers, the focus can shifts from persevere/pivot to scale, increasing the number of
customers, with the goal to create fans loyal to the startup brand and product, trying to serve also
the largest part of customers, the mainstream customers, rather than only enthusiastic ones.
The startup main objective now is the creation of a strategic selling strategy by building a
sustainable revenue stream rather than depend on sporadic and casual transactions, called “ heroic
selling”.29
The process of creating and acquiring loyal customers and of developing a continuous revenue
stream is well described by the AARR metrics, developed by Dave McClure, and is composed by
five different building blocks30:
Acquisition phase, in which people that does not know our product is becoming an interest
possible customer, also called prospect,; the focus in this phase is the way in which
customers can find the startup and to attract initially its interest.
Activation phase, during which customer makes the fundamental step: use and get a first
approach with the product; in this phase it is important is to offer him an amazing
29 Lorenzo Paoli,“Il coaching per la tua startup”, Antonio Vallardi Editore, 2014, pp 113-11530 AARR metrics framework was first presented by Dave McClure in his blog
(http://500hats.typepad.com/500blogs/2010/01/startup-metrics-for-pirates-lean-startup-circle-jan-2010.html)
16
experience.
Retention phase, the most important step at this phase of growth, in which data are collected
about how many times a customer uses or buys our product. It is the main indicator of the
success of our business model, highlighting the overall level of satisfaction with the product
of the start-up.
Revenue phase, measures the time at which the activity of customers are monetized. It is still
another important indicator of success of the product.
Referral phase, the last phase, in which the satisfaction of the customers becomes the best
marketing tool for the startup, spreading the name of the startup across their networks,
exploiting the increasing curiosity of interested prospects about the product in order to
transform them into loyal customers through the AARR cycle.
Figure 6: AARR metrics; Source: Dave McClure Blog
Startup have to complete as fast as possible this process of “fans” creation, increasing its pools of
customers, building a strong brand awareness among different kind of consumers. One example of
the power of referral is Facebook, a social network started from a small niche market of Harvard
students in 2004, spread to other college students in US just few months after the first launch. Now
it has become is the most visited page in the web, overtaking also Google.31
Once the success has been obtained by the startup, its successful journey ends with one of those
destinations32:
31 Facebook timeline, may 3 2006 (https://newsroom.fb.com/news/2006/05/facebook-expands-to-include-work-networks-2/)
32 David Smith, “Zero-to-IPO & Other fun destinations”, Cambridge Manhattan Group, 2013, pp 19-21
17
Destination ResultsAsset Sale The company is sold, even if it is not profitable: the
acquirer buys the intellectual property of the startup33
Cash-flow sale The company is sold as a self-sustaining company
IPO Shares of the company are traded In the public
market: the startup is no more a private independent
entityTable 2: Possible successful destinations of startups
The best possible destinations for the startup are IPO and Cash flow sale, in which both
entrepreneurs and investors are fully rewarded for their efforts in building and supporting the
business, respectively.
However, the road to one of those final milestones requires some key factors in the external
environment in which startup resides.
In fact, at this later stage, also called expansion phase, the startup needs a more intensive capital
support from more formal investors through the venture capital funding channel.
This kind of funding is characterized by the figure of venture capitalists that, differently from
business angels, are intermediaries between an investment fund, such as pension fund, public fund
or a fund of high net worth individuals,and the growing startup in which they invest.
Given the fact that the fund they manage is much higher than the typical budget of a business
angel, the investment of venture capitalist are much more intense, raging from 2 millions dollar to 5
million dollars or more.34
The importance of venture capital is not limited only to the substantial financial support, but they
are also crucial in:
Creating a very good reputation for the startup, attracting more skilled employees,
increasing their market power in transactions with suppliers/buyers by signalling the clear
growth opportunities of the startup
Reducing the risk of moral hazard or opportunistic behaviours from employees and
founders, by providing incentives, specially with larger equity stakes than traditional equity
33 If the intellectual property is valuable only if it is related to the core product team that developed it, the supporting team is also brought into the acquiring company (David Smith, “Zero-to-IPO & Other fun destinations”, CambridgeManhattan Group, 2013, pp 233-235)
34 Jon Hoyos Iruarrizaga , María Saiz Santos, “The informal investment context: specific issues concerned with business angels”, 2013, pag 183
18
funding35
Supporting the management of the startup, by participating in the board of directors
membership and by supporting the human resource management.
Recent studies also showed that venture capital increases the innovation activities, also by looking
at the number of patents36 and in the potential of scale activity37.
The important role of venture capital investments in the IT sectors is clear by looking at the overall
confidence of the investment by venture capitalist, in the survey conducted by Deloitte & Touche
LLP and the National Venture Capital Association including venture partners belonging to the
Americas, Europe, Middle East and Pacific Asia38, in a scale from 1 (very low confidence) to 5
(high confidence in investment), in which the first six sectors belongs to the IT sphere:
Figure 7: Venture capitalists confidence of investments per industry; Source: 2013 Global venture capital confidence
survey
Even though the main venture capital funding model is based on equity investments, in which
stocks can be sold in order to exit from the investment, there is also a type of venture capital
35 Henry Chen,Paul Gompers,Anna Kovner, Josh Lerner, “Buy local?The geography of successful and unsuccessful venture capital expansion”, pag 2
36 Samuel Kortum,Josh Lerner, “Assessing the contribution of venture capital to innovation”, Rand Journal of Economics, 2000, pag 691
37 Manju Puri, Rebcca Zarutskie ,“On the Life Cycle Dynamics of Venture-Capital- and Non-Venture-Capital-Financed Firms”, 2010, pp 27-29
38 “Global Venture capital confidence survey”, Deloitte & Touche LLP and National Venture Capital Association (NVCA), 2013, pag 3 (http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/TMT_us_tmt/us_tmt_2013VCSurvey_081313.pdf)
19
funding based on loans.
This kind of venture funding is called venture lending and is aimed at substitute the typical bank
loans by providing loans at growing startups, usually operating with a negative cash flow and with
few physical assets, causing the traditional loans to avoid those kind of investments.
Instead of physical assets, venture loans use intellectual properties as warranty and take as a signal
of quality of the project an already funding backed startup, which increases the probability for the
startup to receive the venture loans. However, venture capital firms distribution shows how they
tend to concentrate into few and vibrant technological environment; in fact, according to the U.S
venture capital firms market, more than one half of the 1000 venture capital firms registered in
“Pratt’s Guide to Private Equity and Venture Capital Sources” set their operations in only three
main areas: San Francisco, Boston, New York.39
Given the fact that the monitoring cost in controlling and coaching the startup increases as the
distance between them increases, implying also a decrease supporting to the management by
venture capitalists, startup are better off moving towards environment in which there is an active
network of venture capital, in order to increase the probability of getting financed and supported.
There is a trend in which, globally, the amount of venture capital invested is increasing year after
year, especially in U.S, a well developed venture capital market, in which a remarkable amount of
29.7 billion dollars have been achieved in 201340.
Figure 8: Total venture capital invested in U.S between 2010 and the second quarter of 2014; source: MoneyTree
Report by PricewaterhouseCoopers LLP and the National Venture Capital Association
39 Henry Chen , Paul Gompers, Anna Kovner , Josh Lerner,“Buy Local? The Geography of Successful and Unsuccessful Venture Capital Expansion”, Boston: Harvard Business School Publishing, 2009, pag 2
40 MoneyTree Report by PricewaterhouseCoopers LLP and the National Venture Capital Association (NVCA)
20
Due to the low probability of getting backed by a venture capitalist, where only 1 out of 100
business plans received by a venture capital firm is accepted and eligible for the funding, startup
increases their probability of getting financed in a context in which there are venture capitalists and
in which the international attention, through research and articles by scientific and business
international newspapers, is interested in.
Another needed factor, for a start-up at this phase, is to operate in an environment in which
operating costs, such as the rent for the office and the cost of living, does not hurdle the growth
pathway of the start-up, putting in danger its liquidity by costs that are not finalized to create value
to the final consumer.
It is equally fundamental to offer the start-ups infrastructures that help the growth phase, such as a
fast and reliable internet connection, especially for web based startups; the importance of the
internet connection network is also proved by the fact that offering a broadband as large as possible
is one of the main goal of the European Digital Agenda.41
1.3 Mortality rate of startups
The new management techniques that we have explained previously are aimed to reduce
drastically the major causes of death of startups due to bad practices, such as premature scaling
caused by too low direct contact with final customers or a lack of a strategic selling cycle.42
In fact, the large number of internet companies failed after the bust of the internet bubble in 2001
was due to an attempt to apply the traditional management techniques, based on the creation of a
product without any ex ante feedback from customers, inducing companies to scale a wrong
business model.
The environment, instead, is fundamental to increase the probability to survive for a startup and to
make startups able to grow and compete globally, especially in the fast changing and challenging IT
sector. However, due to the intrinsic characteristics of startups, the mortality rate remains
considerable; in fact, it is remarkable the death rate in 2014, even in a well developed startup
41 Digital Agenda for Europe, by improving the broadband connection, has the goal to exploit the digitalization of theeconomy. The program was first launched in 2010, and the progression towards the achievement of these goals are reported annually in the Digital Agenda Scoreboard. (Digital Agenda for Europe Mainpage: http://ec.europa.eu/digital-agenda/digital-agenda-europe)
42 “Five Reasons 8 Out Of 10 Businesses Fail”, Forbes, http://www.forbes.com/sites/ericwagner/2013/09/12/five- reasons-8-out-of-10-businesses-fail/
21
environment as the US one, especially during the first years of activity, during which the 25% of
startups fails in the first year and after 3 years the percentage increases to 44%43.
Figure 9: Percentage of startups surviving after 4 years by sectors in US; Source: Statistic Brain
It is relevant the data about the startups in the IT sector, in which only 37% of the startups are still
alive after four years, highlighting the dichotomy more opportunities implies more competitions;
the difficulty to survive in this sector exacerbates the phenomena of flow of startups migrating
towards better technological environments.
The characteristics that make an environment “startup-friendly”, embrace more than a
financial, tax and bureaucratic system favourable to startups; it embraces several spheres, not only
in the macroeconomic context but also in political-cultural point of view. In fact, especially for the
IT startups with a desire to grow and become global, the so called “born global startups”44, there are
as many factors as 33 including:
Supporting infrastructures, such as a reliable internet connection or transports
Market features, including the demand characteristics, e.g the rate of growth of internal
demand
43 Entrepreneur Weekly, Small Business Development Centrr, Bradley University and University of Tennessee Research, http://www.statisticbrain.com/startup-failure-by-industry/
44 Global startups were first described by Gary A. Knight and S. Tamar Cavusgile in the paper “Innovation, organizational capabilities and the born-global firm”; among all the factors that they identify as determinant to allow a startup to be immediately part of the global market from the early phase there are: The information technology , especially in the communication sectors Creation of global networks thanks to the improvement in communication
22
International reputation of the environment
However in the next chapter, in which I describe the Italian environment for IT startups, for the
purpose of my research I will focus only on few factors that, in my point of view, are critical for the
recent phenomena of migration of entrepreneurs from Italy to Berlin:
Financial system
Labour cost and human resource
Bureaucracy concerning the creation and the cessation of a startup
23
CHAPTER TWO
Italian IT startup landscape
2.1 Italian Startup ecosystem in the Information technology sector
Startups in Italy has become a subject of social interest, both for economic and social point
of view, only in recent times.
The recent economic crises it Italy have moved the attention to innovative startups, as a way to
overcome the innovation gap that was becoming remarkable with respect other nations and as a tool
to promote self-employment, in a period in which unemployment rate is eroding the trust of the
current economic system.
The corporate drain phenomena, namely the migration of one startup to another foreign country,
showed a 20% increase in 201245, according to the Mind in the Bridge46 2012 survey; in order to
stop this trend, the government was forced to develop a plan with the goal to not only protect them
and retain them from leaving Italy, but also to be more able to compete in a global environment.
In fact, right in the middle of a fierce recession in Italy in 2012, innovative startups for the first time
were “legally” described , in the “Decreto legge crescita 2.0”, as powerful human institutions able
to 47:
Decrease unemployment, especially between young people, that in Italy reached nowadays
the peak of 43.7 % with respect to the 20% European average48
Fostering a sustainable growth of Italian economy, especially after the global financial crisis
of 2008
Fostering a technological progress exploiting the creativity of entrepreneurs
Creating an innovative culture in Italy
Creating an Innovative environment, start-up friendly, encouraging social mobility and the
45 “Startup in Italy: facts and trend”, mind the bridge survey 2012, pag 12. 46 Mind in the bridge foundation, founded by Marco Marinucci, is a San Francisco based incubator that, on an annual
basis, carries out research on italian entrepreneurship with the ultimAte goal to create a “Bridge” betweeen U.S entrepreneurial ecosystem and the Italian one.
47 Gazzetta Ufficiale, legislation decree n° 179 of 18/10/2012 http://www.gazzettaufficiale.it/atto/serie_generale/caricaDettaglioAtto/originario?atto.dataPubblicazioneGazzetta=2012-12-18&atto.codiceRedazionale=12A13277
48 European Commission Eurostat website, http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Unemployment_statistics
24
make more attractive the Italian ecosystem in order to attract foreign investments and
talented people
However, in order to be considered “innovative startups” , following the definition of Decreto legge
crescita 2.0, they have to be in possess those requirements49:
The majority of shares and of votes must be held by physical person, not by institutions for
example banks
Less then 48 months of past activities
Legal and operational office in Italy
The value of their production, since the second year of activity, must be lower than 5
millions
No profits are yielded
Main social objective is the “development, the production and the commercialization of
innovative products or services with high degree of technology”
An investment of At least 30% of the value added50 in R&D activities or having at least one
third of the total workforce with a master or PhD; as an alternative, the startup must possess
a patent
Even though the goal of the Decreto legge crescita 2.0 was to foster entrepreneurship by reshaping
the financial system, the bureaucracy and employment procedures , this legislation decree still
needs, after 2 years, more laws in order to become effective. This can be explained by the large
amount of important matters embraced by this legislation decree.
The lack of a well-working and effective legislation of startups in Italy obstacles the creation of a
trustfully ecosystem, needed to attract more entrepreneurs and capital from foreign countries. This
is even worse for the IT sector.
The larger proportion of startups in Italy, in fact, operates in the Information communication
technology (21.8%) and in the web platforms (49.1%)51..
49 Legislation decree n° 179 of 18/10/2012 art 25 comma 1-450 Value added is given by revenues of a firm less cost of purchases of material and services, such as labour wages51 Mind in the bridge survey 2012, “Startup in Italy: facts and trend”, mind the bridge, pag 12
25
Figure 10: Distribution of Italian startups by industry; Source: Mind in the bridge report 2012
For what concerns the geographical distribution across Italy of these startups, there is an
evidence of the poor exploitation of entrepreneurship in the south are clear by looking at the
location of startups in Italy.
Figure 11: Geographical distribution of startups per macro-areas; Source: Mind in the Bridge report 2012
The bad situation concerning the entrepreneurship in the southern regions, mostly due to bad politic
management and waste of public resources, makes it far less attractive for entrepreneurs to set their
businesses in those regions.
Another information we can extrapolate from the geolocation distribution of startups in Italy is that
the main regions are Lombardia, with 25% of startups and Lazio, with 17% of total startups, with
26
their main centres in Milan and Rome, respectively, according to Mind in the Bridge survey 2012.
Those results are also confirmed by looking at the distribution per region of innovative startups
registered in the Chamber of Commerce register, 2508 in August 201452:
Area Region Number of Innovativestartups
Relative distribution ofstartups
North east Trentino Alto Adige 112 4,5%
Friuli-Venezia Giulia 75 3%
Veneto 198 7,9%
Emilia Romagna 274 10,9%
North west Valle d'Aosta 9 0,4%
Piemonte 190 7,6%
Lombardia 553 22%
Liguria 36 1,4%
Center Toscana 173 6,9%
Lazio 227 9%
Umbria 30 1,2%
Marche 100 3,9%
South and Islands Abruzzo 38 1,5%
Basilicata 12 0,5%
Calabria 44 1,7%
Campania 136 5,4%
Molise 11 0,4%
Puglia 105 4,2%
Sardegna 76 3%
Sicilia 99 3,9%
Italy 2508
Table 3: Distribution of innovative startups per region; Source: Chamber of commerce register of innovative startups,25 august 2014
It is clear how the majority of startups (1447 of 2508, approximately 58%) belongs to the north area
of Italy, with peaks in Lombardia (553), Emilia Romagna (274), Veneto (198) and Piemonte (190).
For what concerns the central Italy, the results are coherent with Mind in the Bridge survey 2012
results, with a total of 530 out of 2508, or approximately 21%, of total startups with Lazio as a
52 Chamber of Commerce, “Registro imprese” http://startup.registroimprese.it/report/startup.pdf, retrieved on 25 August 2014
27
main center (227).
The unexploited entrepreneurial potential of the southern regions and the islands is confirmed by
looking at the total amount of startups in the eight regions composing this area, with 531 total
startups, or 21% of the total, with only two regions exceeding the threshold of 100 startups:
Campania (136) and Puglia (105).53
After this brief introduction to the startup environment in Italy, especially for what concerns the IT
sectors, in which we described the main legislation and some key data about startup, the next
paragraph will be devoted to the analysis of the financing system, from public institutions and
private institutions
2.2 Financing channels in Italy
Italian startups in high technology sectors,like any startup, needs to raise funds in every
stage of its life cycle, in order to foster the growth process.
In the next paragraphs I will focus on the main funding channels for start-ups:
Public financing
Private equity investments
Incubators/accelerator
Crowdfunding platforms
The focus will be on quantitative data for each funding channel as well as the recent legal regulation
concerning the equity crodwfunding platforms.
2.2.1 The public financing channels
Public financing plays a key role in helping startups at the very early stage and in fostering
innovation as we said in the first chapter.
In Italy, even though historically has been a country in which the public participation in the
economy was very intense, the direct public financing in startups turns out to be not as effective as
it has been for traditional enterprises.
In fact, public funding is considered by startups very difficult to get and not enough effective to rely
53 Data are elaborated from “Registro imprese” http://startup.registroimprese.it/report/startup.pdf
28
entirely on it, and is considered by enterpreneurs only a secondary tool of funding.54
Two of these projects of public funding for startups are:
SIMEST “start-up fund”, which supply investment in minority stakes, up to 49% of shares,
for new born startups that are going to undertake international projects outside EU. This
investment can be complementary to other financing sources, but not greater than €200.000
for each project, for a duration of 2-4 years, up to a maximum of 6 years. The exit strategy
for the investment is the repurchase by the startup of the equity stakes.55
“Fondo Italiano d'Investimento”56 is an investment company, specialized in investing in
already established companies, with revenues between 25 millions and 250 millions, with
good assets balances. Only recently it opened a program, “program 101” in cooperation with
another investment company, Azimut; the the “Program 101” makes available a venture
capital fund of €35m dedicated to startups. It will be carried on also in collaboration with H-
farm, the biggest accelerator in Europe in Sile area, in Veneto, in order to enlarge the
discovery process of new innovative startups.
