E351 | Andrea Di Camillo, P101: The evolution of Italy's venture ecosystem

0:00Welcome back everyone to another episode of the European VC podcast. Today I have Andrea DiCamillo founder and managing partner of P101 with me. P101 is one of the Italian. of the Italian ecosystem. They are now on Fund 3, and their Fund 3 is$250 million. They have a total AUM of$400 million, and they are headquartered in Italy. They are focusing on, say, 70 % in Italy and 30 % in Europe and the US. Target sectors are anything from enterprise software, deep tech, health tech, fintech, energy transportation, and food tech. So almost what you would call a generalist investor. They've made some notable investments, including 1000 Pharmacy, Cassavo, Cotilia, Cyber Guru, Depor Village, Fat Map, Habit, Musics Match, Musman, Tanico, Velasca.

0:52And I think that you just heard some of my best Italian accenting in there right now. So as I said in the beginning, this is with an OG of the Italian ecosystem. He has been in venture since 1995, I believe it is. So definitely the right person to tell us everything about the Italian tech landscape today. Here's a few words from our beloved sponsor. This episode is brought to you in partnership with Zero 100 Conferences, which organizes networking events connecting LPs and GPs in private equity and venture capital firms across Europe. This will be the fourth and final chance in 2024 to connect with investors from the largest firms worldwide following successful events in Vienna, Amsterdam and Prague.

1:37Their upcoming event, 0100 Conference Mediterranean, will take place in Milan from October 28th to the 30th at Palazzo Mezzanotte. Attendees will include major LPs and GPs like the European Investment Fund, Taikao Capital, Vencap, Arcano Partners, Amandi Alpha Associates, P101, United Ventures, Merseyside Pension Fund and many more. Yeah, baby! save the date, October 28th to the 30th at Palazzo Mezzanotte in Milan.

2:20United and determined we can serve as a model for other regions of the world. The nature of a problem requires a European response. Europe is a story of new beginnings, new, new beginnings. Let's start acting, acting, acting, acting. This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Andrea, welcome to the European VZ podcast. Hi, thank you Andreas for inviting me here. Of course. So today we're going to dive into very much the Italian ecosystem as well as also a bit what you're doing with AI and data inside P101. But before we go there, I just want to ask you one thing, and that is P101.

3:09The story behind that name, that's something that Joe Schorch from Isma Capital told me about, as I thought I'd ask you. So it's a super interesting question just because our name stands behind a very Italian story. And that's the reason why we picked this name. P101 stands for Programma 101, which is a story that most of the people forgot, at least has been forgotten till, let's say, till we started 10 years ago. and is the name of the first commercially available personal computer ever built that has been built by Olivetti back in 1962, if I'm not wrong. And so if you may ask to anyone, when do you think the personal computer has been built and who built it, probably you would get the answer.

4:02IBM in the 70s, HP, Compaq U, names that don't exist anymore. The real story is that Olivetti, an Italian company, built it. And by the way, Olivetti, which is another interesting story about that company, is that it has been the first corporate having a corporate and venture capital program in the Silicon Valley. So way before any other very well-known US tech brand. So obviously we had to go for a name that was reconnecting what we want to do with our venture capital activity with this very specific Italian story that was a global story. Started in Italy, but was a global story. And so that's where our brand comes from.

4:54And that's exactly what we're going to talk about today. Where is Italy on this journey to becoming a global tech player? It's also what you're talking about at the Ciro 100 conference in Milan. You're there joining a panel on the PENVC environment in Europe and the Mediterranean region, current state and future perspectives. Today, I don't want to go Mediterranean. I want to focus more just on Italy because it's not something we've been covering too much here on the European VC podcast. I can say, though, that I joined a couple of different panels and conversations on the Italian ecosystem last year.

5:35And I was then, you know, polling some people. What do you think is going on? And kind of unanimously, most people came back and said, well, not too much. And what was funny was that, of course, that's not what the Italian players said. But what's funny is then now, one year later, more or less, you have a lot of big announcements coming out of Italy, actually. And I was like, what happened since? So that's pretty funny. I do think that it was something that was also on the move last year. I just think that outside of Italy, we maybe hadn't noticed it too much. Just to give some stats, the Italian VC ecosystem has seen their investment rise from 152 million euros in 2013 to 1.1 billion euros in 2023.

