Benedetta L. Romani
1. Brief history and definition of Venture Capital;
2. Corporate structure and operation;
3. Italian contest
4. Main European players and relationship with EU
5. New sector of investment and conclusions
History of Venture Capital
1946 = first two venture capital firms:
2. J.H Whitney & Company ;
1960/1970 = Venture Capital as e synonymous with
1980 = declining returns caused by the growth of the
1990/2000= The Venture Capital Boom and the
It’s a private funding used to support risky new
business and speculative ventures, usually with high
A typical venture capital investment usually involves
the business owner giving up equity to venture
capitalist in return for funding.
Venture Capitalists and
Venture Capitalists are investment firms that makes
venture investment, providing capital for start-up or
They are looking for higher rate of return, bringing
their managerial abilities to small businesses with
great potential growth.
Business Angels are private investor with huge
personal capital, looking forward to invest their
money in business which are not helped by financial
institutions because are too risky.
Venture Capital Firms
Venture capital firms are typically structured as
This comprises both high net worth individuals and
institutions with large amounts of available capital, such
as state and private pension funds, university financial
endowments, foundations, insurance companies, and
pooled investment vehicles, called fund of funds or
VC firms in the United States may also be structured as
limited liability companies, in which case the firm's
managers are known as managing members.
Venture capital funding
Venture capitalists are typically very selective in deciding
what to invest in;
Funds are most interested in ventures with exceptionally
high growth potential,providing the financial returns and
successful exit event within the required timeframe
(typically 3–7 years) that venture capitalists expect.
Young companies to raise venture capital require a
combination of innovative technology, potential for rapid
growth, a well-developed business model, and an
impressive management team.
Venture capital funding
This sheme meets businesses having large up-front capital
requirements which cannot be financed by cheaper
alternatives such as debt.
Intangible assets such as software, and other intellectual
property, whose value is unproven,explains why venture
capital is most prevalent in the fast-growing technology and
life sciences or biotechnology fields.
Venture capitalists are expected to nurture the companies in
which they invest, in order to increase the likelihood of
reaching an IPO stage when valuations are favorable.
According to the development of the company, there
are three types of financing with venture capital:
2. Expansion and development
3. Acquisitions and restructuring
To analyze these points, they can be divided in several
subgroups in order to stress the fact that every step
in a company lifetime involves a different approach
by venture capitalists.
Time of exit from the firm’s capital is almost never
predetermined, but depends on the development of the
In successful cases, divestments take place when the
company has reached the level of expected development
and the value of the company and thus the membership,
has consequently increased.
Disinvestments happens when the conviction that is no
more possible to solve the situation created takes hold.
How to disinvest?
There are several ways of disinvestment, depending
on the type of business and operations previously
put in place and on results achieved. Typical
channels used by investors to sell shares in their
1. the IPO of the subsidiary titles
2. sale of the securities to another firm or to another
3. the repurchase of the participation by the original
4. the sale to new and old members, resulting from the
merger of several companies in the meantime
Just an overview of the
enviroment in Italy:
In italy small conpanies are 4 milions and they
repreasent 99,9% of the companies in Italy;
81,7 % of the employes in italy are emploied in small
Importance of industrial district in Italy:stream of
small companies that are emploied in each stage of
the production.(Ex:knitwear in the district of
Carpi,engine components in Modena)
Small companies in Italy can be defined
as having three main characteristics:
• Companies are not quoted on a stock exchange –
they are “unquoted”
• Ownership of the business is typically restricted to a
Family connection between the shareholders
Why do small companies in Italy find
financing a problem?
Small companies rarely have a long history or
successful track record that potential investors can
rely on in making an investment;
Larger companies can easier have access to the
Banks are particularly nervous of smaller
businesses due to a perception that they represent a
greater credit risk;
Why do small companies in Italy
find financing a problem?
A common problem is often that the banks will be
unwilling to increase loan funding without an
increase in the security given.
Problem of uncertainty relates to businesses with
a low asset base. These are companies without
substantial tangible assets which can be use to
provide security for lenders.
How a small company in Italy could
finance their buiness:
- Existing shareholders and directors funds (“owner
- Overdraft financing
-Business angel financing
- Venture capital
- Factoring and invoice discounting
- Hire purchase and leasing
- Merchant banks (medium to longer term loans
Focus on high potential growth small companies;
It makes research on the company and it builds a
business plan fot the small company;
Often venture capitalists buy company and after
restiring them,they sell them at an higher price.