It is clear, however, that public institutions understood the importance of startups, during those
years, as key players in jobs creation and that's why Public entities have set up several projects,
aimed at creating a bridge between startups and traditional businesses. One of the most peculiar
project of this kind is called “AdottUp”, carried out by the employer federation Confindustria with
the support of Intesa San Paolo; it consists in fostering the “adoption” of high technology startups
by SME's traditional businesses, , through the share of services or trough partnership. Thanks to this
project, startups can exploit new financial, technological, distribution and networks channels
opportunities in a consolidated environment and, at the same time, they can use better
infrastructures. The advantages for the SME enterprises, instead, are to enrich the innovation
opportunities of their business as well as a tool to diversify from their core businesses.
It is clear how the startup public funding system, especially at the seed stage, is still growing
in Italy and has not reached yet a maturity necessary to satisfy fully the needs of Italian
entrepreneurs. In the next paragraph I will analyze another important component of the financing
channels used by startups: the private equity.
54 Rocco Frodinzi, Maria Matilde, Elona Guga, “Start-ups in the Cultural and Creative Industries: Main Criticisms in Italy”, Euro-Mediterranean Dialogue on Public Management (MED), 2013
55 http://www.simest.it/page-en.php?id=2556 http://www.fondoitaliano.it/
29
2.2.2 Private equity
As the public financing, also the private equity is facing diffculties in reaching a level of
investments able to satisfy completely the needs of IT startups, especially in the early phases of
growth; in fact, by looking at the sources of financial resources that Italian startups use at the seed
stage, according to the mind in the bridge results of the survey in 2012, we get that only 16 % of
startups were able to raise private equity capital; analysing more in deep the private equity
investments, 8% of the startups raised funds from business angels, 6% from seed capital, including
incubators and accelerators programs, and only 1.2% were able to raise venture capital funds.
Another important data that we can get from this research is that Bootstrapping, with 58% of the
startups, is the biggest source of financing at the early stage of startups, especially in the technology
sectors.
In the 6% of the financial institutions investments, for example banks loans, are included also loans
warranted by personal assets belonging to the founders rather than firm assets, and it is considered
an external source of financing, rather than a bootstrapping strategy. For this reason, the data about
financial institutions may be inflated and must be taken carefully.
At the same time, 8% of the startup were able to get a grant, and mostly they belongs to university
grants of research; in fact, 30% of the entrepreneurs obtaining a grant were researchers in
universities.
The results are summarized in the following table:
Financing source Number of startups able to receive the fund (in%)
Bootstrapping 58%
Private Equity 16%
Grants 8%
Financial institutions 6%
Non-financial institutions 6%Table 4: Distribution of starups by funding channels used; Source: Mind in the bridge report 2012
The venture capital investments are still at a primordial phase in Italy by looking at the
proportion of investment in business not yet appealing for the revenues.
In fact, by looking at the distribution of private equity investments for different dimensions of the
businesses (using revenues as main indicator) in the second semester in Italy, it turns out that the
30
large majority of venture capital investments belongs to the range of 15-50 million Euros of
revenues, with 50% of the total investments; the recent trend shows how especially venture capital
investors in Italy are switching their investments into larger and more consolidated companies, with
22,5 % of investments in companies with more than €100m of revenues.57.
Figure 12: Venture capital distribution for revenuees; Source: Deloitte report 2013
Analysing more in deep the seed/startup phase ad expansion phase of venture capital
structure, thanks to the research of the Association of private equity and venture capital (AIFI)58 in
2013, it is possible to look at the trend in the amount of capital invested and in the number of
companies that was able to receive it.
Focusing on the early phase, we can see that in the year 2013, the amount invested has fallen, from
the €135m euro reached in 2012, to €81m in 2013,approximately the amount that was invested in
2011 (81). At the same time, the number of startups that was able to being financed by Vcs
increased to 158, while in 2012 the number of companies was 136.
We can see that the general trend, since 2009, is an increase in the number of startups in which Vcs
invests at the early phase; in fact, the number of startups that received Vcs fund in the early stage
doubled, from 9 in 2009 to 158.
57 Deloitte, “Italy private equity confidence survey: outlook per il secondo semestre 2013”, 2013 (http://www.deloitte.com/assets/Dcom-Italy/Local%20Assets/Documents/Pubblicazioni/PrivateEquity_2semestre2013.pdf)
58 Italian Association of private equity and venture capital (AIFI),“Il mercato italiano del private equity e venture capital nel 2013”, AIFI report, 2013
31
Figure13: Venture capital investments in early phase and number of operations in Italy; source: AIFI report 2013
For what concerns venture capital investments in the expansion phase of a startup, it is clear
from the AIFI venture capital research that 2013 followed the same trend of 2012, with a slightly
lower amount invested, €914m in 2013 compared to €926m in 2012. The number of startups able to
receive VC's fund increased slightly from 131 in 2012 to 138 in 2013. The difference between the
amount invested in the early phase (81 millions) and the later-expansion phases (914 millions) is
pronounced, one more evidence of the propensity of VCs to invest in more verified business
models. It is impressing the increase from 2009 of the amount invested in the expansion phase, from
€371m to €914m, an increase of approximately 246% in four years.
Figure 14: Venture capital investments and number of operations in the expansion phase
32
2009 2010 2011 2012 2013
112 109 139 131 138
371
583674
926 914
Venture capital investments in the expansion phase
Number Amount
2009 2010 2011 2012 2013
79
106 106
136158
9889 82
135
81
Venture capital investments in early phase
Number Amount
Following the AIFI analysis, the main operators of VCs funds are:
Management Investment Company (SGR companies)
Regional/Public operators
Investment companies
Early stage operators
Italian banks
International operators
Their distribution of investments are different between the early phase and expansion phase; the dta
are summarized in the following table:
VC operators Early Phase Expansion Phase
SGR companies 36% 41%
Regional/Public operators 23% 22%
Investment companies 7% 18%
Ealy stage operators 34% 10%
Italian banks / 5%
International operators / 4%Table 5: Source: AIFI, the Italian market of venture capital and private equity in 2013
Another important data that AIFI research produces concerns the geographical distribution of
investments; the data highlights the gap between northern and southern regions. In fact, by looking
at the origin of the venture capital, 89% of the total invested comes from North Italy, while only 7%
from the centre and 3% from the South; 1 %, instead, comes from foreign investments.
Figure 15: Geographical distribution of venture capital investments; Source: AIFI report 2013
It is remarkable also the gap within northern region for what concerns the geographical distribution
33
89%
7%
3%1%
North Italy
Centre Italy
South Italy
Abroad
of the investments; in fact, Lombardia leads with 106 investments, followed by Emilia Romagna
with only 41, Campania (46), Sardegna (30), Lazio (24) and Veneto (18).
For what concerns the business angel industry in Italy, the main source of information are
the data collected from the research of IBAN, the Italian Business Angels Network, in 2013 about
246 business angels59. The Business angels Italian market showed a counter trend with respect the
global trend in the total amount invested; in fact, in Italy the amount invested by Bas diminished
since 2011, from the peak reached in 2011 with €34,8m to €31,8m in 2013, back to the 2009 level
of investments.. It is also important to notice how the number of startups able to get the BAs
support decreased, from 366 in 2012 to 324 in 2013, implying a decrease in the average amount
invested per project in 2013, an evidence of contraction In the Italian business angel market.
Figure 16: Business angels investments and number of operations in Italy; Source: Iban suvey 2014
Even though the negative trend of the last year, business angels investment saw a remarkable
development since 2007, from €19.5m to €31.86m in 2013, an increase of 63%.
The probability of getting financed increased from 2012, with 767 evaluated projects and 324
accepted (42%) while in 2012 there has been a much higher degree of selection at this stage: funds
were granted to only 366 projects out of 1963, with a probability of 19% approximately.
However, there has been a much higher selection at the first stage, as shows the data from the
projects seriously evaluated, with a decrease since 2012 from 1963 examined projects to 767 in
59 Vincenzo Capizzi, Iban board member, “I risultati della survey 2013 e della ricerca scientifica di IBAN”, XV convention IBAN, 16/06/2013 (http://www.iban.it/frontend/iban/public/file/Vincenzo%20Capizzi_Survey%202013.pdf)
34
2009 2010 2011 2012 2013
31.46 33.33 34.85 33.82 31.86
179
229
281
366324
Business angels investments
Number Amount
2013. For what concerns the average amount invested, the data shows that 68% of the investments
were below €100,000, while 24% of investments were under €15,000
Figure 17: Distribution of Business angel investments amounts in 2013; Source: Iban survey 2013
It is Interesting also how the number of investments by Business angels are distributed among
different sectors; from the IBAN survey 2013, the sector that has received most of the investments,
in terms of number, is the ICT sector, with 30% of investments in this particular segment, followed
by Media and entertainment (14%) and medical technology (11%). This confirms the global trend
of BAs investing, mostly, in the IT sector.
Figure 18: Business angel investments per industry in 2013,Source:IBAN survey 2014
35
<15,000
15,000-30,000
30,000-50,000
50,000-75,000
75,000-100,000
100,000-200,000
200,000-300,000
300,000-500,000
>500,000
0 0.05 0.1 0.15 0.2 0.25
Distribution of Business Angel investments amounts
According to IBAN survey 2014 results, the typical Italian Business angel:
Is a man of 40-50 years old
Has a disposable income of less than €2m, 10% of that finalized for angel investments;
46% of them invested alone, while 31% has invested with more than 8 Business angels
35% of the Business angels has invested in a startup with no revenues.
Both the VC and BA investments are in a clear growth trend in Italy, both in the number of
investments and in the total amount invested; it is also true that there still exists an investment gap
with other European countries, like UK, but this can be filled, in my opinion, exploiting more the
southern regions and increasing the awareness of entrepreneurs about possible private equity
funding channels.
The next funding channel analysed will be the Incubator/accelerator networks.
2.2.3 Incubators/Accelerators networks
For what concerns incubators/accelerators and technological-scientific parks, that carry out
incubators activities, there are 61 institutes60 in Italy.
It is interesting to look at the data about their distribution across Italy and the proportion of them
that are public owned by the government or local entities to have a snapshot of the current Italian
situation. From the survey on Incubators and on businesses being incubated carried out by Banca
d'Italia in 2012, the results shows that the number of incubators, as we mentioned before, is higher
in the north, especially at the north-east where Emilia Romagna region shows the maximum amount
of incubators (9).
It is also important to notice the high percentage of public owned incubators/accelerators,
averaging overall 63.6%; in my own opinion, this participation of the State in the
incubators/accelerators programs may compensate the lack of an efficient and effective direct
public financing system. Moreover, the high number of public owned incubators/accelerators in the
Southern regions is a proof of the efforts by the public institutions to foster entrepreneurial activities
In the South Italy.
60 Marta Auricchio, Marco Cantamessa, Alessandra Colombelli, Roberto Cullino, Andrea Orame, Emilio Paolucci, “Gli Incubatori d'Impresa d'Italia”, Banca d'Italia, 2012, pag 10
36
Geographical area Number of operatingincubators/accelerators
Public owned(percentage)
Private owned(Percentage)
North-east 18 58,8% 41,2%
North-west 10 50% 50%
Center 17 58.8% 41.2%
South Italy and Islands 13 90.9% 9.1%
Italy 58 63.6% 36.4%
Table 6: Distribution and Ownership of incubators and accelerators in Italy; Source: IndagineBanca d’Italia sugli incubatori e sulle imprese incubate 2012
Another important data collected by the survey on incubators in 2012 carried out by Banca
d'Italia is the level of relationship with university or research institutes; according to the research,
74% of incubators of the survey have some relationship with universities and research centres but
only 48% of them has a tight relation with them with them.61
Figure 19: Level of relationship beetween incubators/acceleators and unviersities-research centres; Source: Indagine
Banca d’Italia sugli incubatori e sulle imprese incubate 2012
One of the main incubator/accelerator operating in Italy is H-farm, in the province of Treviso,
specialized in digital startup with the goal to foster the process of technological and digitalization of
Italian companies62. It's importance is due both for its huge dimension, with offices also in Seattle
(US), London (UK) and in Mumbai (India) and for the relevance it has on the entrepreneurship on
the region area in which it started their operations, the North- east.
61 See supra, pag 1262 H-farm homepage, http://www.h-farmventures.com/en/who-we-are-2/
37
In fact, H-farm organizes many events in collaborations with universities, aimed at fostering an
entrepreneurial culture in the young people; they are called Hackatons, in which in only one day,
teams, composed by developers, marketers and designers, have to find solutions to problems of the
enterprises participating in the event.
Successful teams are given the possibility to:
Being incubated in the H-camp, in its incubator program of a duration of 2 months
Being incubated or getting a mentoring from other partner Incubator and Accelerators, as
happened to me and my team (EXITE) during the H-wine hackathon, where we were hosted
by “33entrepreneurs” in Bordeaux.
In this way not only the young people can be attracted by the world of entrepreneurship, especially
in internet oriented sectors, but also, at the same time, H-farm is able to get the attention of foreign
investors or “startup hunters”, namely business angels. The need to develop a tight relation with
schools, public institutions, research centres or financial institutions, that carry on projects related to
innovative startups, is one of the requirement for incubators, included in “Decreto crescita 2.0”, in
order to be certificated.63 Other requirements are:
Infrastructures sufficient to host in an efficient way the startup
The incubator have to posses facilities, such as broadband internet connection, meeting
rooms
The incubator has to be managed by people with a high degree of knowledge about the
startup ecosystem and about innovation matters; at the same time, they have to be supported
by a permanent managerial advisory entity
The incubator has a proven experience in supporting startups, attested by a legal document,
taking into account indicators such as:
number of applications received and evaluated by the incubator in an annual time frame
number of startup and annual percentage change of startups hosted and came out in a
year
average rate of growth of the production value of incubated startups
number of patents submitted by startups
total amount of risk capital obtained by the incubators from
Even if Italy has a famous incubator/accelerator like H-farm, in general their number is smaller than
63 Gazzetta Ufficiale, legislation decree n° 179 of 18/10/2012, art 25 comma 5 http://www.gazzettaufficiale.it/atto/serie_generale/caricaDettaglioAtto/originario?
38
in the European counterparts, for example France and Germany, with 130 and 150 incubators
respectively.64
Due to the low probability of getting incubated from Italian incubators, averaging to 11,3% with
3820 business ideas and 430 accepted65
2.2.4 Crowdfunding platforms
Italian government understood the growing importance of getting financed trough crowdfunding
web platforms, regulating the equity based model, in the article 30 of “Decreto Legge Crescita 2.0”,
then implemented by the Consob, the Controller of the Public market exchanges, in 2013, with its
regulation n°1853266; the regulation is limited to the equity crowdfunding model platforms.
This regulation put rules and limitations to a world, the web 2.0, that “usually auto-regulates,
auto-validate and with unlimited possibilities”67.
Italy has been the fist country in Europe to regulate the equity based crowdfunding internet
platform68, trying to overcome the intrinsic difference between formal financing, characterized by
bureaucracy and a top-down selection of projects, and the freedom and dynamism of
crownfudning. The main goal of the Consob Regulation n° 18592 in 2013 was to control and
guarantee the reliability of the equity internet platforms and to check the quality of the projects.
The new regulations developed by Consob in 2013 starts with the distinction of two categories of
equity based platforms trough the creation of two distinct registers:
“Registro ordinario”, in which subjects and entities, authorized by Consob, register
themselves after the necessary requirements have been checked69
64 Marta Auricchio, Marco Cantamessa, Alessandra Colombelli, Roberto Cullino, Andrea Orame, Emilio Paolucci, “Gli incubatori d'impresa in Italia”, Banca d'Italia, 2014, pag 12 (http://www.bancaditalia.it/pubblicazioni/econo/quest_ecofin_2/qef216/QEF_216.pdf pag 12
65 See supra, pag 1266 Consob regulation n°18592/2013 (http://www.consob.it/main/documenti/bollettino2013/d18592.htm?
symblink=/main/trasversale/risparmiatori/investor/crowdfunding/link_reg18592.html)67 Umberto Piattelli,“Il crowdfunding in Italia: una regolamentazione all'avanguardia o un'occasione mancata”, Linea
Professionale, 2013, pag XV68 Italia startup, “Equity crowdfunding, pag 2 (http://www.italiastartup.it/wp-
content/uploads/2013/08/equity_crowdfunding_1.pdf)69 The necessary conditions in order to be accepted in the registro ordinario are:
The company juridical form Shareholdersr and management people have to be persons of good standing For the management team, every member has to be of proved competence A relation has to be presented to Consob about the organizational structure and the activities carried out by the
platform
39
“Registro speciale”70, in which “gestori di diritto”, such as banks and investment
companies, are authorized to operate in investment activities and have to signal their
intention to carry on equity crowdfunding activities
Trough the control and vigilance activities of Consob, only the most reliable equity crowdfunding
portal may operate.
Thanks to the requirements of complete disclosure of information about the web platform, about the
high risks of the investments and about every single project , the “Decreto legge Crescita 2.0” was
able to foster not only the transparency in the equity based crowdfunding model, but also the public
awareness to the overall crowdfunding industry.
In fact, the recent trend, by looking at the results of the analysis carried by the Italian Crowdfunding
Network on of the italian crowdfunding platforms in 201471 , showed a boom in the number of
crowdfunding platforms in Italy of all types, with an increase of 42 platforms since 2011;
furthermore, the total amount invested through crowdfunding platforms increased by,
approximately, 33% from 2012 to 2013.