6:24But I'd love to ask you, this is a sevenfold increase. What do you think have been the core drivers of that? Oh, there's very, very many things to say behind these few numbers. So first of all, the main driver somehow has been the stories that we have been seeing starting from Italy over these 10 years. So local investors, because we're still missing of international investors, but local investors, first individuals, then private, then institutional investors, started seeing that Italy was a good place to invest as well. because startups and tech startups are companies. So we don't miss any talent or tech understanding or anything that a tech ecosystem would need.

7:22So this started happening back in 2013. And over the past 10 years, basically, we started seeing real companies, tech companies, some exits that justified local investors starting putting some money. Obviously, the very bold thing that we should say is that can you build a real ecosystem, a tech scene, how can I say, a strong cycle for creating global companies in 10 years? I don't think so. So venture capital is a very long-term investment cycle asset class. Obviously, because for many reasons that probably we don't have the space or the time to discuss now, but people is always, and investors specifically, are always looking for something of an immediate effect.

8:26So I'm investing money today. I want to see an outcome tomorrow. We are investing in things that takes 10 years to just become something. So I will tell you some names along our conversation, but one of our most successful investments is a company that started back in 2011 and today is becoming a super interesting company with global footprint with an amazing growth trajectory. But it took nine years to understand that that company could go in the direction that it's doing now. So again, what's happening in Italy is that we just came after a first cycle when now we can start saying, okay, there's some money, there are a lot of entrepreneurs, there are a lot of talents, There is a lot of elements that are combining together to make this a place as any other economy where we can have leading tech companies of tomorrow.

9:39But 10 years is still a very limited amount of time to define if we have been successful or not. What I can say is that as P101, we have a decent amount of information to say that we returned our first fund, we returned some money and IRR. We did have very good exits. But is this saying that Italy is the next Silicon Valley? Not yet, but not yet because we cannot do it because we need time and time is more relevant than money. And that's the big point. So I think that in the investment culture in general, but in Italy specifically, we still don't have this, let's say, idea of patient capital because we want to have everything immediate and today.

10:39And it doesn't work when you have to create a company. Because again, technology is a super strong opportunity and enabling factor, but you're still investing in companies. And so companies, you cannot create companies overnight. You have to create the product, the technology, adapt to a market, go international, find the money, build a corporate governance. hundreds if not thousands of elements that have to combine together to have a company that then is going to be relevant. If you don't have time, you can't do that. When I listen to stories where there are super successful exits in two, three, four years, I'm super happy.

11:26We had some, but those exits are not about companies. Those are about products, great teams, great technology. Those are not yet companies. And so again, back to your question, we are in a super interesting journey. The direction is the right one. We just need more time, not just money. A lot of time, ourselves did so a few times, saying, oh, we would need more money. Obviously, money helps, but it's not just about money. It's about time. Yeah, that time is very much both to grow what has already started, but also, I guess, continue the push on this entrepreneurial activity that you're seeing both from researchers and graduates, but also are you seeing corporates or employees from corporates also spinning out more?

12:23Do you see an increase in that activity as well? We do see some, but you named something that is still a little bit missing in our combination of factors that we need to grow this journey that we are talking about. And we're still missing local corporates and in general corporates talking to the venture capital backed ecosystem more. So in the past 10 years, we've seen something happening. Ourself again, we did some very nice divestment in favor of some very well-known corporates. But still, it's not something that is happening regularly. So the corporate is still an alternative to what we do.

13:20so there's venture capital there's startups these new crazy young guys doing crazy stuff and then on the other side there are corporates these two say words still have to collapse and talk to each other a little bit more so back to your question yes we are seeing experienced manager young or senior ones exiting from corporates to start their own businesses. But it's still something episodic where you say, oh, there's one that came and it should be very much more normal and a regular thing. So if I have to say something that is missing here, differently from other European regions, such as France, to name one, which is very close to us, is the corporate involvement in what we do.

