Yozma and Italy – Why copying Israel’s VC cluster is unlikely to be a good idea

On his blog at il sole 24ore Gianluca Dettori recently pointed to a new proposal for VC in Italy. The gist of the purpose is to create a fund of funds with a mix of public and private money. The proposal is nicely summed up here and the idea is clearly to create an Italian parallel to Yozma, which was fundamental in creating Israel’s thriving VC and high-tech clusters.

VC getting more love and attention from politicians is very nice, however there are in my opinion several reasons why the “let’s make an Italian Yozma” is unlikely to be an ideal approach. (disclaimer: I don’t follow Italian politics, so if you believe my assertions below are wrong, please point it out).

First of all, it is a traditional cause-effect fallcy within public planning to observe a successful effect in one context and trying to replicate it without thinking more about all the underlying causes. This is similar to why many companies have failed in trying to copy the Toyota Production System. They observe that any employee can stop the entire prodution line by pulling a chord and then the problem is traditionally resolved quickly, so the key to lean production must be to install this system. However the system works because of all the tacit knowledge, trust and mutual understanding between the workers and therefore it is extremely difficult to copy and require a change in all the underlying processes that lead up to the “pull the part chord”. The similarity to the VC system is the countless and failed attempts to emulate Silicon Valley and just like I consider it unlikely that Italy can successfully copy Yozma, the people behind this proposal should start somewhere else and study the conditions in Israel when Yozma was launched.

Before Yozma became world famous they had the Inbal program which was a similar approach that suffered from problems such as too much bureaucracy, low upside and difficulty to attract good VCs. If an initiative in Italy is going to work there has to be a compelte minimum of bureaucracy, and the state has to acknowledge that private VC fund managers have to have an upside and might become very wealthy if the fund is successful. Paricularities of Israel, that I doubt are present in Italy:

  • A strong domestic military indusstry. A lot of Israel’s successful startups had a background in the military industry.
  • Office of the Chief Scientist (OCS). Excellent capabilities in applied sciences and a generally the OCS was a very respected and admired  institution.
  • Tech-heavy foreign multinationals such as Intel, IBM and Motorola.
  • Immigration in the form of thousand of highly skilled engineers and scientists.

Another aspect that is critical is that the Yozma program was seen as the third phase of the VC industry lifecycle which began with the background being set in the 1970. You therefore can’t ignore what happened in the 20 something years leading up to the Yozma program and instead Italian policy makers should study this period and find out why conditions in Israel were ripe for a VC cluster. Particularly, the experience from Israel also showed that there needs to be a critical mass of high-tech entrepreneurs before a VC cluster can successfully emerge, and as much as I wish this was the case in Italy, I think we are at least a decade from where Israel where when Yozma was launched. A good start would be to educate more engineers and scientists and make Italy more open to the best immigrants in these disciplines.

If you want to read more in detail about the the co-evolution of Israel’s high-tech and VC clusters, I co-wrote a paper about this two years ago. I couldn’t embed it but you can read it here.

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Posted: oktober 6th, 2010
Categories: Italy, VC
Tags: , , ,
Comments: 2 Comments.
  • http://twitter.com/io_floriano Floriano Bonfigli

    Hello Jasper,
    thanks for sharing your deep understanding of the matter. Moreover, it’s always interesting to me listening to a foreigner giving their point of view on Italian matters.

    You are quite right when you say we need a critical mass of high-tech entrepreneurs before a VC cluster can successfully emerge in Italy, rather than the other way around.

    Well, I think we have quite a mass of high-tech people instead. Where can you find them more easily? Do not look for garages as you would do in the US, the average Italian fresh graduate and post-graduate has no idea how to turn their very deep technical knowledge and thesis into a business. Do not either go to university labs, unfortunately. Instead, visit the gazilion of medium, small and very small family run enterprises spread all around Italy. They have already got a product or service and, of course, they have also got their (small) business up and running. Tell them there is something more than reaching a wealthy life for them and their descendants. Tell them they could aim really higher with some little advice and private money investors. They should be taken as our start-up environment. And that found of founds would probably make more sense.

    Meanwhile, we all are looking forward to a revolution in the academia, to a couple of US multinationals setting up their R&D labs here rather than in some emerging market and last but not least to the international creative class learning Italian in order to be able to move and work here…

    Ad maiora,
    Floriano Bonfigli.

    PS: Actually, there is something more. I’m working with a colleague of mine who’s collecting and crunching open data (!) on Italians owning international patents. At the moment, we are focusing on Le Marche region, where we live and work. We have already counted them, I mean the people. Now, we want to see how they are geographically distributed. Of course, we know where our universities, industrial districts, best places to live and multinationals (!) are located. Therefore, as you can imagine, we want to look at possible interactions between those people, the time line and the environment around them. Very first finding is that the amount of people owning international patents in Le Marche is quite high. And this is telling me, once more time, that we do have high-tech people around. We have to help them to become entrepreneurs, i.e. people who creates wealth for them and the community.

  • Anonym

    Hi Floriano,
    Thank you for your comment and your interesting perspective.

    I can see what you mean that it makes more sense to take all the small Italian enterprises as a starting point instead of trying to create new structures from scratch.

    However, I also think that an important disctinction has to be made between clusters and high-tech cluster. Italy have many of the former but severely lacks the latter as I see it.

    I really like the idea of adding technology to a lot of small Italian firms and I think that could go a long way, but what are the reasons they haven’t shown interest in this before?
    The anecdotal evidence also shows that it is very difficult to get any meaningful role in this family firms if you’re not part of the family, so in that way, I think their main scarcity could be qualified management talent? At least from a personal perspective I wouldn’t take a job where you need to have a certain surname to be promoted.

    Another potential issue I see is that there is a big difference between many Italian SMEs working with something very tangible (furniture, fashion, industrial machinery etc) and the shift for these people to use cloud computing, CRM systems etcm which are more intangible and difficult to wrap your head around.

    Otherwise what do you see as the reasons these firms are not doing more to grow and take advantage of the technological progress?