Figure 20: Number of all crowdfunding platforms since 2011; Source: “Analisi delle piattaforme di crowdfunding in
Italia”, Italian crowdfunding network, 2014
70 Consob regulation n°18592/2013, art 4 comma 2 (http://www.consob.it/main/documenti/bollettino2013/d18592.htm?symblink=/main/trasversale/risparmiatori/investor/crowdfunding/link_reg18592.html)
71 Daniela Castrataro, Ivana Pais, “analisi delle piattaforme italiane di crowdfunding”, Italian Crowdfunding network, 2014
40
2011 2012 2013 2014
12
21
41
54
Number of crowdfunding platforms
Figure 21: Total value of the investments trought crowdfudning platforms since 2012; Source: “Analisi delle
piattaforme di crowdfunding in Italia”, Italian crowdfunding network, 2014
Even thought the trend shows an increase both in the number and in the total amount invested
trough crowdfunding platforms, the equity based crowdfunding showed difficulties and a slower
growth with respect to other crowdfudning models in 2014, with only the 0.52% of the total
investments, compared with the 76.6% of lending based crowdfunding and the 13.3% of the reward
plus donation based crowdfunding.72
Another data, still obtained from the “Analysis of italian crowdfunding platforms”, that remarks
how the goal to foster startups funding raising trough equity crowdfunding has not been reached
yet, is the low percentage of total investments in entrepreneurial projects, with only 14%, compared
with the 63% of social projects and 23% of the creative projects.
Among the possible explanations of the failure in improving the flow of equity crowdfunding to
startups are73:
Lack of detailed regulations for the reward/donation based crowdfunding
Lack of a culture of crowdfunding, which requires a higher promotion of its characteristics,
especially to new born startups in order to increase its usage.
Immaturity of equity crowdfunding, where the pursue of the reduction of possible frauds
trough legislation brought to a bureaucratization of the process
72 Daniela Castrataro and Ivana Pais, “Analisi delle piattaforme italiane di crowdfunding”, Italian Crowdfunding network, 2014 73 See supra, pag 20
41
2012 2013 2014
13,274,205.00
22,947,578.00
30,621,050.00
Total amount invested
Strong opposition carried on by traditional institution, such as banks, in collaborating and in
assisting web platforms
International competitions from foreign crodwfunding internet platforms
It is clear how the Italian financing system for startups, especially in the IT sector, is still
developing nowadays and have not yet reached the level of other European countries, such as U.K
and France. However, the first necessary milestones, such as the attention by the government and
public institutions on the financing system of startups trough legislation and regulations and a
developed network of infrastructures, have been reached and a better situation, from my point of
view, can be achieved in the next years.
In the next chapter I will analyse two crucial factors for the entrepreneurship activity,
especially in specialized sectors of IT, that is the human resource availability and the labour costs in
Italy.
2.3 Human resources and Labour cost
One of the biggest problem for startups, from the early phase towards the different growth
milestones, is to be able to employ and find the right people with the right skill.
In my paper I will describe labour costs faced by Italian IT startups by focusing on three important
components:
Searching cost for the right employee with the right skills
Motivating employee to undertake the dangerous journey of the startup
Flexibility in hiring/firing employee
Before analysing in detail each of the components of labor costs, it is useful to give an
insight about the team composition of the startups in specialized IT sector.
The team composition of “digital” startups in Italy, basing on both on data available from the “Mind
on the bridge survey 2013”74 on 108 startups and 254 entrepreneurs and on the research of Niccolò
Meroni, starting from the data available from “Startupbusiness”, on 185 “digital” entrepreneurs, is:
74 Mind in the Bridge, “Sorry, not everyone is born to be a startupper “, Mind in the Bridge Foundation, 2013 (http://mindthebridge.org/wp-content/uploads/2013/12/MIND-THE-BRIDGE-REPORT-2013_ENG.pdf)
42
Raging from 2-4 members, averaging 30 years old
composed by entrepreneurs having established friendship networks in the work environment
(39%), during university studies (26.1%) or other channels (31.5%); less probable is family
entrepreneurship (9.67%)
30% of entrepreneurs are identified by Mind in the bridge as “Proven Entrepreneur”, with
past experience in the entrepreneurial activity, with 38% of co-founders belonging to this
type
The data about the proven entrepreneurs is particularly relevant for the ability of startup to attract
better human resource; in fact, proven entrepreneurs, due to their management skills and previous
entrepreneurship activities, are able to obtain considerable amount of funding (30% of them succeed
in raising more than €200,000, 50% of them more than €100000) and are more able to attract a
higher degree of human capital skills (22% of the startups of proven entrepreneurs have more than 4
founders).
2.3.1 Human resource availability
A recent trend in Italy is the boom in the technological parks and incubators in Italy, as we
have explained in the previous paragraph. The proliferation of an active and vibrant ecosystems of
infrastructures, especially in collaboration with universities, provides an useful human capital pool
from which choose the employee with the right skills needed for the startups and a tool for making
the young to come into know about the startups.
Although the recent trend of reduction of public financing to the Italian university system,
universities managed to develop a network of different infrastructures, such as:
Offering co-working spaces for startuppers-students
Incubators financed by the universities itself.
Peculiar examples can be found in different geographical areas of Italy, highlighting the fact that
this trend is spread at a national level, rather than constrained to already well-developed regions:
43
Geographicalarea
University Project name Description Sectors
North-east University ofPadova
“Start Cube”75 Incubator program inpartnership with“Fondazione Cassa diRisparmio di Padova eRovigo”
Hightechnology
North-west Politecnico diTorino
“I3P”76 Incubator program; since2011 I3P launched theprogram“Tetrabit”, focusingon projects related toconsumer services in the ITsector, such as e-commerce,web and mobile app
High technology, withTetrabit focused on IT
Center LUISS “GuidoCarli” businessschool
LUISS Enlab77 Accelerator program, incollaboration withLventuregroup
IT sector, especially: Gaming Social Mobile apps Consumer
services, e.gdaily life
web platforms
South andregions
University ofCalabria
Technest78 Incubator, financed also bythe Minister of economic ofgrowth as part of theC.R.E.S.C.I.T.A project(development project topromote the creation ofhightech startups inCalabria)
Hightech, for whatconcerns the IT sectorit is specialized onopen source software
Table 7: Examples of University incubators and accelerators
Incubators and accelerators, in light of what we have analysed before, help in creating clusters of
innovation which are beneficial to IT startups in two different ways:
They can be directly supported by those infrastructures
They can exploit the larger flow of skilled people in the surrounding area, increasing the
probability to find an employee with the right skills while and reducing the searching costs
The increase in number of incubators in universities goes pairwise with the increase in attention by
75 “Start cube website- http://www.startcube.it/?page_id=12876 I3P Homepage, http://www.i3p.it/77 LUISS Enlabs homepage, http://www.luissenlabs.com/program.html78 http://www.unical.it/portale/portaltemplates/view/view.cfm?20700
44
Italian universities, as it is happening globally, to offer courses of studies oriented to offer a
background in start-up management and foundation ; at the same time there is an increase of
projects offered by Universities in which students can better understand how to develop a business
idea in the startup context.
Some examples are the the PhD “MasterLab in Digital Economics & Entrepreneurship”, offered
by University of Ca' Foscari in partnership with the incubator/accelerator H-Farm and the
laboratory of “Strategy, Entrepreneurship and Innovation (STEIN)”79 in University of Trento.
The efforts, both from the public government both from universities, in order to give the startups the
opportunity to choose among a larger human resource pool have more human capital to employ,
however, still need more time to become effective.
This is proven by the data and opinions gained in 2014 by the “Osservatorio Startupper's voice” on
200 Italian startups, the majority belonging to the digital sector.80
Analysing the results, obtain that:
40% of startups, at the moment, are looking for employees in the labor market
38% of the startups are willing to employ in the next six months
65% of the startups has found lack in competences among the candidates
Only 15% admit to have found the right match employee/startup
The most researched professional figures in IT startups are expert programmers, social
media marketers, namely experts in promoting trough the web the product and the brand,
and financial and business administrators
The results can be explained by two different causes:
Early phase of a process of spreading the entrepreneurial culture and skills among young
people
People with the required skills are already employed by other institutions or well
established companies81
The two causes are accountable also for the high costs in motivating skilled employee for the Italian
startups, which is one of the main components of the labour cost faced by Italian IT startups; the
next paragraph will be devoted to describe also labour flexibility concerning temporary contracts of
workers, highlighting also the main regulations surrounding this important matter.
79 Strategy, Entrepreneurship, Innovation (STEAN) home page- University of Trento: http://events.unitn.it/en/stein-lab
80 http://www.ilsole24ore.com/art/tecnologie/2014-05-26/le-startup-italiane-vorrebbero-assumere-ma-non-trovano-competenze-153103.shtml?uuid=ABK51LLB
81 See supra
45
4.3.2 Labour costs
The cost of motivating skilled employs to join a startup businesses may be very heavy; this is due to
all the risks that the worker must bear in working in an uncertain business. This cost is particularly
pronounced especially for skilled IT employees, such as IT engineers; in order to convince them, it
is needed a higher monetary incentive trough monetary compensation, for the startup that wants to
get hands on the best talented employee.
However, monetary and non-monetary incentives, such as s public recognition or possible growth
in the career pathway, sometimes may not be sufficient for a startup to hire the right skills that it
needs.
This is made even worse by the financial constraints of startups at the first stages of growth,
especially for Italian startups in which the private equity market, as we said before, is still
developing; in fact, the financial constraint put limits to the amount of direct monetary incentives
that they can offer to skilled employees, reducing even more the probability to get the key human
resources.
In order to reduce the incentive costs, Italian government made possible, in the Decreto Crescita 2.0
in 2012, to pay employees with stock options, reducing the cash incentive needed to attract them,
even from abroad.82
This kind of payment is allowed, after the 2012 regulation, also for external collaborators or
freelance professionals, thus decreasing the pressure on the cash of the startup.
In Italy, labour market mobility and flexibility has become one of the main topics of
discussion in the government agenda, especially for what concerns inter-firm mobility83, namely
firing/hiring practices and, for what concerns the latter, flexible work time schedules.
The importance on flexibility in the labour market has been caused by the global financial crises in
2008, with its aftermath on recent Italian economic condition, characterized by a slow rate of
growth of GDP or a low overall ranking in the job category (32th of the total 36 countries) of the
Better Life Index (BLI) classification84.
82 Italia startup, “Restart Italia!”, 2013 (http://www.italiastartup.it/wpcontent/uploads/2013/11/RestartItalia-1AnnoDopo.pdf)83 Friedrich Klau and Axe1 Mittelstadt, “Labour Market Flexibility”, Organization for Economic Co-operation and
Development (OECD), 1985, pp 12-1384 Better Life Index is a measure developed by the OECD, trying to summarize the well-being of population in
different nations by looking at two macro-factors: material living conditions (housing, income, jobs) and quality of
46
Operating in a flexible labour market bring some benefits both to the startup and to the
employment situation of the economy; in fact, the main benefits are:
increase employment, by making more appealing for startups to hire without being forced to
keep the same level of labour in troublesome situations
reduce labour costs, by decreasing cash and time needed to employ or fire people, being able
to adapt quickly at possible economic downturns
In order to provide a flexible context, it is necessary to offer a fast bureaucracy that do not
undermine future employment decisions, especially in better periods for the economy.
Italian government, forced by the static employment situation, specially between young people,
since the recent years focused the efforts on regulating temporary contracts85; the main objective of
the regulations are aimed to avoid the abuse of this type of contract, while, at the same time,
fostering the creation of open-ended contracts.
The first important bill about this subject has been enacted under Government Monti, in 2012, by
the minister Fornero, with the law 92/102. Besides the goal of creating a more dynamic
occupational environment, in which new jobs are created and a sustainable growth can be pursued,86
the regulation was aimed to
Create new durable and stable working relationship, while at the same time reaffirm the
predominant importance of the open-ended contract, defined as the “dominant contract”
Foster the creation of new jobs trough the learning process of apprenticeship, fundamental
among young people
Avoid the misuse of regulation of flexibility of contracts while at the same time foster a
reduction of time needed to the fire decisions
The main points of the reform 92/102 are:
Abolition of the motivation in the creation of the temporary contract, as long as the contract
is stipulated for first time and its duration does not exceed 12 months87
In order to avoid the abuse of temporary contracts, the time needed to stipulate another
life (community, education, environment, governance, health, life satisfaction, safety and work-life balance). OECDbetter index executive summary 2014. (http://www.oecdbetterlifeindex.org/media/bli/documents/BLI_executive_summary_2014.pdf)
85 Temporary contracts are contract with a defined final exipration date, having any type of object concerning the mansions of work between the employer and the employee.
86 Legislation decree 28/6/2012 number 92, art 1, http://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:legge:2012-06-28;92
87 http://www.pmi.it/impresa/normativa/articolo/61059/il-contratto-a-tempo-determinato-dal-2013.html
47
temporary contract has been increased, from 10 to 60 days if the contract lasts less than 6
months, or, if it is longer than 6 months, from 20 to 70 days.
If the contract has exceeded the duration of 36 months, it must be converted in an open-
ended contract
A mandatory contribution to the Insurance of Social Employment (ASPI) , equivalent of
1.4% of the social security taxable base, for each temporary worker. This has the goal to
discourage the use of temporary contracts.
Those modifications applied to the temporary contracts were due to the bad situation in which Italy
was in 2012 and were aimed at increasing the rate of people employed in an open-end contract,
trying to discourage the usage of temporary workers in order to give more stability to the job places.
However, those regulations were considered too severe by the government Letta in 2013, and this
brought to a new legislative decree, “Decreto Lavoro”, with much less obligations for temporary
contracts relations.
In fact, the key elements of the legislation are:
Incentive for companies who employ young people, with age from 18 to 29 years old, even
with under a temporary contract. This incentive is calculated as one third of the social
security taxable base up to 12 months for temporary contracts.88
The constitution of a individual formative plan89, for what concerns the apprenticeship
contracts, is mandatory only for specialized skills in technological and professionals
competences
The period of time from between the end of the temporary contract and the stipulation of a
new temporary contract has been brought back to the level before the “Legge Fornero”,
namely 10 days and 20 days for contracts lasting less or more than 6 months, respectively90
The focus on apprenticeship contracts is still a concern for the Italian prime minister Matteo Renzi,
with its “Jobs Act Legislation decree”91 has brought more features to companies, also for startups,
wishing to hire more people under temporary contracts for being more flexible:
The temporary contract can be extend up to 6 times in the three year maximum, as long as
the contract refers to the same job activity of the previous ones92
88 Legislation decree 9/8/2013 n°99, Gazzetta Ufficiale,art 1, comma 1-2289 The individual formative plan was first described in the legislation decree of 14/09/2011, n. 16790 http://www.lavoroediritti.com/2013/09/il-contratto-a-tempo-determinato-dopo-il-decreto-lavoro-2013/91 The data about the “Jobs act decree” are updated to 25 August 2014 92 http://www.ilsole24ore.com/art/notizie/2014-03-14/piano-renzi-ecco-regole-i-contratti-tempo-determinato--
165432.shtml?uuid=ABX5062
48
Up to 20% of total employees can be hired with a temporary contract with the possibility,
for startups with 5 or less employees, to hire a temporary worker.
The goal of the recent legislation is to increase the flexibility of labour, especially important for IT
startups due to the difficulties in find skilled persons, while, at the same time, to mitigate the
adverse effect of increasing precarious labour condition caused by the temporary work.
In fact, this can be made possible through the creation of new jobs and by incentivizing the creation
of more stable working relationships.
However, the implementation of this legislation decree still needs more time to increase the
confidence of startups in employing more people with stable and durable relationship.
The difficulties encountered by Italian startups in the labour market is also evidenced by the data
about the number of employees that innovative startup disclosed in the business register of the
chamber of commerce, in which the majority of the startups has has less than four employees.
This data confirms the fact that the Italian labour market has still wide margins for much interval of
improvement but it is developing at a fast rate, especially for what concerns human resources,
helped also by the good network of universities and infrastructures.
However, the recent legislation failed to solve the difficulties of Italian IT startups to employ skilled
people, highlighting the fact that in order to foster an entrepreneurial culture and restarting the
engine of employment among young people, decisions made by government are not enough to offer
the flexibility and the certainties needed by startups during the growing phases.
In the next paragraph I will describe the bureaucracy encountered by Italian IT startups in
the creation and in the closure of a startup business.
2.4 Creation and dissolution process of an IT startup in Italy
The easiness in setting up a startup, as we explained in the first chapter, is fundamental for
entrepreneurs in order to exploit their business ideas; it is even more important for IT startups, in
which many business opportunities can be found and have to be transformed rapidly into businesses
before other entrepreneurs, from their countries, can exploit it.
It is moreover important also to give an easy bureaucracy for entrepreneurs wishing to close a
startup, helping them to start again another business without being frustrated by the previous failure.
Both of those feature are essential for an environment not only to foster the entrepreneurial activity,
49
but also for avoiding the “chronicle failure”93 , namely the fear of sullying the honour of
entrepreneur with a startup failure, especially in Italy after the fierce recessions hitting the
economy.
In order to fight the “chronicle failure” of the entrepreneurs my making easier the entrepreneurial
activities, especially among young people, the Government enacted several regulation facilitating
the process of setting up an innovative start-up. In fact, in the decrees of March 24 2012 n° 27 and
n° 138 of June 23 201294, it is possible for entrepreneurs to create a startup with less requirements
than the usual Srl, namely the limited liability company,and it is called “Ssrl”.
Characteristics Srl Ssrl
Partners age and type Legal Entity (e.g Associationsand institutions)Physical Persons of every age
Physical persons of every age;previously there was theconstraint that partners musthave less than 35 years
Equity capital needed Equity capital: >10,000 Euro Equity capital: <10,000 Euro, ifit exceeds the Ssrl will becomean SRL
Reserve of revenues95 None 10% of the first revenues, untilit reaches 10,000 Euro
Foundation expenses (e.gnotarial expenses, stamp duty)96
2.072,87 - 2.572,87 Euros Averaging 780 Euros
Table 8: Comparison between Srl and Ssrl legal form
The step that has been done for improving the process of creation of startups In Italy was necessary
in order to match with other nations with more developed best practices; however, there are still
many aspects that the SSrl legislation does not covers; in fact, in 2012 there was also another
package of reforms, developed by the task force “Startup Italia” called “Isrl” aimed at further
reduce the bureaucratic costs incurred after the creation of the startup.
In fact the goal of “Isrl” was to produce a “zero statute”97 by reducing even more the waste of cash
for startups due to bureaucratic processes, such as:
Expenses incurred by entrepreneurs after the creation of the startup
93 http://www.economist.com/node/2155961894 http://www.pmi.it/impresa/normativa/articolo/58001/come-aprire-una-srl-le-diverse-societa-a-responsabilita-
limitata.html95 Reserve of revenues, in this case, refers to unavailable reserves by the company, (http://www.studiorighetti.it/wp-
content/uploads/2012/04/RISERVE.pdf)96 http://www.studiosavia.com/Costi_Srl.html97 Italia startup, “Restart Italia!”, 2012 http://www.sviluppoeconomico.gov.it/images/stories/documenti/rapporto-
startup-2012.pdf
50
Taxation due to the establishment
Abolition of notary cost incurred by modifying the social pact, e.g one partner leaves the
company
Abolition of the taxes that are also carried by the Srl companies, e.g annual tax on the book
of accounts
The establishment of a startup under the Isrl regulations has to be accomplished trough an
online platform, with a direct communication to the chamber of commerce, avoiding the
bureaucratic process through the notary system98
Even thought this package of regulations help in eliminating many expenses faced by startups
wishing to open an Ssrl company, the Isrl package of regulations has not been included in the
legislation decree “Decreto Sviluppo Bis”99, keeping those burdens on the sSrl companies.