14:18Because many times you have this storytelling about startups that seem that startups are something that have born small and stay small and is kind of a play game for young crazy guys. And corporates are the serious stuff. So we need to change this storytelling in a way that, okay, the new company of today is the big company of tomorrow. Any Campari, Gucci, Fiat, Ferrari, any Italian large corporate of today has been a startup. And many times, existing entrepreneurs, experienced managers don't make this connection. And that's the point why also many times a manager that is pursuing his own career in a corporate is not yet so inclined to start his own business.

15:23How about the private wealth channel? Because that's what I hear from some, that there's definitely an increased appetite amongst the private wealth in Italy for venture capital. that's definitely something that has been happening and is still happening and it's super interesting because again Italy is a country of entrepreneurs and the fact of having individual private money flowing from your own wealth to finance new companies is fundamental not just for the money itself, but for creating the culture. And I think as much as we do have a number, a large number of investors, as much as in the end, even institutional investors will follow more and more.

16:16So in terms of amount of money, obviously, it's not like in the US. So individuals are investing, are just on the posh, but in a large number of people. And this is spreading out. So in the end, even the institutional investors behind private money will follow and are following. And so we had some tax schemes incentivizing this effect. And it's happening. It could be stronger. But again, it's something that started back in 2013 when we started our fund. and is having, I think, a strong effect. And again, the more relevant thing is the cultural effect that is fundamental in our ecosystem. Now I want to ask you something about trends because we've definitely seen across Europe that deep tech is a sector that's growing.

17:18Is it the same in the Italian ecosystem or are there other emerging sectors that people are really keeping an eye on if you're thinking Italy specifically? Yes, I think we are somehow a copycat of the other economies. Simply, we have less smaller numbers because the market is smaller. Let's take again. You have been mentioning, so a step back on something that I think is relevant to describe the Italian situation. You have been saying, we started 2013 as first year of the modern era of venture capital in Italy, and we've been growing sevenfold. But if you take the overall amount of money invested in these 10 years, you will see that it is still a fraction or whatever else has been invested around Europe, not to mention the US.

18:19so this has a double effect one which is let's say not negative but it's just mathematical you do by obviously have a smaller number of funds than a smaller number of companies with a smaller amount of money raised and obviously if you compare to and if you approach an international landscape and you have smaller money, fewer companies, less talents working that have been working for startups. This makes you a little bit behind and landing behind the market. And we have to consider this. So you cannot say, okay, we started 10 years ago and now we have to compare ourselves to our market in absolute terms.

19:13Because, again, why you have Google in the US? Because if you take the amount of money invested over the past 25 years, you will get to trillions, tens of trillions of dollars. How can you ask why don't we have Google in Italy when you have invested$1 ,000 ,000 of that money? If it was just one company, You had one company with tens of trillions and one company with a few billions. How can they do compete to each other? So in a different scale, this is the same situation for the past 10 years and compared to Europe. But this doesn't say anything about the quality of the underlying assets. And I was telling you about a double effect.

20:03The good part of the effect is that the money that we have been investing, And this is something that is true for Europe and is very much more true for Italy. We have been investing in a very more efficient way. So if you look to our write-off, write-down, everything that went wrong, so we had very much less things going wrong and we lost very much less money. You may argue that this is not a very venture approach. And I agree. But on the other hand, there are some positive effects. Specifically in this, just to clarify, did you speak specifically about P101 or the Italian VC funds or European VC funds in general?

20:59Specifically for the Italian VC funds. And obviously I have my numbers in mind, but because we have been co-investing very much with our colleagues in Italy, I would say that the situation is very much similar. I would expect similar numbers. And in general, I think it's true also for Europe, but in Italy it's more true. So go back to 2013 when we and some of our colleagues started. again we had we struggled to raise our first fund was at the first closing of 30 million and we had some investor that never invested in venture capital before what if if we started investing as crazy in super risky things that maybe could have been having a you know a decent return after 10 12 years we were not going through fundraising for the following funds.

