News for november 2010

If you want to be a high-tech entrepreneur in Italy you have to be in Milan or Rome

This is going to sound hard and I’m sure some people will disagree, however I will elaborate on why it will improve everybody’s chance of success to concentrate high-tech entrepreneurship in Italy in Milan and Rome. The 20 VC investments made last year in Italy, are already highly concentrated particular around Milan and Rome, so the reality already matches my suggestion.

What it meant when talking about an ecosystem is that there has to be critical mass of activties to support new high-tech ventures so in turn there will be increasing returns to being in a certain location. Firms do not exist in a vacuum and they rely on advisors, lawyers, accountant, investors, suppliers and of course employees.

While it is true that web startups can be build virtually today face-to-face interaction is still essential and investors are most likely to invest in companies they can visit within a couple of hours. The most respected incubators like Y-combinator and Techstars also bring people together in a specific place and for the few success stories of virtual startups, the rule is still that co-location fosters transfer of tacit knowledge, something that doesn’t happen much via skype.

What is the way forward then?
As I have argued before, Italy needs a larger pool of potential entrepreneurs to select from and an excellent approach that I admire, is that taken by Fabrizio Capobianco and Funambol which has their business development in Silicon Valley and R&D in Italy. This means more technical people who are exposed to the nuts and bolts of a startup.
Two other initiatives I believe should get much more attention is making the startup scene much more international and focus much more on immigration, particularly from Eastern Europe and South America where Italy can offer higher salaries and quality of life.
The important thing though, is that every regional politician does not want Catania or Bologna or etc. to become the hub for high-tech entrepreneurship. Fragmentation is not going to help and both Milan and Rome are great and vibrant cities to live in, so Italian’s must forget their idea that their home town is the only place in the world to live and move to where the action is.

There are a lot of good intentions in Italy and I think that things are slowly moving in the right direction, however instead of each region trying to become high-tech clusters Italy must make an overall decision for the common good and encourage all aspiring entrepreneurs to go to either Milan or Rome the financial and state capital respectively which both have a good mix of institutions already in place.

P.S There are great companies such as Balsamiq and Yoox that have come out of Bologna, however Milan and Rome remain the two most obvious choices as I see it.

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Posted: november 25th, 2010
Categories: Italy, startups, VC
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You don’t need to know anybody – Italy is full of good fellas

I find that a reason for why people in italy stay away from starting things is a misconception that they have to have some super-wealthy family or be very well-connected with a lot of influential people. In my experience this hasn’t been true at all and I would like to share how I have gotten many interesting people to listen to my startup idea because the recipe is very simple.

About a year ago two friends of mine and I got the idea to start an online discount mobile operator in Italy. It’s quite an ambitious idea since you essentially would be competing against Vodafone, Wind, TIM and 3 Italia (also called MNOs), but we had seen it work in Denmark, so we knew it could work. As I have written about here our professor was not very supportive of the idea but we wanted to give it a shot. I followed a guy on twitter who blogged about telecom and who turned out to work for one of the Italian MNOs. From twitter I emailed him more details about our project and he ended up introducing us to the most senior guy at his firm which was relevant for our project. From that point on we have continued negotiations and are still in contact.

In terms of investors and people from the startup environment, I was lucky to meet some investors through our course. Additionally, I really liked what Stefano was doing at www.thestartup.eu so I emailed him an we met a couple of times and through him I have been introduced to some great people and pitched my project to dpixel where he works. Additionally, a guy Stefano and his firm introduced me to has formerly held key management roles at three of Italy’s four MNOs and is now a very helpful advisor.

At conferences like “mifaccioimpresa” and Milan Startup Weekend, I have also met interesting people. Although introductions work best don’t be afraid to approach the people you meet at these kind of events. Most people, and this goes perhaps particularly for successful people are usually very friendly and are glad to help young entrepreneurs if they can. They have been in the situation you are in, and appreciate how much help and advice can mean.

As i said the recipe for this is really simple: Be very well prepared and try to be convincing. You’re selling your idea and you must convince people that you are going after something relevant and feasible. Also be friendly and flexible. Many people are busy and first impressions last a long time so if you haven’t done your homework and don’t know the market or your competitors or your business model you wont be taken seriously.

It’s fair enough to have blind spots (e.g I still don’t know a lot of things related to the technical aspects and telecom regulations) but be upfront about them and how you are going to solve them. In our case a mobile operator is really a lot of marketing and the legal aspect not even lawyers are sure about, but if you are honest about what you don’t know your can avoid unpleasant surprises later on.

Overall it should be clear that we have spent a lot of time seriously putting together convincing reasons for why an online discount mobile operator is a good idea and could be a good investment, we really haven’t done anything extraordinary but that, to meet a lot of interesting people so there is no reason that you shouldn’t be able to do the same, if you have an good idea and a compelling reason for why you are the right people to execute it. Take my word for it, Italy is full of nice and supportive people that are doing what they can to help people start something cool, you just have to be proactive and persistent to find them and get in touch with them.

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Posted: november 19th, 2010
Categories: Italy, startups, telecom, VC
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Why and when employees leave succesful companies like Google and Facebook

Often it can seem strange why people leave very successful technology companies and startups like Google or Facebook. Often they leave to start their own companies and this phenomenon called entrepreneurial spawning has been investigated closer in a big study of US firms which also has relevant implications for European policy makers who want to foster high-tech startups.

You can find the paper in its entirety here, however the paper looks at employees who leave public companies to start their own VC-backed companies and they use data from more than 5.000 firms and 15.000 founders, and I will focus more on their results and the implications.

  • Companies that were either based in Silicon Valley or Massachusetts and that were once VC backed them selves are most likely to spawn new firms (results control for firm size, patent portfolios and industry)
  • Diversified firms spawn less new firms. Employees in diversified firms are less entrepreneurial
  • Spawning is closely related to growth. There seems to be a natural size limit to how big VC-backed companies can get before employees leave to start their own companies. This is what is taking place with the employees leaving from Google to Facebook, and based on this, Facebook might have the same problem in a couple of years when their grow slows down or they go public and employees can cash in their stock options.

The implications of the findings are relevant for a country like Italy that is still a developing country in terms of high-tech entrepreneurship, because they clearly demonstrate that universities are not the only source of founders of innovative companies, but public companies who have themselves received VC might be a great source of new firms. So instead of trying to copy Stanford, Italy would do well to attract existing technology companies and have them setup offices particularly in either Milan or Rome. The study also finds that entrepreneurial activity in a particular area has increasing returns so instead of each region trying to attract innovative entrepreneurs, Italy has to focus on one or two regions which can realistically achieve critical mass of the know-how related to new high-tech firms. This is well-known however, a lot of regional politicians often get in the way of this even though it is completely unrealistic that Italy will have innovative high-tech clusters in Calabria, Sicily, Trieste etc.

So what should Milan do in concrete terms? A visionary plan for e.g. Milan would be to double the number of high-tech employees in Milan by 2015 and attract 3 large foreign technology companies to set up offices in Milan. In the long run, such initiatives might be very good incubators for future entrepreneurs.

PS. A very interesting observation related to entrepreneurial spawning, is that there seems to be consensus (on Quora at least) that no succesful startups have been founded by ex-googlers. For a concrete example of why companies like Facebook play an essential role in spawning new innovative startups take a look at this list of employees that have left the company within the last three years.

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Posted: november 2nd, 2010
Categories: academic papers applied to the real world, startups, VC
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