These burdens may obstacle young entrepreneurs in pursuing their business ideas and may act as
“entry barriers” in the entrepreneurial activity.
Moreover, offering startups a bureaucratic system for closing a start-up as fast as possible is
also very important; this is particularly true if we consider the high mortality rate of startups due to
the uncertain business model and low financial resources. For this reason, the procedure of filling
bankruptcy, without any fraud, has been reshaped in the legislation decree n° 179 18/10/2012.100
In fact, in the article 31101, the innovative startup is not subject anymore to the typical procedure of
insolvency of traditional enterprises; the intrinsic risk of creating an innovative startup, highlighted
also in the illustrative relation of the decree in which it is remarked how “ is needed to make the
entrepreneurs aware of the possibility of failure since the beginning of its project, given the high
mortality rate of the startups”102, forced the legislator to offer a less bureaucratic and easier way out
for the entrepreneur to solve the debts and to manage the crisis period of the startup
In fact, since the introduction of the procedure of “overindebtness”103 , in decree n°3 of 27 January
2012, in art. 6 comma 2, thanks to the decree n° 179 this procedure can be applied to all
98 See supra99 http://www.pmi.it/economia/mercati/articolo/59182/decreto-sviluppo-start-up-innovativa-requisiti-e-
agevolazioni.html100 Gazzetta Ufficiale, Legilslation decree 18/10/2012, art.31 comma 1-5
http://www.gazzettaufficiale.it/atto/serie_generale/caricaDettaglioAtto/originario? atto.dataPubblicazioneGazzetta=2012-12-18&atto.codiceRedazionale=12A13277
101 See supra, art.31 comma 1-5 102 Illustrative relation legislation decree 18 october 2012, art.31
http://www.governo.it/Presidente/Comunicati/testo_int.asp?d=69362103 Free traslation of “sovraindebitamento”, defined in art. 6 comma 2
51
innovative startups.
This procedure is defined as a “persistent situation of imbalance between the obligations assumed
and current assets needed to deal with them, as well as the completely inability of the debtor to
regularly adhere to his own obligations”.104 This procedure is useful for entrepreneurs to stipulate
an agreement, namely a reorganization of debts105, with the existing creditors, supported by a public
organism chosen by public entities aimed at manage the critical situation 106.
If the agreement is accepted both by the creditors, with at least 60% of them favourable, and by the
judge of the tribunal of the appropriate jurisdiction, then the entrepreneurs must abide by the
agreement.
This agreement, however, can be cancelled by the tribunal upon request from one or more creditors
if:
the entrepreneur acts in a malicious behaviour, by subtracting revenues or adding not
existing cash flows revenues
the debtor does not respects the terms and obligations of the agreement
if an external cause, independent from entrepreneur actions, makes impossible the execution
of it107 .
There is also the possibility to transform the agreement of reorganization of debt in a pure
liquidation contract of all the assets and this may happen when:
the agreement is cancelled, as explained previously
Entrepreneurs fail to pay, before 90 days from the ending term, the public administration
fees
The possibility to proceed in a different pathway rather then the insolvency108 procedure and, at the
same time, to depend on better type of legal organization, the sSrl, , are very useful for
entrepreneurs in order to be more efficient in reducing wastes of resources, both time and cash, in
the process of setting up and closing a startup business. This is particularly important for the IT
sector, where the low operating cost of setting up an internet based startup, combined with a faster
bureaucracy, permits to create a faster loop of entrepreneurship, in which entrepreneurs can fail
104 See supra105 http://www.corsidiritto.it/news101/fallimento-start-up-innovativa.html106 Legislation decree 27/01/2012 n° 3, Art 15, comma 1 -6 (http://www.normattiva.it/uri-res/N2Ls?
urn:nir:stato:legge:2012;3)107 See supra, Art 14, comma 1-2108 The difference between insolvency and overdebtness resides in the temporally inability to repay debts of
insolvency while overdebtness is a long term unbalance between assets and obligations
52
quickly and restarting with another idea, keeping in mind the obviously impact on the money
invested by external investors, as said in the chapter 1.
However, the effort done until this moment are necessary to be match with other EU countries, but
still much has to be done, especially in the tax system structure.
The factors that I analysed in this chapter are , in my opinion, relevant for the phenomena of
migration of IT startup towards Berlin startup scene; however, there can be many other causes, both
at a national and international level, that I will not describe for the matter of this paper.
In the next chapter I am moving my attention to the Berlin startup hub, focusing on:
The channels of financing in Berlin
The human resource availability
The supporting infrastructures and cultural amenities
53
CHAPTER 3
Berlin startup hub
3.1 Brief history of Berlin startup hub
Berlin, nowadays, is an important and famous hub for internet startups, especially in the
service and gaming industries; at the base of its importance for IT startups, there is the creativity
and innovation atmosphere surrounding the city capital of Germany.
The creation of such fertile environment for new ideas, however, is not due to coincidences but,
instead, has been a result of historical events that characterized Berlin since the end of the World
War II.
In fact, since the initial division of German territories in four different nations ratified by the
Postdam convention , under control of U.S, France, U.K and Russia respectively, Germany
struggled to reach a political and social stability needed for the reconstruction due to the aftermath
of the Second World War.
Even more, right after the beginning of the Cold War in 1948, two distinct Germanies were created:
The Federal republic of Germany ( Bundesrepublik Deutschland) in May 22 1949, after the
transfer of control of the territories controlled by U.S, UK and France, with Bonn as capital
city
the DDR, Democratic Republic of Germany, formed in thanks the transfer of control of the
territories from the URSS, with East Berlin as capital.
Berlin, which later was divided In two parts, one belonging to the Federal Republic of Germany and
the other to the DDR, faced the two opposite views of social and economic systems; in fact, in just
one city there was both a capitalistic system, developed by the Federal Republic of Germany, and
the communism imposed by the URSS.
The conflict between two opposite concepts of economic, political and social systems culminate
with the construction of the Berlin wall in 1961, which divided the city until 1989, preventing the
free migration of people from the poorer Eastern part to the Western part.
In the aftermath of the demolition of the Wall and the end of the URSS political influence in Berlin,
began the process of eliminating more than 30 years of cultural an economical barriers as well as
the reconstruction of the eastern districts of Berlin.
Due to the high number of abandoned places in the eastern part of the City, the rental prices were
low and there were many opportunities for young artists or people moving in Berlin searching for
jobs. This was the creative ground on which Berlin built its creativity base.
54
Even more Berlin, in a very short time, has become one unified large city with 3.4 millions of
inhabitants and, by opening its borders to the World, the city saw a large increase in number of
cultural amenities such as bar, theatres and discos 109 which contributed to make Berin more
appealing to young persons from the rest of Europe.
However, the IT infrastructures and industries in Berlin was lagging behind the US by five years110.
This gap had been reduced by the heavy investment which characterized the 90's in Berlin, in which
more than $100 billions per year were invested in the modernization of the overall eastern Germany,
with $5 billions per year allocated only in the eastern Berlin in order to provide a digital network111.
Thanks to this investments, it was it was possible for the young brothers Samwer to create,
in their Berlin loft, an e-commerce platform, Alando.de112 ,in March 1999, namely an imitation of
the famous Ebay.
Even if they were not the first in Germany or Europe to open a site for e-commerce (it had to
compete with QXL, the U.K leader in the European e-commerce environment and with German-
based platforms such as Ricardo.de), they managed to get acquired by E-bay in June 1999, just few
months after the creation of the web platform, for the incredible amount of 43$ million dollars. This
has been regarded as the rise of the IT start-up hub ecosystem in Berlin, as the Samwell Brothers
succeeded to transfer the creativity of the city also in the business sphere.
3.1.1 Key figures about Berlin start-up scene
Since the end of the 90's, Berlin has become the main IT startups hub in Germany, especially
in the digital sector, in which the number of internet based start-ups increased year after year,
reaching 5800 digital companies in 2012.113
It's main key role in developing the internet sector in Germany is clear by looking at the
geographical distribution of internet startups across Germany, according to the the online startup
database Gründerszene114, in which 576 internet startups are operating in Berlin, compared with
170 in Munich, the second main startup hub in Germany, 151 in Hamburg, 94 in Cologne, 29 in
Düsseldorf 20 in Leipzig and 11 in Dresden. It is remarkable also the growth in number of internet
startups with respect to 2013 in Berlin, with an increase of 14% in number, from 504 to 576, while
109 Kristoffer Moeller,“Culturally Clustered or in the Cloud: Location of Internet Start-ups in Berlin”, Spatial Economics Research Centre, pp 4-5110 See supra, pag 6111 Sally McGrave, “GO TO: Berlin”, Wired, 2010 112 William Boston, Wall Street Journal, “Purchase of Germany's Alando.de Expands eBay's Global Presence”, June
1999 113 Senate Department for Economics, Technology and Research, “Berlin's digital economy”, 2013114 “Gründerszene datenbank”, data retrieved on 30/08/2014 (http://www.gruenderszene.de/datenbank/orte/Berlin)
55
for Munich is 16% with an absolute increase of only 24 startups. For what concerns the other
startup centres, in Hamburg the increase has been only of 3 startups, namely a 9% increase, In
Cologne only of 2 (2% increase) and in Leipzig the evidence showed even a contraction, with a -5%
it its total number.
City Number of internet startups in 2013
Number of internet startups in 2014
Percentage change
Berlin 504 575 14%
Munich 146 170 16%
Hamburg 138 151 9%
Cologne 92 94 2%
Leipzig 21 20 -5%Table 9: Percentage change in number of internet startups in 2014; Source: Gründerszene datenbank,2014
Figure 22: Number of internet startups in 2013-2014, source: Gründerszene datenbank,2014
As we said previously, in the aftermath of the fall of the Berlin wall, many immigrants from
foreign countries characterized Berlin landscape; this phenomena is occurring also nowadays for
what concerns immigrant entrepreneurs; in fact, 44% of the startups in Berlin has been created by
non-German entrepreneurs115.
Analysing the digital sector In Berlin, it is possible to divide this sector in three main
components116:
The ITC-infrastructures
The Core area of the digital Economy, composed by service access, Applications and
115 StartupsFM, “Berlin City Beat – The Ultimate Guide for Those Who Wish to Startup in Berlin”, 2014 (http://startups.fm/2014/01/09/berlin-city-beat-the-ultimate-guide-for-those-who-wish-to-startup-in-berlin.html) 116 BVDW / RIAS, “Die digitale Wirtschaft in Zahlen von 2008 bis 2012”, 2013
56
Berlin Munich Hamburg Cologne Leipzig
504
146 13892
21
576
170 151
94
20
2013 2014
Services, and End-user- iteration
Consumer electronics.
Looking at the data provided by the research carried out by InvestitionBank117 in 2013 118, the
results show that:
The core areas of the Digital Economy are the main populated IT sectors in Berlin, with
4893 enterprises out of thee 5353 in Digital economy in Berlin, with an absolute increase
since 2009 of 739 startups, approximately 18%.
The Infrastructures sector is much less developed than the core area, with only 341
enterprises in 2012, characterized by an absolute increase of 32 startups since 2009, a
percentage change of 10%.
The consumer electronics sector is the least numerous sector, with only 119 enterprises in
2012, back from the 131 in 2009, with a drop of 6%.
Figure 23: Number of enterprises in the Digital sectors in Berlin, by year; source: Investionbank Berlin analysis 2013
The predominance of startups in Berlin operating digital sector, especially in its core areas,
has not been a result of recent years; in fact, looking at the data since 2008 to 2012, the results
highlight that the number of digital startups in Berlin increased by 44,2% from 144 to 462 digital
startups, while other major startup centres in Germany saw a diminishing number of digital startups
in the very same time period. In fact, Munich showed -23,3%, Hamburg -9,1% and Cologne
-33,6%, while the only positive change,+10,4%, has been achieved by Dresden, with an absolute
increase of only 5 digital startups since 2008, from 52 to 57 startups in 2012.
117 InvestitionBank Berlin (IBB) is a public bank aimed at promote and develop businesses in the Federal Land of Berlin
118 IBB, “Digital Economy - Analysis by comparing German cities”, InvestitionBank Berlin, 13 November 2013.
57
Figure 24: Percentage change in Newly Digital established companies in different startup centres in Germany, Source:
Investionbank Berlin analysis 2013
The contribution of the internet economy, to the entire Berlin's gross value added (GVA)119,
according to the InvestitionBank Berlin analysis, reached a total of €3.9 billions in 2012, with a
share of 4.2% of the total GPD of Berlin, overtaking the construction sector (3.7% of GVA) and
obtaining similar results to the level of the tourism sector (4.3%).
Internet startups in Berlin, however, tend to be smaller than the average dimension of companies in
the overall Berlin economy; in fact, by looking at the share of sales of Internet startups in 2011,
which accounted to €8.983billions (€9.9billions if we add the €954.4 millions of sales made by
internet retailers), 60% of the total sales belongs to startups with more than €5 millions of sales,
while internet companies with sales of more than €50 millions have a lesser share (24.5%)
compared with companies of the same dimension in the overall Berlin business landscape, which
achieved 60,6% total sells share.
Berlin digital sector is very active and is growing at a fast rate year after year, exploiting the large
spaces at an affordable price available to set their operations.
There is still a wide margin of improvement for the overall Berlin ecosystem of startups; in fact,
following the results of the Genome analysis in 2012 on the top 20 start-up environments in the
World, Berlin has been placed in the 15th place. Genome analysis used as benchmark the Silicon
Valley environment, the top ranking startup environment.
The most important findings of the Genome research about the Berlin environment are 120:
Startups in Berlin employ as many employees per stage as the Silicon Valley start-ups
119 Gross value added is the value of output less the intermediate consuption and it is an indicator of how a sector influence on the total Gross Domestic product (GDP), OECD glossary of statistical terms (http://stats.oecd.org/glossary/detail.asp?ID=11849
120 Startup Genome,“Start-up Genome ecosystems Report”, 2012
58
There is an overall funding gap about 80% between startups in Berlin and in Silicon Valley;
moreover, they obtain 87% less capital before the market/product fit and 79% less after they
reached this important growth milestone compared to Silicon valley startups
Start-ups in Berlin are more likely (54%) to embrace a smaller market; they are 10% less
likely to reach $1billion to $10 billion markets and 51% less likely to belong to have a
market of more than 10$ billions.
Figure 25: Berlin and Silicon valley comparison; Source: “Start-up Genome ecosystem report 2012”
Comparing the 8 single factors analysed by the Genome startup report, it turns out that there
is still a considerable gap between Berlin and the renowned Silicon Valley. The gap is considerable
especially In the support index, which takes into consideration the supporting networks to start-ups,
and in the Mindset Index, which analyses the entrepreneurial attitude of the founders. Berlin,
instead, is much more competitive in the trendsetter index, that studies the rapidity of adoption of
new technologies and innovations; this index is considered as one of the main important indicator of
possible success of an environment in the future years by the Genome research. It is necessary to
say that even thought the 15th ranking of Berlin seems a poor result, just few years ago New York
59
startup environment was in the same position and, in just few years, succeeded to reach the number
5th of the ranking.
I will start my analysis on Berlin startup landscape by analysing the funding channels and
the project at support for startups by private and public entities.
3.2 Financing channels
Berlin ecosystem, due to its young age compared to the largest startup landscapes, such as
Silicon Valley or London, can not match the intensity of funding of such environments; however,
during the recent yeas, both the amount of financial resources and the projects at support of
entrepreneurs have increased substantially.
3.2.1 The supporting projects offered in Berlin to startups
Berlin offers many supporting projects to entrepreneurs wishing to set up a startup business,
especially for hightech industries. Taking the information from the InvestitionsBank Berlin (IBB),
“Business Support Guide”121, we can have an outlook on the main projects active in Berlin.
The projects offered to startups can be divided in five different categories:
Specific to startups businesses
Focused on investments
Focused on Technology and R&D activities
Subsidies with the target of labor market policy
Consultancy and training
For the first type of projects, the most important projects for IT startups are displayed in the
following table:
Provider Name of the project Recipient Main features
BBB BÜRGSCHAFTSBANK zu Berlin-Brandenburg
BBB-Start! Coachingprogramme for founders
All customers of BBB BÜRGSCHAFTSBANK zu Berlin-Brandenburg, for the first 12 months
Offer startups the possibility to analyze theirperiodical checks in the first financial year, in
121 IBB, “2013/2014 Business Support Guide”, InvestitionsBank Berlin, http://www.ibb.de/PortalData/1/Resources/content/download/ibb_service/publikationen/IBB_Business_Support_Guide_2013-2014.pdf
60
GmbH122 since the guarantee123 collaboration with the chamber of skilled crafts and the chamber of industry and commerce
InvestitionsBank Berlin and BBB BÜRGSCHAFTSBANK zu Berlin-Brandenburg GmbH(financed also by theEuropean Commission)
Berlin Start124 Small Medium enterprises, founders in commercial sectors and freelancer professional that started an entrepreneurial activity
Low-interst rate loans, which can be guaranteed by the BBB BÜRGSCHAFTSBANK zu Berlin-Brandenburg up to 80%, repayable from 2 years from the receivement, with a fixed interest rate.The minimum amount of the loan is €5,000 and the maximum is €250,000
Start: Chance125
(financed also by theEuropean Commission)
Coaching during the per-establishment phase
Individuals, living in Berlin, that are going to set up startup in a full time time-frame or complementary to employment
Coaching service to the entrepreneurs in different areas, e.g product development, market research and customer identification. A Maximum 30 hours of coaching can be obtained.
Comovis126 Labour cost subsidiesfor employees hired by newly established businesses
Start-ups which have been in the market since less than 2 years, with a maximum of 10 employees
Possibility to be able to receive a grant up to €7,500 for the gross wage cost per employee per year, available for two people.The maximum duration of the subsidy is one year.
Table 10: Main projects available for startups, source: InvestitionsBank Berlin 2013/2014 Business Support Guide
As we can see, the projects specific targeted to new born startups in Berlin encompass very different
areas from the direct loans providing to coaching and labour cost support activities.
It is important also to remark how financial institutions, such as banks, are key players in providing
those services.