21:58So we had to start adapting ourselves to this market. And again, double effect, a negative one. So we couldn't take two risky businesses, but we had on the positive side, be very careful, work very much with all our entrepreneurs, being very efficient in capital deployment. And this, I think today is super useful because you have a very healthy ecosystem. You have a very healthy valuation system. You have a very healthy capital structure of the companies. And I think that this in the long term is a super positive thing for what we are pursuing. It's such an interesting discussion always. This swing for the fences strategy of really playing the power law and saying, well, we know a lot will die.

22:53or the other approach, which is the one you're describing here, some would say a merge between traditional venture and private equity, where you make sure to both ensure exits in a more timely manner than you would if you were just every time going for something that has an IPO potential in 10 years, but also obviously where you do change also the return profile because yes, you lower the risk when you make this type of bet, but you're also capping the upside. You're not going to hit an Uber or at least you're making the odds of you hitting an Uber lower when you're not taking every single bet on things like Uber.

23:43How do you think about this yourself? And how do you talk to your LPs about it? Because I think maybe as a VC, you know that there's a product you need to be able to sell to LPs. And then there's another, which might be what you would maybe ideally want to do if you just could go out and do it. But the fact of the matter is the fund needs to be able to be raised. And there's not appetite for that product yet. And you can also argue that, well, if you're focused on Italy, you're not producing a large enough, or you have 70 % focus on Italy, 30 % on Europe and US. But with that focus, you could definitely argue that, well, we're not producing a large enough number of Hail Mary unbounded upside startups for us to plow our 250 million euro fund only into this type of companies.

24:40then we'd be basically putting our money in every single Series A Italian startup that has that profile which would not make sense could you comment on my long ramble there? there are so many comments to make on it and I should make a pitch for our fund just to answer yes but you absolutely should so please go so first again we started 10 years ago we had the first closing of 30 millions and we are closing our latest fund later on in a couple of months at 250 obviously you can't say that you are doing the same thing so we started doing something in 2013 that is very different compared to what we are going to do and doing now because different money, different technologies different landscape, different investors different ourselves I don't want to say my age because I got scared, but I was 12 years younger.

25:48And my team was 12 years younger. And so we had different mindsets and so forth and so on. So first comment to your point is ourselves have been changing very much along the time. And so our investment has been doing so. what does this mean that and what do we sell to our investor i think that in the end many times everybody speaks about let's say dpi tvpi track record and very rarely we speak and they speak about what is behind the track record because the number itself so if you go for the power law approach. I mean, I would be very shy to sell to my investors a power law approach. Because what I can sell to my investor today is that, look, we started with 30 millions.

26:53We had to wonder how to manage those, to pay the bills, to find something in the market that was not existing. And we have been able to return that money, to return some IRR, to complete a cycle, finding something, investing, managing, managing investors, finding new investors, managing co-investors, going on the market, making processes, and getting some money back to our investors. So what we do have to sell is not just our IRR. is the fact that as a firm, because in the end, what we do is a business, obviously with some very specific thing, but it's a business as many others. So what I think is our proposition to our investors is, look, we take care of your money.

27:45We manage it into an asset class that you didn't have, let's say, access to before, at least for the market that we refer, and we do it in a professional way. And our professional approach, it is so because we had to change and evolve it over time. And that's basically what we want to sell to our investors. So you can come to us, make questions. We have more and more. So we started again in 2013. currently we have six separate vehicles, north of 500 million under management, more than 60 companies, almost 100 investors, not considering those individuals that we have through some specific vehicle.

28:34So obviously, day one, you could have been texting me and I was answering after five seconds. Today, we have a structure managing all this. and this is something that we sell to our investors but this is something that we also sell to our entrepreneurs. So you are not taking the money from Andrea or from P101 as the individual company of Andrea but you are taking money from a structured, let's say, platform even if sometimes it's a misused term. and so that's again what we do want to sell to our investors and that we are pursuing as a firm because this means that we can manage more and more the amazing amount of information that we have access to the amazing amount of networking capabilities that we have grown over the time and so that's the good with that I think we bring at the table and Italy then is more of a detail is the proposition obviously we started with some individual and institutional investors that also wanted to support these in Italy because they found out after too many years unfortunately but let's say better now than never they found that they had to support in somehow what we were doing and they were not betting their financial future on venture capital.