A business angel is an affluent individual who
provides capital for a business start up;
Usually in exchange for convertible debt or
A small but increasing number of angel investors
organize themselves into angel groups or angel
networks to share research and pool their
Business angel activity
Italian small company
that analize the business
producing clothes plan
Clothing producer needs cash to The menbers of the association
buy a machine for special analyse the business plan of the
The machine costs 20.000 euro The company falls in a basket with
and the company needs money to other purposes of business plans;
buy it; Our company show sthe own plan
The banks turned down to lend
money because the company The association can decide to
doesn’t meet the requirements.(low catch or drop the investment;
asset value) If the angels decide to finance
it,the company will be a part of a
The small company needs an
angel; basket of investments that the
menbers will enjoy;
Venture Capital Investment in Europe
: differences between Germany and
These two countries are very important in Europe:
they account for over 50% of all venture capital
investments in the Continent.
The spread of two countries is due to, most of all, the
difference in their financial system:
Germany is Bank-oriented while
UK is Market-oriented.
GERMANY UNITED KINGDOM
Similarities between Germany
and The United Kingdom
In both countries venture capital funds provide
funding to companies in all stages with a sligh bias
towards later stages of development.
Also the distribution of investments across industry is
surprising similar: manifacturing and chemicals are
relatively more popular.
European Institutions and venture
• 1998: The Commission published several documents
in order to create a “Pan-European Equity Market”
for innovative companies.
• In the same year was created the EVCA (European
Venture Capital Association) tend to focus on the
supply of funds and on the creation of favorable
structural conditions for enterpreneurship.
Eurpean Venture Capital
It is the largest private equity and venture capital
member association in the world, with over than
It caters for: investors in university spins-out;
venture and grown capitalists;
corporate venture capital
mid-markets and larger buyout
miriad advisory members. 24
The European Investment Fund
In 2000, the Commission restructured the EIF (Euopean
Investment Found) that provides portfolio guarantees to
financial insitutions involved in SME finance.
The EIF offers:
Equity products: Debt products:
1. Technology Transfer; 1. Credit enhancement-
1. Lower mid-market;
1. Venture Capital. guarantees.
Programming Period 2007-
Competitiveness and Innovation Framework Programme (CIP):
this programme aims to facilitate access to loans and equity
finance for small-medium enterprises where market gaps have
• Risk capital for innovative SMEs in their early stage:
EIF can invest 10 to 25% of the total equity of the intermediary
venture capital funds, or up to 50% in specific cases;
• Risk capital for SMEs with high growth potential in their
espansion phase: EIF can invest 7.5 to 15% of the total equity
of the intermediary venture capital funds, or exceptionally up to
New Sectors of Investment
Germany 38.68% Solar 33.22%
United Kingdom 5.79%
Wind Energy 46.35%
an opportunity to catch for
Venture capitals put their eyes on renewvables
They sat special teams or branches to focus better
on this special kind of investment;
U.S and Europe kept investing a lot over the years
on this new market in order to find new sources of
opportunity to catch for the
Three reasons of attractiveness :
1. Governments keep increasing deregulation of the
2. Enviromentalists put the attenction on the need of
the world of new sources of energies;
3. Increasing costs of the oils.
• Venture capital energy companies invest on projects
long the value chain,focusing on two directions:
1.Increasing efficiency of the energetic system;
1.Decreasing the use of fossil fuel put down the values
of the pollutions.
In recent years
2006:venture capital invested $7.4 billion on
renewvables energies winth an increasing of 146%
respect the last year;
2008:in the last mounths of the year a drop in the
2009/2010:investments increase again supported by
the developing countries (China)and U.S.
Sectors of investment
Solar and geothermal energies represent two fixed
points for investments;
By the way, in recent years wind energy became the
top ranking, achieving the status of most actractive
technology among renewvables energies.
What happens in Europe?
Europe is one of main area where the VC
investments on renewvables energies sat;
Europe represents the 30% of total investments in
the world, concerning this sector;
Large stage Early stage Borning stage
65% 20% 15%
From the previous table we noticed that venture
capitals prefer to acquire energy companies that
already own high skills;
This tendency is becaming quite the opposite in this
last years because of the improving of new
technologies that allow to manage better the risk of