The public institutions, especially trough the work of entrepreneurship promotion carried out by
IBB, help in creating a larger flow of startups eligible for those start-up specific projects.
There are also projects available for start-ups that belongs to the investments sphere, in
which the main features are large amount of investment funds or the possibility to get a guarantee
122 See supra, pag 18, from http://www.buergschaftsbank-berlin.de/page.php?id=24123 Guarantee is the collateral offered to banks in order to cover the liability of the loan; appendix 140124 “Berlin start”, webpage, http://www.ibb.de/gruenden/Berlin-Start.aspx125 Start-chance”, http://www.ziz-berlin.de/startchance.html126 “Comovis”, http://www.comovis.de/
61
for future loans.
Following the IBB 2013/1014 Business Supporting guide, some of those projects are:
“Investment by MBG”, carried out by Mittelständische Beteiligungsgesellschaft Berlin-
Brandenburg GmbH (MBG), available for startups with less than €50m of revenues and less
than 250 employees. The maximum achievable investment amount is €1m, with a fee
between 9.5% and 12% of the total amount.
“Guarantee without a bank”, carried out by BBB BÜRGSCHAFTSBANK zu Berlin-
Brandenburg GmbH, which goal is to give the startup, without a bank account, the
opportunity to apply for a guarantee not only for bank loans, but also for public loans and
leasings. The guarantee can reach 80% of the total of investments, up to a maximum of
€1.25m.
“ERP investment programme”, carried on by KfW Bankengruppe, is a public loan
financing with the goal to increase the equity base of small-medium enterprises, with
revenues up to €50m; the loan can reach at maximum €1m and , in few cases, up to €2.5m.
For the Berlin area the repayment term is 15 years, while in the surrounding Federal Land is
10 years.
For the IT sector, one program is particularly relevant among the others, and is called “VC Fonds
Kreativwirtschaft Berlin”, namely VC funds for the creative industry in Berlin, . Among the sectors
of Film, Radio, TV, publishing, music, advertising, art and culture, this project focuses also on small
and medium sized startups in sectors like multimedia, games and software. They invest in high
potential start-ups with high growth opportunities by acquiring a minority stake in the company,
with investments up to €1.5m in the first venture capital round, with the possibility to increase the
total investment up to €3m in next investment rounds. This kind of funding is usually
complementary to other financial resource sources, such as Business angels or other Vcs.
Other kind of programs, instead, are finalized in supporting the most important feature of
startup: innovation. The goal of those projects is to make possible the creation and the development
of new high technologies by supporting startups; the support consists in providing them operating
spaces and technical knowledge, carried out in collaboration with public technological centres or
universities.
Among the many projects that the city of Berlin offers to hightech startups, I chose three of them
that, in my opinion, are very peculiar:
“SME innovative support initiative by the Federal Ministry of Education and Research”,
aimed at support the young startups with limited knowledge or experience in the research
sector in order to reduce their difficulties and increasing the rapidity of the research. The
62
sectors in which the support are directed are:
Information and Communication technology
Biotechnology
Nanotechnology
Production Technology
Technologies for resource and energy efficiency
Photonics and optical technologies
Medical technology
The financing can be made available also to start-ups at the pre-competition phase.
“EXIST research transfer”127, provided by the minister of industry and energy, offers start-
ups the possibility to develop their business idea by giving them a technical support. The
support provided is divided in two phases; during the first phase, are carried out activities
such as the technical feasibility check, the development of an MVP and the creation of the
enterprise. Each researcher, that can be from university or not, is awarded a financing up to
€70,000 for materials and general expenditures, for a maximum of four researchers. This
phase lasts, on average, 18 months.
In the second phase, the support has the goal to give a stability to the new born start-up,
helping it to find external financing. In this phase, a non-repayable grant up to €150,000 (up
to a maximum of 75% of the total expense of the project, while the 25% remaining
must be provided by the startup itself; also this second phase has a duration of 18 months..
“Pro FIT early phase financing”128 with the collaboration of IBB and the European
Regional development funds, is a financing project targeted to start-up projects at the very
early phase of their life-cycle. This project can be divided in two phases; in the first phase,
the startup, which has to be not older than 6 months, is awarded an interest-free grants for a
maximum of 50% of the total expenses faced by the start-up, for a maximum duration of 1
year.
After the innovative project has been developed in phase 1, in the second phase, the startup, of at
maximum 18 months old, will receive loans at a low interest rate for covering the expenses needed
to consolidate the business model of the innovative start-up . Those loans are given without the
need of any collateral and the repayment term is 10 years. The second phase can last up to three
years.
As we can see, the city of Berlin offers both Financing and supporting help for IT start-ups in the
crucial sector of innovation, supporting them both with knowledge about know-how and helping
them to access to better technological infrastructures.
127 Exists webpace, http://www.exist.de/128 “Pro-Fit” IBB webpage, http://www.ibb.de/gruenden/Pro-FIT.aspx
63
Many projects also are oriented towards other subjects of interest of startups, especially in
the IT and high tech sector: labor market and human resources. More precisely, those projects seek
to develop better networks between available human capital in Berlin with start-ups in search for
skilled employee.
One examples of those projects is :
“Berlin Job Coaching”129, a program constituted by the association BerlinArbeit and
supported by the senate Department of Labor, Integration and Women financed also by a the
European Social Funds. It is destined to startups that hire unemployed people that are facing
difficulties in finding a job. This project does not only provide advisers to the new employed
and employer, in order to overcome difficulties and issues in the new job place, but also it
provides a financial aid, up to €1,440, aimed at financing a training needed for the job.
There is also a subsidy provided by the job centre, with the term fixed at maximum 12
months and up to a maximum of 50% of the gross salary of the employee. For non-recipient
of that subsidy, the Federal Land of Berlin provides a subsidy of maximum of €5,600 for six
months. Exploiting the database of jobs available, filled by companies themsleves, the start-
up can be connected to interesting employee profiles and right at time, the Berlin job
Coaching activities begins its important activities.
All those programs are effective in increasing the confidence in creating a start-up in Berlin or to set
the operation in this City, by providing supports in the main troublesome spheres of the
management of a start-up.
However, many other factors help in the creation process and in supporting new born start-ups in
Berlin. Among these, in the next paragraphs I will analyze the incubator and accelerator networks,
which, as I have explained in the first chapter, essential in the early phase of growth of a startup.
3.2.2 Incubators and accelerators network
The network of incubators and accelerators in the city is one of the most developed in Europe, by
comparing its number with the other main start-up landscapes in Europe such as London and Paris.
In fact, in Berlin there are 12 incubators and 9 accelerators programs, while in London 8
accelerators and 8 incubators130 and Paris 21 between incubators and accelerators131.
The distribution of incubators and accelerators in Berlin shows how the city offers the possibility to
129 Berlin job coaching webpage, http://www.gsub.de/en/projects/labour-market-and-employment-policy/job-coaching-in-berlin/
130 http://www.entrepreneurhandbook.co.uk/incubation-centres/#mg_cd_incubation-centres131 http://techlist.in/paris/incubators
64
host several incubators, due to its large dimension, and how also the eastern part of Berlin has
developed those infrastructures.
Incubators
Accelerators
Figure 26: Map of incubators/Accelerators in Berlin, Source: http://berlinstartups.com
The incubators and accelerators specialized in launchign and supporting IT related startups are
summarized i the following table.
Accelerators Incubators
Berlin startup academy Epic Companies
Founder Institute Berlin Team Europe Management
Axel Springer Plug & Play Accelerator Centre for Entrepreneurship
Startup Bootcamp Berlin Found Fair Ventures
Rheinegau Founders German Startups Group
Microsoft Ventures Berlin Hitfox Group
Hub:Raum Berlin YOU IS NOW
Berlin 42 lab Hub:Raum Berlin
Hardware.co The Factory
RocketInternet
Project A
Groupo Intercom
SpringstarTable 11: Incubators and Accelerators active in Berlin
Among ll the IT related accelerators and incubators two of them are very important for the IT
startup scene in Berlin:
StartupBootcamp Berlin132, specialized in smart transportation and energy industries,
132 StartupBootcapm website (http://www.startupbootcamp.org/how-it-works/accelerate.html)
65
namely the efficient way in which people and goods are connected and transported. It is one
of the most important accelerators in Berlin, winner of the award “Best startp Accelerator”
from the context “The Europas award”133. Its accelerator program consisting in €15,000 for
living expenses, 6 months of free incubation in a working space, €450,000 of services
offered to the start-up as well as mentoring and the possibility to pitch the business model to
external investors. Some examples of successful start-ups incubated in StartupBootcamp
Berlin in 2013 have been: Avuxi, that ranks the popularity of places and BabyWatch, which
enables expectant mothers to listen the heartbeats of the coming new baby thanks to an
external device in combination with a mobile application.
The Factory, a new incubator, set up in June 2014, financed by Google with partners such as
KPMG. It is a campus, with workplaces, apartments , mentorship programs and supporting
services in fields such as law, financing and design. It can host up to 500 people inside the
campus134; some start-up hosted in The Factory are:
SoundCloud, a famous music sharing platform, one of the most famous start-up in the
Berlin area and recently winner of “Best startup” of the “Europas context”135
Wikirate, a web platform aimed at give information about well-established companies by
providing brief descriptions and articles on social matters such as Child Labor and
Environmental policies.
A separate description deserves RocketInternet, one of the largest incubators in Europe and in the
World, specialized in setting up companies in the e-commerce sector. Founded by the Samwell
brothers in 2007, the founders of Alando.de back in 1999, the business model followed by Rocket
Internet has been criticized since its creation; in fact, the goal of Rocket Internet is to replicate
business models from successful start-ups and launch them in new emerging countries136 .
coherently with Eric Ries's definition of start-up explained in chapter 1, I will not consider the
companies created by Rocket Internet as startups in a strictly sense, because they do not create or
develop a completely different business model from the “original” ones. However, those companies
can be very successful, as the case of the dress and shoes e-commerce Zalando.com.
The next component analyzed of the funding channels is the private equity sectors, focusing on
investments carried out by business angels, venture capitalists, debt financing and crowdfunding
platforms.
133 The Europas Awards website (http://theeuropas.com/)134 “Google Launches The Factor, a Berlin Start-up Incubator”, Wall street Journal, June 2014
(http://blogs.wsj.com/digits/2014/06/12/google-launches-berlin-startup-incubator-the-factory/)135 SoundCloud homepage (https://soundcloud.com/)136 “Inside the clone factory: The story of Germany's Samwer brothers”, Wired
(http://www.wired.co.uk/magazine/archive/2012/04/features/inside-the-clone-factory)
66
3.2.3 Private equity
As we have seen, incubators and accelerators play a key role as seed capital channel,
eapecially for IT start-ups in Berlin, in the private equity investments. The other main sources of
private equity, Business Angels, Venture Capitalists, debt financing and and crowdfunding
platforms, are as well important.
In fact, by looking the data provided by Datapine137 about the funding channels used by start-ups in
the fist two quarters of 2014 that managed to receive funds,27 start-ups and 26 in the first and in
the second quarter respectively, it is clear the importance both of the Venture capital, Seed and
Business angel investments. It must be said that 17 out of the total of 53 startups in 204 did not
disclosed neither the amount or the channels used for the funding.
Seed capital, including accelerators and incubators programs, has been the funding source for 21 of
the 53 startups, or approximately a 40% while Venture capital has been the financing channel used
by 17 startups out of 53, a percentage of 32% of the start-ups. The Business angel networks an
crowdfduning platform have been used less by the startups, by 3 startups (6%) and 2 startups (4%)
respectively. The startups that exploited crowdfunnding channels have been Panono and
PocketInternet, which used “Indiegogo” crowdfunding platform. Only 1 start-up has exploited the
debt financing trough a convertible note.
Figure 27: Private equity channels used by start-ups in Berlin, Source: Datapine
For what concerns the average amount invested, for Business angels it averages to €82,635 while,
for crowdfunding investments, €717,500 and a remarkable €22,736,446 for the venture capital
137 Datapine, “Funding analysis of Berlin startup scene”, 2014 (http://www.datapine.com/blog/funding-analysis-berlin-startup-scene-2014/)
67
21
17
32
1 Seed Capital
Venture Capital
Business Angels
Crowdfunding
Debt financing
investments.
Figure 28: Average amount of investments of different funding channels
It must be said, however, that the data relative to the venture capital average investments is much
inflated by the amount of investments received by the start-up called Delivery Hero, namely an
internet and mobile platform for food ordering, able to get €88m in the first quarter and another
€87m in second quarter. Delivery hero announced on September 3 2014 that was able to receive, in
another venture capital round, €350m, the third largest investment in EU138, reaching the amount of
€635m total funding received139. As a consequence, more than two third of the $493m140 total
investments in Berlin in the third quarter of 2014, according to datapine analysis, derive from
funding achieved by Delivery hero.
The results on the private equity sector are coherent with the results obtained during 2013,
especially in the second quarter, in which Germany, pushed by the strong performance of Berlin,
managed to “beat” the more famous and renowned UK landscape with respect to the total venture
capital, reaching 20% of the total venture capital investments in Europe, with 67 deals and €273m,
compared with 77 deals an €211m of UK141.
138 Wall street journal, “Delivery Hero Raises $350 Million, But No Plans For Expansion Into U.S”, September 2014 (http://blogs.wsj.com/venturecapital/2014/09/03/delivery-hero-raises-350-million-but-no-plans-for-expansion-into-u-s/)
139 Press release, Delivery Hero website (http://www.deliveryhero.com/delivery-hero-raises-another-350-million-to-continue-strong-growth)
140 The data is based on the information disclosed by 14 startups on a total of 29 startups able to receive funding141 Wall Street Journal, “Berlin Needs Exits to Bolster Tech-Hub Case”, August 2013
(http://blogs.wsj.com/tech-europe/2013/08/14/berlin-needs-exits-to-bolster-tech-hub-case/)
68
Moreover, by looking at the data about the sectors in which the startups received the funding in the
first two quarter of 2014 belong, we can see how the results are coherent with the Investionbank
Analisys 2013 presented in the first paragraph; in fact, in the first two quarters, the three most
financed sector have been E-commerce (13 startups, approximately 25% of the startups), software
(11 startups, 21%) and mobile (10 start-ups, 19%), that belong to the core area of the digital
economy. The following sector are: finance (6 startups, 11%), social (3 startups, 6%),
transportation (3 startups, 6%), hardware (2 startups, 4%), healthcare (2 startups, 4%) and education
(2 startups, 4%).
The active environment in the private equity investments is fostered also by the high number of
operators in Berlin; in fact, there are 238 business angels, according to AngelList database, residing
in Berlin142, and 16 large venture capital firms having their operating seat in Berlin.
In this paragraph I have showed the main tools and sources that a startup can exploit in order to get
funding, both at the early and at the expansion phase. In the next paragraph, I will describe the
supporting infrastructures and the cultural amenities that are key elements of the competitive
advantage of Berlin startup landscape.
3.3 Purchasing power, Supporting infrastructures and cultural amenities
The decision of location of an enterprise have been a subject of research for many years; the
traditional manufacturing enterprises consider as main factors components such as inputs cost and
proximity , transportation costs and labour costs, with the clear focus on minimizing the cost of the
production process.
However, for hightech start-ups, and in even more for in the IT sectors, the bounds on such costs is
less relevant 143 because those sectors does not require a capital intensive process as the
manufacturing sector.
On another hand the importance of factors that belong to the general definition of Quality of Life144
of the surrounding environment in hightech sectors have gained more and more importance; factors
such as cost of life, the availability of cultural amenities (bars, restaurants, theatres), transportation
efficiency, operating and supporting infrastructures, such as coworking spaces and a reliable
142 AngelLIst database, data retrieved on 6/09/2014 (https://angel.co/berlin/investors)143 David Salvesen, Henry Rensky,“The Importance of quality of life in the location decisions of new economy firms”,
Center of urban and regional Studies, January 2003, pag 2 144 See supra
69
broadband internet connection are key players in the location decision of a startup.
I will start the analysis on such important matters by describing the cost of living of Berlin, which
has an evident impact of purchasing power of entrepreneurs and, in turn, on the overall appeal of
Berlin environment.
3.3.1 Cost of living and purchasing power in Berlin
One of the comparative advantages of Berlin environment with respect many other European
startup centres in Europe it is the low cost of living; this is a direct consequence of the fall of Berlin
Wall, as we explained in the first paragraph. Using as main indicator of cost of living the rental
prices and London and Paris as comparison cities, by looking at the data provided by two sources,
the website “Numbeo”145, that compares price levels of different cities, and the RegioData research
of 2011146, it is evident how the rental prices in Berlin are much lower than London.
In fact, according to Numbeo, the average price for an apartment of 1 bedroom in the city centre in
Berlin is 613€ while for Paris is €1,100 and for London €1,900, approximately 79% and 231% more
expensive than Berlin. The same result has been obtained in the RegioData research, with average
rental price for squared meter in Berlin of €6.6, compared with the €23.00 of Paris.
Moreover, useful informations about the general price level, the overall wage level and the
purchasing power of Berlin can be acquired from the 2013 annual report conducted by UBS147.
According to UBS report, for what concerns the price level index 148 ,including rent prices, Berlin
index has been 64.1, while for Paris 77.5 and for London 83; the difference in net wages level, a
needed factor in order to better understand the purchasing power of Berlin, is not so remarkable:
70.1 for Berlin,73.6 for Paris and 75.2 for London; the low difference in net wages data combined
with the low price level have a direct impact on the purchasing power of Berlin.
In fact, Berlin purchase power index, net of taxes, is 82.1, larger than Paris (65.1) and London
(73.0), and this has an subsequent impact on disposable income of entrepreneurs in Berlin.
145 Number website, http://www.numbeo.com/cost-of-living/146 Regiodata research, “Expensive turf, but with high purchasing power: London and Paris”
http://www.regiodata.eu/en/expensive-turf-high-purchasing-power-london-and-paris147 UBS annual report 2013 (http://www.ubs.com/global/en/about_ubs/investor_relations/annualreporting/2013.html)148 The index is calculated using the price of 85 goods and 27 services, on a sample of 72 cities arround the World. The
index is calculated using New York as benchmark, assigning New York a value of 100 to each variable.
70
Figure 29: Price, Wage and Purchasing power index calculated by the USB index
As we have seen, Berlin has a comparative advantage with respect other metropolitan areas
for what concerns the rental prices, which includes also office rentals, as well as the general price
level, making it more appealing for migrating entrepreneurs to set the operation in Berlin.
Entrepreneurs in Berlin may also benefit from a developed coworking spaces network, which I
describe in the next paragraph.