30:15But now it's not anymore, again, all we have to sustain in somehow venture capital. Now they just found out that we are a serious operator, that as we are on the market, that our other colleagues, so we are not the only one. Italy has an opportunity. It's a good way to deploy money, by the way, because there's still a positive effect on the economy that we bring at the table. Because if you sum up all the people that is working in our portfolios, north of 5 ,000 people, jobs that were not existing because of our colleagues' investment in this company. So if you take the old package, you say, okay, we're doing something that already returned the money.

31:05so someone that knows how to raise, how to invest, how to manage and how to take back the money, is it going to do the same thing that they did 10 years ago? No. And that's the first thing that we say. Look, we did 30 times the money with one investment. Is this something that we are going to do back again? I don't know, frankly. Hopefully, we are going to do 300 times or even more. but it's still something where the statistical approach is not something that I would like to sell to my investor. I rather prefer to sell them that we do really take care of what we do and it's not, again, a statistical approach.

31:50Yeah, and there's obviously a host of implications of everything you just said here on investment strategy. I know you also have a very large allocation to reserves, 60 to 65%, which is more than you normally see. So, you know, and there's a lot of knock-on effects of them taking this strategy. Also, in terms of probably also how you engage with the entrepreneurs and the thinking that you have around building them, but also maybe governance. I don't know if that's something on you. I don't want to put those words in your mouth, but that's what you sometimes see. I'd love to ask you something else because I want to stay on the Italian market here.

32:30And I want to ask you a bit about the challenges and opportunities that you're seeing for companies growing out of Italy. For sure, there's this still changing very fast, improving very much, but still some cultural blame or wrong storytelling, as I was saying before. So what do you need to make a healthy venture capital ecosystem in Italy? You need money, you need professionals, you need talents, you need all the same things that you can see in any other ecosystem. So do we have a lack of any of those? Not really. do we have is this a country a wealthy country with money institutional yes do we have talented people very much so we do have everything simply we we are not yet combine all these elements properly together and the thing is again if I have to look from to zoom out and see why we are struggling sometimes on things that I can see happening very easily, let's say in the US or in France, I think it's still, we have to convince much more our stakeholder or counterparts of something that is normally, is considered a practice or a best practice.

34:03And that's to me is this layer of, let's say, cultural blame, that still we have to go through. If you, I can make, let's say, very simple or stupid examples such as go on the Italian media and try to compare any new related to any, let's say, startup or tech happening and compare it on any, let's say, US-based financial newspaper. the Italian approach is okay someone invested small money in something small so let's put it in the last page if we have room left if you go on a US newspaper if it is something relevant it will be there will be Apple some oil and gas company and then even a startup in the same page so because if that is working on something relevant is not just a matter of the size of the number of money that has been invested.

35:09So if we do invest 1 million or 10 millions or 100 millions in the same thing, if we invested 100 million, it would be relevant. If it is 1 million, it is not relevant, which is not what we do. And this is something that, again, we haven't been able... You're lacking this storytelling about the big ambitions of founders and the big swings that are being taken in the ecosystem. They are happening, but the media doesn't really cover it. No. Because, well, it's not big money. But that's limiting very much because when you go to a corporate, corporate is made of individuals. So individuals that create their own opinion based on the media as I do myself.

36:05But if on that media, what we do is not relevant, even for someone else, it's like, okay, why should I spend time with P101 or any other Italian venture capital operator to go to see what they are doing if nobody is talking about them? And so again, there's still some culture information that we really need to consider fundamental to explain what we do. Because again, think also to our fundraising and to the question and the point that you raised before, which is our fundraising proposition. if I go to fundraise to someone that never heard about venture capital or that heard that in Italy venture capital doesn't exist, how could I convince him to put any money?

36:59I mean, why should I invest? The narrative is incredibly important and it's something that they're incredibly good at in the US. You might argue that they've maybe gone overboard now because you've gone from just being hype builders to have VCs in the US being very vocal about everything in the world, which they might see a backlash from, right? Yeah, but that's exactly one of the reasons to do this conversation. It's because you are doing a super good job. If I go through your interviews and conversation, you can really get a sense of something of these that's seen happening in Europe. and if you try to look for the same thing in Italy, we don't have that.