3.3.2 Coworking spaces
Coworking spaces, according to the definition from “coworking.com”, is a place where by
unifying a group of separate entrepreneurs or start-ups, a better working environment is offered,
with collaboration and sharing of knowledge as main pillars. Coworking spaces are also
fundamental in creating micro-clusters of entrepreneurship, in which the community helps new
comers, especially from other nations, to better integrate in the new environment149.
Coherent with the global trend of increasing number of coworking spaces, especially in Europe
where the number reached more than 1600 coworking spaces, Berlin has more than 40 coworking
spaces, according to the online database “Coworkingde”150.
149 Ignasi Capdevila, “Knowledge dynamics in localized communities: coworking spaces as microclusters”, 2013, pp 5-10
150 Coworkingde wepage, http://coworkingde.cloudcontrolled.com/
71
Berlin Paris London Milan Tel Aviv
64.1
77.583
72.168.470.1
73.6 75.2
61.5
43.5
82.1
65.173
61.853.4
Price index Wage index Purchasing power index
Figure 30: Location of coworking spaces, Source: Coworkingde
Few examples of coworking spaces in Berlin are:
“Bethahaus”, created in 2009, is now one of the most famous Coworking spaces in Berlin,
with more than 2,500 square-meters available and over 350 active members. It offers flex
desks, as well as other extras, for example meeting rooms, 24/7 access to Bethahaus
infrastructures, a fixed room for the startups and also a coffee-subscription.151. It has opened
offices also in Lisbon, Hamburg, Sofia, Zurich and Barcelona.
“Ahoy!”, placed in the centre of the city, offers the possibility to rent, also just for one day, a
fixed space for a cheap price (€160 Monthly), with the possibility to use also a kitchen and a
playing room.
3.3.3 Supporting infrastructures
The supporting infrastructure, such as the internet connection and the public transports, are a
key factors for IT start-ups deciding where to operate.
After the large investment done, especially in the eastern part of the city, Berlin now posses one of
the most developed internet connection, both wifi and optical fiber, in Europe. This facilitate the
creation of internet based companies, which depend heavily on the efficiency of the broadband
connection.
151 Bethahaus homepage, http://www.betahaus.com/berlin/
72
For what concerns transport amenities, such as transport supply, reliability and efficiency,
due to the large dimension of the city, Berlin has developed an extended network of transports.
According to the results of the survey of “Benchmarking European Service of public Transport”
(BEST) of 2008152, Berlin has placed third after the city of Geneve and Helsinki for what concerns
people satisfaction with public transports, with 73% of the people surveyed being completely
satisfied.
For what concerns the supply of public transports, Berlin has placed first, with 86% of the people
interviewed being satisfied by the supply of public connections..
The reliability of the public transports is, for 84% of the answers, confirmed by the people In
Berlin, meaning that transport most of the times are not late.
The fast connection offered by the large metropolitan network (U-Bahn), with its 6 lines covering
146 kilometres with 143 different stations153, makes possible to connect the former western districts
to the eastern ones.
Figure31 : Metropolitan (U-Bahn) and tram (S-Bah) network
152 Benchmarking European Service of public Transport, “2008 annual report” (http://best2005.net/Public-reports/Main-reports)
153 Underground subway of Berlin, Berlin.de (http://www.berlin.de/en/public-transportation/1742343-2913840-underground-subway.en.html)
73
3.3.4 Cultural Amenities
An important factor for the development of an active Start-up ecosystems are the cultural
amenities, which improves the quality of life for entrepreneurs living in that city. Cultural amenities
have also important effects at regional level, by making possible to attract more human capital as
well as fostering an overall regional growth154.
As we explained in the first paragraph, in the aftermath of the fall of the Berlin wall, due to low
costs of properties, there were many opportunities to set up business activities such as Bars,
restaurants, clubs and also theatres; this had been also supported by the German government that
was putting efforts to revalue the abandoned places in the eastern districts.
The city offers many places where entrepreneurs can benefit during their leisure time and, at the
same time, in which is possible to work and share ideas with many other entrepreneurs, especially
in the digital sectors.
One of the main “cult” place for startuppers in Berlin is St.Oberholz, a bar used in past for
informal meetings between young entrepreneurs, nowadays it offers complete coworking spaces.
Places like St. Oberholz are very usual in Berlin; in fact, similar laces, among many others, are :
Kaffee Mitte
Mein Haus am See
Kuchi
Betahaus café
Kuchenkaiser
It is remarkable also the agglomeration process of start-ups near cultural amenities in Berlin,
showing how their influence in creating a more dynamic environment helps to set up startups.
It is also important how the mentorship loop between serial entrepreneurs and new entrepreneurs
may be channelled trough those informal places, enhancing the exchange of informations.
Thanks to a visual map, created by Kristoffer Moeller in his paper, it is possible to see how the
amenities have been developed during those years and how the startups are located with respect to
them. The outcome is not surprising, as it follows the general model of agglomeration: start-up in
Berlin are located where amenities are near, in a radius of 2 kilometers by looking at the visual map.
154 Oliver Falck, Micheal Fritsch, Stephan Heblich, “Cultural Amenities, Human Capital, and Regional Economic Growth”, Institute for the Study of Labour, July 2010, pag 19
74
Figure 32: Black points are Internet start-ups (data refers to 2013) and the red cloud represents the cultural amenities
density influence; Source: Kristoffer Moeller,“Culturally Clustered or in the Cloud: Location of Internet Start-ups in
Berlin”
In this paragraph I have described the supporting infrastructures and amenities needed to improve
the start-up landscape of Berlin; among many other factors influencing the entrepreneurial activities
in a city, in the next paragraph I will focus on the human resources available for startups, focusing
on Universitie, technological centres and on internal communities in Berlin
3.4 Human Resource and local communities
In all the start-up an technology hubs active in the World, the main component are people;
in fact, without a developed network of innovation and technological oriented universities,
providing the right skills for start-ups as well as fostering an entrepreneurial culture among young
people, it is difficult for a landscape to develop a sustainable start-up ecosystem, able to provide an
economic growth for the entire area in a long-run perspective.
For this reason Berlin, like many other metropolitan cities, has a large number of universities and
technology research centres for creating and attracting skills in this city, respectively.
3.4.1 Universities
In Berlin there are 27 universities, 5 public universities and 3 private, as well as 19 Universities
75
specialized in applied sciences155. Among those universities, 12 provides degrees in Innovation or
Entrpreneurship fields.
Figure 33: Map of Universities in Berlin
Some degrees offered by universities in Berlin are:
"Innovation Management and Entrepreneurship", a double master degree offered by the
Technical University of Berlin (TU-Technische Universität Berlin), the University of Twente
and Warsaw University of economics; the focus of this course Is on the creation and
development of start-ups. The TU university of Berlin, in fact, is one of the most important
universities in Germany oriented to startups businesses, according to Gründerszene
ranking156
“Entrepreneurship”, a master degree offered by SRH Hochschule Berlin. The master offer
the possibility to students to carry and develop their own business ideas, beside the
curriculum of studies.
Thanks to the international programs, both for studying and for exchange periods, Berlin can exploit
the university system in order to enhance its pool of human resource available in IT or other startup
related sectors.
However, many other source of aggregation influence the quantity of disposable human resource;
155 http://en.wikipedia.org/wiki/List_of_universities,_colleges,_and_research_institutions_in_Berlin156 Gruenderszene, “Top universities for startups”, 2012 (http://www.gruenderszene.de/allgemein/top-startup-unis)
76
among those, there are research centres and communities inside Berlin from foreign nations.
3.4.2 Research Centres and local communities
Berlin has a high concentration of research institutes not only in IT sectors, but also in many
different field of research; in fact, Berlin has been chosen as one of the location centres of
ClimateKIC and of ICT labs, two of the three activities carried out by the Europen Institute of
Technology and Innovation, carrying out research on climate change and on ICT development
across Europe respectively.
There are 54 research institutes, public or private, covering sectors such as energy, biotechnology or
human subjects, attracting also experts and skilled people for startups not belonging to the IT sector.
Among the 54 research institutes, there are 16 research institutes and science parks operating in IT
sectors; I will present those research centres in the following table, as well as the sectors in which
they operate, to attract skilled people as well as carryng projects:
Research institute Sector(s)
Deutsche Telekom Laboratories (T-labs)157 Interactive high end media,future communciation. Cloud systems
German Institute for Economic Research158 Data analysis
Ecologic gGmbH159 Internet platform
Ferdinand-Braun-Institut für160
Höchstfrequenztechnik
Semiconductors
Fraunhofer-Institut für Nachrichtentechnik 161:
Heinrich-Hertz-Institut
Hardware, Wire-less communications and netorks, Interactive media
Fraunhofer-Institut für Offene
Kommunikationssysteme 162
Automotive service and ICT technologies, Health ICT, Network communciations, Interactive media, Visual computing
Fraunhofer-Institut für Produktionsanlagen und
Konstruktionstechnik163
Software systems and digital product creation
Fraunhofer-Institut für Software- und Software architectures
157 T-labs, http://www.laboratories.telekom.com/public/English/Pages/default.aspx158 DIW Berlin, http://www.diw.de/en159 The project “Online Information Service: Environmentally Compatible Plant Protection”, carried by the Ecologic
GmBh research institute is aimed at create a web portal where it is possible to find informations about the consequences of several type of pesticides (http://www.ecologic.eu/10343)
160 Leibniz Ferdinand-Braun- Institute, http://www.fbh-berlin.de/willkommen161 Fraunhofer-Institute, http://www.hhi.fraunhofer.de/fields-of-competence.html162 Fraunhofer-Institute for Open Communication systems
http://www.fokus.fraunhofer.de/en/fokus/institut/was_ist_fokus/index.html 163 Fraunhofer- Institute for Production Systems and Design Technology, http://www.ipk.fraunhofer.de/en/divisions/
77
Systemtechnik164
Fraunhofer-Institut für Zuverlässigkeit und
Mikrointegration165
Electronic systems
Institute for Media and Communication Policy166 Media
Institute of Electronic Business167 Electronic systems
Zuse Institute Berlin168 Practical computer science
Paul-Drude-Institut für Festkörperelektronik169 Semiconductors
Weierstraß-Institut für Angewandte Analysis undStochastik170
Data Analysis
WISTA Science and Technology Park171 Media
Table 12: Research centres in Berlin operating in It related sectors
The linkage between research centres and universities is very tight, as many research centers are
supported by Universities; it is the case of Paul-Drude-Institut für Festkörperelektronik, where its
activities are carried out with the partnership of many Universities in Berlin, such as the Humboldt
University.
The importance of developing skills in such specific sector is of fundamental importance for
innovative start-ups in the fast changing IT sector; an evidence about the effectiveness of networks
of both universities and of research centres in attracting and creating skilled people. can be found by
looking at the data about jobs created in the digital economy in Berlin. In fact, over 62,000 people
work in digital sectors, with approximately 75% of them (47,000) working as full time employee,
21% (13,266) working as self- employed person and the remaining as marginal employee. Between
2008 and 2012, jobs in the core areas of the digital economy (applications and services, service
access and End-user interaction) have increased by 12,300 jobs (+48,7%), the highest growth of
jobs in Germany; in fact, only Munich is comparable in terms of absolute growth (+10,940 jobs
created, +43,8%), while other main cities,such as Frankfurt, Cologne and Hamburg, are behind with
an increase of 5,961, +4209 and +5,947 new jobs respectively.
164 Fraunhofer- Institute for Softwares and SystemsEngeneering, http://www.isst.fraunhofer.de/en.html165 Fraunhofer- Institute for Reliability and Microintegration, http://www.izm.fraunhofer.de/en/business_units.html166 Institute for Media and Communication Policy, http://www.goethe.de/wis/fut/prj/for/med/en4890466.htm167 Institute of Electronic Business, http://www.ieb.net/168 Zuse- Institute Berlin, http://www.zib.de/de/home.html169 Paul-Drude-Institute, http://www.pdi-berlin.de/en/home/170 Weierstraß-Institute , https://www.wias-berlin.de/?lang=171 Wista Science and Technology park, http://www.adlershof.de/en/wista-management-gmbh/about-us/
78
Figure 34: Percentage change in employment in the digital sector in different startup hubs in Germany; Source:
Investionbank Berlin analysis 2013
Overall, the digital economy in Berlin can benefit from a large and dynamic human resource pool,
as shows the difference in the increase of jobs created in the Digital sector (+48,7) and the overall
Economy of Berlin (+9,1%)
This can play a key role in attracting entrepreneurs and employees from foreign countries, helping I
creating local communities of foreign entrepreneurs operating in Berlin, useful for the integration
process in this city as well as a mentorship tool for new comers entrepreneurs. In fact, local
communities provide a competitive advantage by making more appealing for foreign entrepreneurs
to set up where other people, with the same culture, resides and operates.
For Berlin, among all the micro-communities active In this city, for the purpose of my paper , I will
focus on the Italian community of “digital” entrepreneurs in Berlin, “DigItaly. Born as a simple
group in Facebook, created by Silvia Foglia and Alessandro Petrucciani, for Italians with the goal
to share informations and knowledge about the digital environment of startups in Berlin, it now
organizes events and workshops useful for legal and bureaucratic procedures as well as mentoring
activities for new-comers. It counts, nowadays, more than 1000 members.
Using this sample of Italian digital entrepreneurs, the next chapter will present the main results of
the survey abut the strengths and weaknesses of the Berlin startup scene as well as the key elements
about the Italian Start-up environment. The goal is to understand what are the main reasons
inducing entrepreneurs to migrate from Italy to Berlin.
79
Chapter 4
Survey on the Italian digital community of start-uppers in Berlin “DigItaly”
4.1 Brief Introduction about the sample and the survey
As already said in the previous chapter, Berlin has an active Italian community, which
organizes events related to the start-ups world in Berlin. Nowadays, it counts 1036 members172 in its
Facebook group, with the majority of them being involved in first person in startup businesses. This
active pool of Italian start-uppers makes DigItaly, overall, an efficient sample in order to
investigate about the phenomena of migration of startuppers and startups from Italy to Berlin.
It is reasonable to estimate that around 200-300 people could match our target entrepreneur;
however, my goal to obtain answers from at least 20 entrepreneurs, in order to extract interesting
results, has been accomplished; in fact, 24 answers have been collected.
Due to the short time-span of the research, less than 1 month, and for the channel used, mostly
Facebook and E-mails, this research leaves much place for further investigation.
The questionnaire is composed by:
A first introductory section , in which are asked some general demographic information
about the entrepreneurs, such as the gender, the age and the study qualifications
A second section, in which some key characteristics of the start-up founded by the
entrepreneur are collected; those information concerns the location of foundation of the
startup (e.g In Italy, In Berlin or elsewhere), the sector in which the start-up operates and if
the entrepreneur is planning to migrate again from Berlin.
A third section, that consists in the Italian environment analysis; this section is destined only
to entrepreneurs who founded startups previously in Italy. The key information about the
financing (e.g Private equity, Public funding and assistance, Accelerator/Incubators
Network, Crowdfunding platforms and Investments by financial institutions), the human
resources availability and the bureaucracy concerning the creation an dissolution of a startup
are collected through a five level (Likert scale) rating scale from “Completely inefficient” to
“Completely efficient” . Other two important data are collected about the reasons why of
their migration from Italy and in which way the Italian start-up ecosystem can enhance its
international appealing.
The last section covers the Berlin ecosystem analysis; it includes the analysis of the same
172 DigItaly facebook group, Data retrieved on 08/10/2014, https://www.facebook.com/groups/digItalyBerlin/?fref=ts
80
factors presented in the previous section about financing and human resource while also
including questions about the efficiency of co-working spaces in Berlin and of general
activities of mentoring for entrepreneurs. It also includes questions about the effectiveness
of the Italian community “DigItaly” in Berlin in improving the landscape for Italian
Entrepreneurs. The last three questions concerns: the strengths of Berlin ecosystem, the
overall level of satisfaction of Italian entrepreneurs about the overall Berlin startup
landscape by it and in which way Berlin can be more competitive in a worldwide
perspective.
I will start presenting the results starting from the first section.
4.2 Demographic information about the entrepreneur
From the results of 24 answers from the survey, we get that 18 out of 24 entrepreneurs,
namely 75%, are males and 6 are females entrepreneurs (25%), and, if we compare to the Italian
female rate of entrepreneurship in an IT sector, such as the ICT , it is remarkable the gap with
Berlin; in particular, it is interesting that only Lombardia, Lazio and Valle d'Aosta exceed the level
of 2% start-ups created by women in the ICT sector.173 This can be an important factor that may
influence skilled women to migrate towards Berlin, enhancing the female entrepreneurship
phenomena.
Figure 35: Gender distribution of Italian entrepreneurs in Berlin
For what concerns the age distribution of Italian entrepreneurs, it is clear from the data that
the largest part of Italian entrepreneurs belongs to the range that varies from 25-30 years old, with
173 Working Capital Telecom Italia, “Start-up al femminile”, 2014, https://www.workingcapital.telecomitalia.it/2014/06/startup-al-femminile-ecco-perche-vogliamo-piu-donne-ceo/
81
18, 75%
6, 25%
Gender distribution of the entrepreneurs
Men
Women
18 answers (75%), followed by the interval 31-40 with 4 answers (17%) and 20-24 with 2 answers
(8%). This is an evidence that Berlin is a landscape attractive also for the younger generation of
startuppers.
Figure 36: Age distribution of italian entrepreneurs in Berlin
The education qualification shows a predominance of entrepreneurs with a high education
career, with 12 out of 24 (50%) with a Phd- Master qualification, 8 (33%) entrepreneurs have a
master degree, 3 (12,5 %) of them have an high school diploma and 1 (4%) have a bachelor degree.
Figure 37: Distribution of Qualifications of education of Italian entrepreneurship
After those introductory information about some key demographic facts of the Italian founders of IT
startups in Berlin, I will move in deeper in the analysis of such community by first analysing some
key features of the start-up founded by these entrepreneurs.
82
4
18
2
Age distribution of the entrepreneurs
Less tha 20
20-24
25-30
31-40
41-50
more than 50
0
3
1
8
12
Education level of the entrepreneurs
Elementary school diploma Middle school diploma High school diploma
Bachelor degree Master degree PhD
4.3 Main features of the startups
The analysis of the startup founded by the entrepreneur is important get a broader point of
view of the migration phenomena not just limited only to Italian start-ups migrating to Berlin, but
also for possible intermediary migrations or future migrations from Berlin.
The first question asks where the entrepreneur founded the start-up, if directly in Berlin or in Italy
or in different nations. From the results, it turns out that 18 founders (75%) have settled their
operation directly in Berlin, 4 (16%) funded their start-up in Italy and then moved the operations in
Berlin while only 2 funded the start-up in other nations. This shows how Berlin is attractive for
entrepreneurs also at the foundation stage.
Figure 38: Start-up location of foundation
The entrepreneurs who founded start-ups in Berlin or in another country in only 3 cases are serial
entrepreneurs who had founded start-ups previously in Italy. This means that Berlin have been
chosen also by entrepreneurs at the very first experience.
Meanwhile, the four entrepreneurs who founded the start-up in Italy and then moved to
Berlin, in the third question are asked to answer about any intermediate migration from Italy to
Berlin. The results shows that all the four entrepreneurs moved directly to Berlin, without taking
into consideration any intermediate migration destinations, meaning that Berlin plays a key role in
the growth phase of a startup during its life-cycle.
83
18, 75%
4, 17%
2, 8%
Location of foundation of the start-up
Berlin
Italy
Other
For what concerns the sectors in which the startup operates, there is a clear predominance of e-
commerce platforms and mobile software and apps, with 17 out of 24 answers (71%), confirming
how the core sectors described in the previously chapter are the most developed in Berlin.
Particularly significant are the three startups operating in the so called “Internet of things” sector,
namely the smart connection of objects with the internet infrastructures; in this case the three
startups operate in a very popular sector which is a subject of interest also in Italy: smart-cities and
sustainability.
Figure 39: Sectors of the start-ups
The last question give us a crucial information about the efficiency of Berlin for Italian
entrepreneurs; in fact, all the answerers of the survey said that they have no intention in the very
next future (3 years) to move from Berlin. This means that in Berlin they have found a fertile
ground in which to operate and to grow.
In order to better interpret the last data, we need to investigate further on the two environment in
question, starting from the Italian one, that I analysed in the following section.
4.4 Italian landscape IT startups
The analysis of the Italian landscape will cover the main objects which I covered in this
paper, such as finance, human resource and bureaucracy. The results of this section are obtained
from the four entrepreneurs who founded the startup in Italy and the three entrepreneurs which had
previously experiences in startup creation in Italy, in order to exploit their personal experience.
I start the analysis of the Italian startup landscape by asking the entrepreneurs their opinion
about the financing channels available for start-ups in any step of the life-cycle trough a five level
rating scale.
84
17; 71%
3; 13%1; 4%
3; 13%
Sectors of the Italian start-ups in Berlin
E-commerce, mobile apps and softwares
Internet of Things
Crowdfunding platforms
Unknown
The five components of the financing channels that I chose to take into consideration are:
Private equity (e.g Business angel investments, Venture Capital)
Public financing and supporting projects by Public institutions
Incubators/Accelerators Network
Crowdfunding platforms
Investments by financial institutions (e.g Banks)
The main results of this are:
The private equity in Italy is not well developed, as 4 persons out of 7 (57%) answered
“Inefficient” (rank 2 of 5) while only 2 (29%) entrepreneurs answered “Sufficiently
efficient” (rank 3 of 5) and 1 answered “Completely Inefficient” (rank 1 of 5). This
confirms the previously researches highlighting the fact that the Italian private equity sector
is still developing and has not reached yet a maturity needed to fulfil all the needs of
growing Italian startups.
The efforts of public authorities are not so efficient, as 5 out of 7 answered with
“Inefficient” and 2 “Sufficiently efficient”. This can be explained by the fact that the public
attention to the innovative start-up “world” is relatively young; in fact, the first legal
recognition, as said in the second chapter, occurred only in 2012 with the “Decreto Crescita”
under government Mario Monti.
Incubators and Accelerators network, instead, showed positive results; in fact, 5 of 7 (71%)
responded with “ Sufficiently efficient”, 1 with “Very efficient” (rank 4 of 5) and 1 with
“Inefficient”.
This result is not surprising because, as we said previously, Italy is well covered by those
infrastructures, both by private and public owned incubators and accelerators. This is also
evidenced by the fact that many universities, nowadays, are setting up incubators and
accelerators in their structures.
Crowdfunding platforms, even if the public administration tried to enhance its potential
improving the equity crowdfunding platforms, appear to be not so satisfying. In fact, 4 out
of 7 entrepreneurs (57%) answered with “Inefficient”, while 2 (29%) answered with
“Completely inefficient” and just 1 answered “Sufficiently efficient”. This data is a proof of
the fact that the recent regulation on equity crowdfunding platforms has yet to show the
expected results.
Debt financing, namely bank loans or other type of financial investments from financial
institutions, is a tool which, according to the results, still present several issues. In fact, 6 out
of the 7 (86%) entrepreneurs agree in considering “Inefficient” this specific funding channel
while the last entrepreneur considered “Completely Inefficient” the debt financing channel.
85
This can be explained by the fact that banks, as we said in the second chapter, are reluctant
to supply financial resources to startups in such turbulent economic situation that Italy is
facing since many years.
Taking into account all the answers (7 for each five factor analysed, a total of 35 responses), it is
interesting to see the distribution of the answers in order to give an overall evaluation of the Italian
funding channels available for start-ups. The largest majority (20 responses out of 35, 57%) belongs
to the “Inefficient” category , followed by “Sufficiently efficient” (10 responses of 35, 29%). From
this data it is possible to conclude that the funding channels in Italy are still considered, overall,
inefficient by the entrepreneurs. The results are summarized in the following table:
Funding Channels
Rating Scales
Completely Inefficient
Inefficient Sufficiently efficient
Very Efficient Completely efficient
Private Equity 1 4 2 / /
Public Fundingand support
/ 5 2 / /
Incubators/acceleratos network
/ 1 5 1 /
Crowdfunding platforms
2 4 1 / /
Debt financing 1 6 / / /
TOTAL 4 (11%) 20 (57%) 10 (29%) 1 (3%) 0 Table 13: Level of efficiency of the Italian funding channels
The next important key factor in the Italian startup landscape which is examined in the
survey concerns the availability of human resource with specific skills. The evaluation of this factor
is carried out in the same way of the evaluation of financing channels, with a scale from 1 to 5, from
“Extremely difficult” to “Extremely easy”.
The results confirms the difficulties of start-ups in Italy in finding employees with the needed Most
of the responses, 5 out of 7 (71%), considered “Very difficult” (rank 2 of 5) to find appropriate
employees for their start-ups, 1 entrepreneur answered with “Extremely difficult”(rank 1 f 5) and
the last one answered with “Sufficiently easy” (rank 3 of 5). It is reasonable to say that the effects of
a new kind of education more innovation- centred can be seen only in a long-time span and
consequently, in my opinion, there will be an improvement in human resource pool available to
startups in Italy in the next years.
The last factor highlighted by the survey concerns the bureaucracy faced by the Italian
entrepreneurs in Italy, concerning the creation and the dissolution procedure of an innovative
86
startup. The results evidence how the efforts devoted to make faster the process of creation of a
startup, such as trough the addition of the S.s.r.l legal form, have not improved the opinion of
entrepreneurs about the bureaucratic procedures . In fact, 5 entrepreneurs out of 7 (71%) answered
with “Inefficient”, 1 answered “Completely Inefficient” and just one entrepreneurs considered
“Sufficiently Efficient” the Bureaucratic procedures. However, those results must be analysed
carefully, as the possible explanation can be the same of the human resource availability; in fact,
due to the recent changes in the regulations about the legal forms of startups, the effects of a start-
up friendly regulation can be seen only in the long-run. There is no doubt that a stability in the
political decisions regarding startups may enhance the trust of entrepreneurs in political institutions.
The last two questions require the entrepreneurs to give their opinion about the main reasons
why the moved away from Italy and how Italy itself can become more attractive for startups.
Starting from the former question, it is important to remark that among the main troublesome
subjects such as the human resource availability and the possibility to get financed, which was
chosen by 5 entrepreneurs (71%), according to the results, also the taxation system, with 4
responses (57%), can be considered a main factor for forcing entrepreneurs to leave Italy and move
to Berlin. Other factors are the slow bureaucracy (3 responses, 43%) and, particularly interesting,
are the answers of two entrepreneurs who commented that the lack of a general culture of
innovative startups forced them to migrate. It must be said that due to the broad range of the
question, many factors, specially belonging to the psychological and social factors, might be
possible reasons of the migration of Italian entrepreneurs but, due to low number of available
responses, have not being possible to study them.
Figure 40: Factors of migration of Italian entrepreneurs
For what concerns possible solutions for improving the Italian environment for start-ups, specially
in the IT sectors, the creation of a stable political path of startup friendly regulation (3 responses,
87
Factors
3
5 5
4
2
Reasons of the migration of Italian entrepreneurs
Slow Bureocracy
Investments availability
Human resources availabil-ity
Taxation system
Innovation oriented culture
43%) and more flow of capital to startups, especially in the seed and early phase (3 responses, 43%)
are the main chosen options. However, important also is to inform young students about the startup
world (2 responses,29%) and a better supporting infrastructure network, such as cheap co-working
spaces (1 response, 14% )
I will move my attention now to the Berlin start-up scene, the subject of the 4th section of the
survey.
4.5 Berlin IT start-up environment
The analysis of Berlin touches some some factors in common with the analysis of the Italian
landscape, such as the financing channels efficiency and the human resource availability, making
possible a direct comparison of the results. It is also important to say that, for the goal of the
research, it is now possible to rely on 24 responses, a much larger pool of information compared
with the analysis of Italian environment (7 responses).
Starting from the analysis of funding channels, carried out in the same way of the previously
section, the main results are:
The private equity investments are much more efficient with respect to the Italian landscape.
In fact, 12 entrepreneurs (50%) answered with “Sufficiently efficient” (rank 3 of 5), 8 (33%)
considered “Very efficient” (rank 4 of 5) the private equity investments while only 4 (17%)
entrepreneurs considered it “Inefficient” (rank 1 of 5).
The public intervention, trough investments and supporting projects, scored higher results
both with respect the private equity investments of Berlin and with respect to Italy. In fact, 8
entrepreneurs (33%) answered with “Sufficiently efficient”, while 12 (50%) entrepreneurs
“Very efficient” and 4 entrepreneurs (17%) considered the public intervention “Completely
efficient” (rank 5 of 5). The gap with respect Italy is very large for what concerns this
funding channel.
The network of incubators and accelerators shows higher relative results compared with
Italy. In fact, 8 entrepreneurs (33%) answered with “Sufficiently Efficient”, 12 (50%)
entrepreneurs considered it “Very efficient” and the last 4 entrepreneurs (17%) considered it
“Completely efficient”. The high number of incubators and accelerators operating in Berlin
is an obviously explanation of this data.
For what concerns the crowdfunding platforms, even if the relative scores are higher than
Italy, there are contrasting results, according to the answers. In fact, 12 entrepreneurs (50%)
88
responded with “ Very Efficient”, 8 entrepreneurs (33%) “Inefficient” and 4 (17%)
considered them “Sufficiently efficient”. The gap with respect to Italy is not so remarked.
The results from the Debt financing from financial institutions in Berlin are very peculiar. In
fact, the results shows that the most chosen answer is “Sufficiently Efficient” with 12
responses (50%); however, there is an evenly distribution of 4 responses (17%) between
“Completely inefficient”, “Inefficient” and “Very efficient”. This can be a result, also, of the
small number of answers to the questionnaire.
Considering all the 120 answers concerning the financing channels of Berlin (24 answers for each
of the five factor, for a total of 120 answers), we get that the majority of the responses (48 responses
out of 120, 40%) belong to the rank “Very efficient”, while another considerable part of the answers
(44 out of 120, approximately 37%) belong to the category “Sufficiently efficient”. It is possible to
conclude that considering the overall results on financing channels, Berlin has an efficient base of
funding beneficial for start-ups.
The results are summarized in the following table:
Funding Channels
Rating Scales
Completely Inefficient
Inefficient Sufficiently efficient
Very Efficient Completely efficient
Private Equity / 4 12 8 /
Public Fundingand support
/ / 8 12 4
Incubators/acceleratos network
/ / 8 12 4
Crowdfunding platforms
/ 8 4 12 /
Debt financing 4 4 12 4 /
TOTAL 4 (3%) 16 (13%) 44 (37%) 48 (40%) 8 (7%)
Table 14: Level of efficiency of the Italian funding channels
As the previous section, the following factor analysed is the availability of human resources
for startups. It turns out that human resources are much easier to find in Berlin with respect to Italy,
as the results are evenly distributed between “Sufficiently easier” (12) and “Very easy”(12). As we
can see, the impact of migration of skilled employee to Berlin both from within Germany or from
other nations is particularly effective in giving the chance to startups to find the right skill match
employee. At the same time, the large number of Universities offering programs related to
innovation and the high numbers of technological centres are, without any doubt, an important
89
explanation of this data.
Figure 41: Human resource availability in Berlin
The next factors examined is the efficiency of the co-working spaces network,which I
described in the 3rd chapter. Using the Yes/No type of question, nearly all the entrepreneurs agree
about the efficient and the effectiveness of the coworking spaces based in Berlin. In fact, 22
entrepreneurs out of the 24 (92%) answered “Yes” , showing how the combination of a high number
of coworking spaces available to entrepreneurs as well as all the supplementary services offered by
them can be effective in enhancing the activity of entrepreneurs in an area.
Figure 42: Satisfaction about coworking spaces in Berlin
The next two factors presented are related to the effectiveness of the Italian Community “DigItaly”
in Berlin in helping Italian entrepreneurs coming in this city.
More precisely, I will take into consideration two different elements:
The overall satisfaction about the efficiency and effectiveness of the mentoring process,
supplied in large part from the Italian Community “DigItaly”; however, it includes also other
source of mentoring (e.g other entrepreneurs of different nations or informal mentoring); the
90
12; 50% 12; 50%
Human resource availability
Sufficiently easy
Very easy
22; 92%
2; 8%
Satisfaction about coworking spaces
Yes
No
answers are collected trough the rating scale, from 1 to 5, used for the analysis of previous
factors
The overall benefit achieved by Italian entrepreneurs due to the Italian Community of digital
entrepreneurs in Berlin; the question is structured as a Yes/No type of question.
Starting from the mentoring process available in Berlin, the answers from the question shows an
overall satisfaction about the mentoring activities in Berlin; in fact, 16 out of 24 entrepreneurs
(67%) care “Sufficiently satisfied ” from the mentoring activities (rank 3 of 5) while 7
entrepreneurs (33%) entrepreneurs considered themselves “Very satisfied” (rank 4 of 5) and the last
entrepreneur answered with “Completely satisfied” (rank 5 of 5) by the mentoring opportunities that
the city of Berlin and Digitaly offer to them.
Figure 43: Level of satisfaction of mentoring activities in Berlin
For what concerns the overall benefit to entrepreneurs, the results show that all the
entrepreneurs (24 out of 24) benefited from belonging to an Italian community of digital startuppers
in Berlin. This confirms the researches about the impact of micro-clusters in the entrepreneurship
aggregation phenomena.
The last three questions summarizes the opinion of entrepreneurs about Berlin; in fact, these
questions will give us informations about:
The strengths of Berlin from entrepreneurs point of view
The overall level of satisfaction about Berlin startup landscape
91
0 2 4 6 8 10 12 14 16
16
7
1
Mentoring process satisfaction
Enought satisfied Very satisfied Completely satisfied
Possible improvements of Berlin startup environment in order to be more competitive
worldwide
Starting from the first question, which was organized both in multi-option answers and an empty
box, the results shows that the two most important strengths of Berlin resides in the supporting
infrastructures (e.g coworking spaces) and human resources availability, both was chosen by 22
entrepreneurs (92%), followed by the possibility of getting financed, chosen by 16 entrepreneurs
(67%); important are also the answers of 4 entrepreneurs (17%) which identifies a comparative
advantage of Berlin in the “Innovative and inclusive atmosphere” which wraps the digital sector in
Berlin. Much less chosen was the bureaucratic and the tax system, which was chosen only by 2
entrepreneurs (8%).
Figure 44: Strengths peculiar to Berlin landscape
Italian entrepreneurs that moved to Berlin are all satisfied by their decision, according to the 24
responses of the survey. This data is very important not just for the data itself, but also because
during the process of evaluation after the decision is taken , many variables take place; if the
promises “offered” by Berlin to migrating entrepreneurs are satisfied, not only the satisfaction of
entrepreneurs increases but also the possibility to retain them in the city in he future, reducing their
propensity to migrate again.
However, several improvements still can be made for Berlin in order to be more
competitive, not only with respect to other startup hubs in Europe, such as London and Paris, but
92
22; 32%
22; 32%
16; 24%
4; 6%
2; 3%
2; 3%
Strenghts of Berlin start-up landscape
Supporting infrastructures
Human resource availability
Financing possibilities
Innovative atmosphere
Bureucracy
Tax system
also in a worldwide perspective, keeping in mind the Silicon Valley lesson and, more recently, New
York hub which history as start-up centre, in some degree, may be compared with the Berlin one.
From the last question, it is possible to grasp important information about what can enhance Berlin
start-up hub; the most highlighted improvement suggested by the entrepreneurs is the need of more
funding in the seed stage round, specially in the interval €500,000- €3m, indicated by 8
entrepreneurs (33%) as the most important improvement that can be made. Other interesting
comments come from 5 entrepreneurs which indicated as the main weak point a slow bureaucracy,
highlighting the fact that Italy is not the only nation that have yet to develop optimal procedures for
entrepreneurs.
93
Conclusions
The difficult path to success for an IT start-up, described in chapter 1, starts from a good and
breakthrough idea; in order to be able to growth, besides the new management techniques needed to
mitigate the effect of the uncertainty that resides in the inner definition of a start-up, the landscape
in which a start-up operates is fundamental to provide the basic needs for entrepreneurs. Offering
efficient funding channels, from private and public institutions, as well as a network of
incubators/accelerators and supporting infrastructures facilitate the creation of an active startup hub.
It is also important the presence of an inclusive culture among the entrepreneurs and, in a broader
sense, among the political institutions.
The second and third chapter, describing the two very different environments of Italy and Berlin,
gave us an idea of the existing gap between there two different regions, which is pronounced
especially for what concerns the funding channels and human resource availability. Both regions
have a developed network of infrastructures, Accelerators/ incubators in Italy while in Berlin also a
large number of co-working spaces. The Reorganization of the tax and bureaucratic systems are the
main concerns both Italy and Berlin. Those data were confirmed by the survey on Italian “digital”
entrepreneurs, belonging to the Italian community “DigItaly” active in Berlin, migrating towards
Berlin analysed in the fourth chapter.
However, in the end, does the success of a region, for what concerns startups, depends exclusively
on such factors? Using the same principle of the theory of the aggregation of startups near cultural
amenities, described in the third chapter, in my own opinion a key player in attracting more and
more entrepreneurs is the past successes of other start-ups, which I may call “Success amenities”. In
fact, setting startup businesses in an area in which other entrepreneurs previously succeeded, not has
an impact not only on the psychological sphere of the entrepreneur, that can see that the goal is
reachable, but also makes possible to attract more attention from investors or other institutions,
increasing the national and international attention to that area. It is not a case that the majority of the
most famous startup hubs have created their core strengths thanks to the agglomeration of
innovative start-ups after one or more successful experiences; this is the case of Silicon Valley with
Howlett-Packard, Mirabilis for what concerns Tel Aviv or Alando.de for Berlin. It turns out that
there is a loop in which past successes trigger the development of factors of success, such as the
availability of the financial resources or human resources and, at the same time, capture the
attention of public authorities.
94
Figure 45: Loop for the development of a startup hub
Public entities have an effect on the possibility to succeed by fostering the creation of an innovative
culture at a national level as well as an entrepreneurial vision, especially among young people
trough the education system. The relation between Public entities and the factors of success are
clear; in fact, the regulation about worker contracts and funding channels such as crowdfunding
platforms have a direct impact on the efficiency of those factors.
In the same way, all the factors that I analysed in this paper have a clear impact on the possibility to
create a successful start-up by helping directly the entrepreneurs and by attracting the public
attention on some precise subjects.
Because the process of creation of an innovative and successful business idea starts often from an
intuition of the entrepreneur, keeping in mind this relation, I think in my opinion that Italy, in order
to be more competitive first in Europe, should first focus on some small key areas of innovation in
which enhance the entrepreneurial activities, creating cluster that are easier to observe and
concentrate the efforts and with lower tax burdens on the first years of operations.
Moreover, public authorities should avoid putting barriers to entry in the entrepreneurial activities,
harming the passions and the talents of possible entrepreneurs which may abandon their projects or,
even worse, migrate elsewhere in order to satisfy its ambitions in another country.
Another possible and easily doable action that can be made by the political entities is to follow a
stable and coherent path of decisions regarding startups businesses, without changing completely
the attitude toward startup matters, such as temporary contracts regulations that I summarized In the
second chapter.
95
The gap with respect other start-up hubs, even though it is evident and highlighted also by the
results of the survey, is not impossible to fill; there is no “Physiological barrier” it Italy to create an
international renowend startup hub. In fact, even Berlin, before the success of Alando.de, faced the
same problems that Italy is facing nowadays, namely difficulties in finding specific employees and
lack of investments, as the international interest on entrepreneurial activities in Berlin during that
years was not very developed. Moreover, it took more than 10 years to Berlin to emerge in Europe
as a famous startup hub.
For this reason, due to the creativity of Italian entrepreneurs, proved by the number of Italian
communities of entrepreneurs in other nations, improving the entrepreneurship ground in Italy by
focusing on smaller areas of innovations will increase the chance to get a success trough an
acquisition or an IPO, alimenting the previously loop with new entrepreneurs wishing to follow the
same path.
In conclusion, Italy needs more effort by the public entities in creating micro-clusters renowned at
an international level, while at the same time, making more efficient the factors of success for start-
ups. Once one big success occurs, nothing prevents cities like Milan,Rome or Triveneto area to
become the next Berlin in Europe; in this way it could be possible exploit those innovation areas as
“innovation engines” for the entire nations while, at the same time, enhancing the creativity of
Italian entrepreneurs. In a World in which the process of digitalization is substituting, year after
year, many of traditional jobs, exploit the main beneficial effects of this “digitalization”, innovation
and entrepreneurship, of the economy is fundamental.
96
ANNEX A- Survey to Italian Digital Entrepreneurs in Berlin
97
98
99
100
101
102
103
REFERENCES
Chapter one - The Start-up phenomena
Blank S.G, “The four steps to epiphany: successful strategies for products that win”, K&S Ranch,2007, pp iiii, pp 27-33
Centre for Strategy & Evaluation Services (CSES) for the European Commission’s Enterprise DG,“Benchmarking of the Business Incubators”, 2002, pp 3-8
Chen H., Gompers P., Kovner A. and Lerner J., “Buy local?The geography of successfuland unsuccessful venture capital expansion”, Boston: Harvard Business School Publishing, 2009,pag 2
Cometto M.T and Piol A., “Tech and the City: Startup a New York un modello per l'Italia ”, AngeloGuerini e Associati, 2013, pp 66
Deloitte, Touch LLP and National Venture Capital Association (NVCA), “Global Venture capitalconfidence survey”, 2013
European Business Angels Network (EBAN), 2012 survey
Feld B. , “Startup Communities: Building an Entrepreneurial Ecosystem in Your City”, Wiley,2012
Gadja O.and Walton J., “Review of Crowdfunding for Development Initiatives”, Department forInternational Development, 2013
Hardymon F. and Leamon A. , "Silicon Valley Bank.",Boston: Harvard Business School Publishing,2001
Iruarrizaga J.H, Santos M.S, “The informal investment context: specific issues concerned with business angels”, Investigaciones Regionales, 2013, pp 180-183
Kortum S. and Lerner J., “Assessing the contribution of venture capital to innovation”, RandJournal of Economics, 2000, pag 691
Maruya A., “Running lean: iterate from Plan A to a Plan That Works”, O'Reilly Media , pag 21, 2010
Mason C.M and Harrison R.T, “Business angel investment activity in the financial crisis: UK evidence and policy implications”, Environment and Planning C: Government and Policy, 2008, pag 309
104
Massolution, Crowdfunding industry report, Massolution, 2013
Paoli L.,“Il coaching per la tua startup”, Antonio Vallardi Editore, 2014, pp 113-115
Puri M. and Zarutskie R.,“On the Life Cycle Dynamics of Venture-Capital- and Non-Venture-Capital-Financed Firms”, National Bureau of Economic Research,2008, pp 27-29
Ries E., “The lean Startup: How today's entrpreneurs use continous innovation to create radicallysuccessful businesses”, Crown Pub, 2011, pp 82,
Salido E., Sabás M. and Freixas P.,“The Accelerator and Incubator ecosystem in Europe”, Telefonica, 2013
Smith D., “Zero-to-IPO & Other fun destinations”, Cambridge Manhattan Group, 2013, pp 19-21,pp 233-235
Wang Z., “Technological Innovation and Market Turbulence: The Dot-com Experience”, FederalReserve Bank of Kansas City, 2006, pp 1-5
Wilson K. and F. Silva, “Policies for Seed and Early Stage Finance: Findings from the 2012 OECDFinancing Questionnaire”, OECD Science, Technology and Industry Policy Papers, No. 9, OECDPublishing, 2013
Chapter two- Italian IT Startup landscape
Auricchio M., Cantamessa M., Colombelli A., Cullino R., Orame A. and Paolucci E., “Gli
Incubatori d'Impresa d'Italia”, Banca d'Italia, 2012, pp 10-12
Capizzi V., “I risultati della survey 2013 e della ricerca scientifica di IBAN”, XV convention IBAN,
16/06/2013
Castrataro D. and Pais I., “Analisi delle piattaforme Italiane di crowdfunding”, Italian
Crowdfunding network, 2014
Consob regulation n°18592/2013, art 4
Deloitte, “Italy private equity confidence survey: outlook per il secondo semestre 2013”, 2013
105
Frodinzi R., Matilde M. and Guga E., “Start-ups in the Cultural and Creative Industries: Main
Criticisms in Italy”, Euro-Mediterranean Dialogue on Public Management (MED), 2013
Italia startup, “Restart Italia!”, 2013
Italia startup, “Restart Italia!”, 2012
Italian Association of private equity and venture capital (AIFI),“Il mercato italiano del privateequity e venture capital nel 2013”, AIFI report, 2013
Klau F. and Mittelstadt A., “Labour Market Flexibility”, Organization for Economic Co-operationand Development (OECD), 1985, pp 12-13
Legislation decree n° 92, 28/6/2012 Legislation decree n° 99, 9/8/2013, Gazzetta Ufficiale, art 1, comma 1-22
Legislation decree n°179, 18/10/2012, Gazzetta Ufficiale, art.31 comma 1-5
Legislation decree n°3, 27/01/2012, Gazzetta Ufficiale, Art 15, comma 1 -6 and Art 14 comma 1-2
Mind in the Bridge foundation,“Startup in Italy: facts and trend”, Mind in the Bridge Foundation2012
Mind in the Bridge, “Sorry, not everyone is born to be a startupper “, Mind in the BridgeFoundation, 2013
Piattelli U.,“Il crowdfunding in Italia: una regolamentazione all'avanguardia o un'occasione
mancata”, Linea Professionale, 2013, pag XV
Chapter 3 - Berlin startup hub landscape
Benchmarking European Service of public Transport (BEST), “2008 annual report”, 2008
BVDW / RIAS, “Die digitale Wirtschaft in Zahlen von 2008 bis 2012”, 2013
Capdevila I., “Knowledge dynamics in localized communities: coworking spaces as microclusters”,2013, pp 5-10
Falck O., Fritsch M. and Heblich S., “Cultural Amenities, Human Capital and Regional Economic Growth”, Institute for the Study of Labour, July 2010, pag 19
IBB, “2013/2014 Business Support Guide”, InvestitionsBank Berlin
106
IBB, “Digital Economy - Analysis by comparing German cities”, InvestitionBank Berlin, 13
November 2013.
Moeller K.,“Culturally Clustered or in the Cloud: Location of Internet Start-ups in Berlin”, Spatial
Economics Research Centre,pp 4-6,
Regiodata research, “Expensive turf, but with high purchasing power: London and Paris” , 2013
Salvesen D. and Rensky H.,“The Importance of quality of life in the location decisions of new
economy firms”, Center of urban and regional Studies, January 2003, pag 2
Senate Department for Economics, Technology and Research, “Berlin's digital economy”, 2013
Start-up Genome, “Start-up Genome ecosystems Report”, 2012
UBS, “annual report 2013”
Chapter 4 - Survey on the Italian Digital community of startuppers in Berlin “DigItaly”
Working Capital Telecom Italia, “Start-up al femminile”, 2014
107
Online references
Chapter one - The Startup phenomena
Airbnb facts sheet and website, http://assets.airbnb.com/press/press-releases/Airbnb%20Fact%20Sheet_en.pdf
Dave McClure blog, “ AARR metrics framework”, http://500hats.typepad.com/500blogs/2010/01/startup-metrics-for-pirates-lean-startup-circle-jan-
2010.html
Digital Agenda for Europe, http://ec.europa.eu/digital-agenda/digital-agenda-europe
Dutch incubators, http://www.dutchincubator.nl/uploads/Documents/49.pdf (retrieved on August2013)
Entrepreneurial-insights, “Startup Hubs Around The World: London”, http://www.entrepreneurial-insights.com/startup-hubs-around-world-london/
Facebook Timeline, May 3 2006, https://newsroom.fb.com/news/2006/05/facebook-expands-to-include-work-networks-2/
Forbes, “Five Reasons 8 Out Of 10 Businesses Fail”,http://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/
Statista, data on crowdfunding platforms, http://www.statista.com/statistics/251567/growth-r-of-crowdfunding-platforms-worldwide
Statisticbrain, “Startup failure by industry”, http://www.statisticbrain.com/startup-failure-by-industry/
The Economist, “Startup myths and obsessions”,http://www.economist.com/blogs/schumpeter/2014/02/invitation-mariana-mazzucato=
UCLA teaching materials, http://www.econ.ucla.edu/sboard/teaching/tech/Airbnb.pdf
Chapter two- Italian IT Startup landscape
Better Life Index, http://www.oecdbetterlifeindex.org/media/bli/documents/BLI_executive_summary_2014.pdf
Chamber of Commerce, “Registro imprese”, http://startup.registroimprese.it/report/startup.pdf
108
European Commission Eurostat,
http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Unemployment_statistics
Fondo Italiano d'Investimento, http://www.fondoitaliano.it/Simest, http://www.simest.it/page-en.php?id=25
H-farm, http://www.h-farmventures.com/en/who-we-are-2/
I3P, http://www.i3p.it/
Il Sole 24 Ore, “Le Startup vorrebbero assumere ma non trovano competenze”, 2014,http://www.ilsole24ore.com/art/tecnologie/2014-05-26/le-startup-italiane-vorrebbero-assumere-ma-non-trovano-competenze-153103.shtml?uuid=ABK51LLB”
Il Sole 24 ore, “Piano Renzi, le nuove regole per i contratti a termine: rinnovo senza causale fino a 8volte in tre anni”, http://www.ilsole24ore.com/art/notizie/2014-03-14/piano-renzi-ecco-regole-i-contratti-tempo-determinato--165432.shtml?uuid=ABX5062
Italia startup, “Equity crowdfunding”, http://www.italiastartup.it/wp-content/uploads/2013/08/equity_crowdfunding_1.pdf
LUISS Enlabs, http://www.luissenlabs.com/program.htmlStart cube, http://www.startcube.it/?page_id=128
Pmi, “Il contratto a tempo determinato dal 2013”,http://www.pmi.it/impresa/normativa/articolo/61059/il-contratto-a-tempo-determinato-dal-2013.html
Pmi, “Come aprire una Srl: le diverse società a responsabilità limitata”,http://www.pmi.it/impresa/normativa/articolo/58001/come-aprire-una-srl-le-diverse-societa-a-responsabilita-limitata.html
Pmi, “Descreto svilupo, startup innovativa: requisiti ed agevolazioni”,http://www.pmi.it/economia/mercati/articolo/59182/decreto-sviluppo-start-up-innovativa-requisiti-e-agevolazioni.html
Strategy, Entrepreneurship, Innovation (STEAN) - University of Trento:http://events.unitn.it/en/stein-lab
Studio Legale Righetti, “Riserve” ,ttp://www.studiorighetti.it/wp-content/uploads/2012/04/RISERVE.pdf
Studio Legale Savia, “Costi di Costituzione di una Società a responsabilità limitata semplificata”,
109
Technest, http://www.unical.it/portale/portaltemplates/view/view.cfm?20700Strategy,
The Economist, “Les Miserables”, http://www.economist.com/node/21559618
Chapter 3- Berlin startup hub landscape
AngelLIst database, https://angel.co/berlin/investors
Berlin job coaching webpage, http://www.gsub.de/en/projects/labour-market-and-employment-policy/job-coaching-in-berlin/
Berlin start, http://www.ibb.de/gruenden/Berlin-Start.aspx
Bethahaus homepage, http://www.betahaus.com/berlin/
Comovis, http://www.comovis.de/
Coworkingde, http://coworkingde.cloudcontrolled.com/
Delivery Hero, Press release, http://www.deliveryhero.com/delivery-hero-raises-another-350-million-to-continue-strong-growth
DIW Berlin, http://www.diw.de/en
Entrepreneur handbok, “Incubation centres”, http://www.entrepreneurhandbook.co.uk/incubation-centres/#mg_cd_incubation-centres
Fraunhofer-Institute, http://www.hhi.fraunhofer.de/fields-of-competence.html
Fraunhofer-Institute for Open Communication systems, http://www.fokus.fraunhofer.de/en/fokus/institut/was_ist_fokus/index.html
Fraunhofer- Institute for Reliability and Microintegration,http://www.izm.fraunhofer.de/en/business_units.html
Fraunhofer- Institute for Production Systems and Design Technology,http://www.ipk.fraunhofer.de/en/divisions/
Fraunhofer- Institute for Softwares and SystemsEngeneering, http://www.isst.fraunhofer.de/en.html
The Europas Awards, http://theeuropas.com/
“Exists” , http://www.exist.de/
110
Gründerszene datenbank, data retrieved on 30/08/2014ttp://www.gruenderszene.de/datenbank/orte/Berlin
Institute of Electronic Business, http://www.ieb.net/
Institute for Media and Communication Policy, http://www.goethe.de/wis/fut/prj/for/med/en4890466.htm
InvestitionBank Berlin (IBB), http://www.ibb.de/
Leibniz Ferdinand-Braun- Institute, http://www.fbh-berlin.de/willkommenPaul-Drude-Institute, http://www.pdi-berlin.de/en/home/
Pro-Fit IBB, http://www.ibb.de/gruenden/Pro-FIT.aspx
SoundCloud, https://soundcloud.com
StartupBootcamp, http://www.startupbootcamp.org/how-it-works/accelerate.html)
“Start-chance” project, http://www.ziz-berlin.de/startchance.html
StartupsFM, “Berlin City Beat – The Ultimate Guide for Those Who Wish to Startup in Berlin”,http://startups.fm/2014/01/09/berlin-city-beat-the-ultimate-guide-for-those-who-wish-to-startup-in-berlin.html
T-labs, http://www.laboratories.telekom.com/public/English/Pages/default.aspx
Techlist, incubators in Paris, http://techlist.in/paris/incubators
Underground subway of Berlin, Berlin.de, http://www.berlin.de/en/public-transportation/1742343-2913840-underground-subway.en.html
Wall Street Journal, “Purchase of Germany's Alando.de Expands eBay's Global Presence”, June1999, http://online.wsj.com/articles/SB930088782376234268
Wall street Journal,“Google Launches The Factor, a Berlin Start-up Incubator”, June 2014,http://blogs.wsj.com/digits/2014/06/12/google-launches-berlin-startup-incubator-the-factory/)
Wall street journal, “Delivery Hero Raises $350 Million, But No Plans For Expansion Into U.S”,September 2014 http://blogs.wsj.com/venturecapital/2014/09/03/delivery-hero-raises-350-million-but-no-plans-for-expansion-into-u-s/
Wall Street Journal, “Berlin Needs Exits to Bolster Tech-Hub Case”, August 2013 http://blogs.wsj.com/tech-europe/2013/08/14/berlin-needs-exits-to-bolster-tech-hub-case/
Weierstraß-Institute , https://www.wias-berlin.de/?
Wikipedia, List of Unviersities, Colleges and research institutions in Berlin,http://en.wikipedia.org/wiki/List_of_universities,_colleges,_and_research_institutions_in_Berlin
111
Wired, “GO TO: Berlin”, 2010, http://archive.wired.com/wired/archive/8.11/berlin.html
Wired, “Inside the clone factory: The story of Germany's Samwer brothers”,http://www.wired.co.uk/magazine/archive/2012/04/features/inside-the-clone-factory
Wista Science and Technology park, http://www.adlershof.de/en/wista-management-gmbh/about-us/
Zuse- Institute Berlin, http://www.zib.de/de/home.html
Chapter 4 - Survey on the Italian Digital community of startuppers in Berlin “DigItaly”
DigItaly facebook group, https://www.facebook.com/groups/digItalyBerlin/?
112
