The coronavirus is putting a strain on businesses around the world, particularly startups. Seed Venture asked experts whether it makes sense to invest in innovation in the midst of a pandemic and on the verge of a global recession during the March 30 webinar. During the online event, the co-founder of Seed Venture William Pividori moderated a number of people we believe to be of value, with different roles in the world of innovation: Antonio Cioli Puviani, trader; Antonio Assereto, VC investor; Giovanni Abelli, founder and promoter of the startup Poetronicart; Roberto Della Marina, venture capitalist; Marco Crotta, blockchain advisor and TED speaker; Sergio De Prisco, co-founder of Seed Venture.
During the discussion, the concern of startups about the situation emerged first and foremost. “After the initial fear and fears of radical change caused by the ‘global’ emergency of the pandemic, I immediately tried to deal with the situation with lucidity by making strength on management skills and experience of extraordinary management, starting from the immediate draft of a contingency plan to gain time to review strategies and put on track immediate operational adjustments. Fundamental is the dialogue with all stakeholders, internal and external, to share the new scenarios and the new challenge protecting the initiative, adapting without slowing down the acceleration started“, said the startupper Abelli, caught by the crisis when he was organizing a round to launch his startup, after 3 years of incubation. He then added: “One of the few certainties we have is the role of innovation in the relaunch of the world to come. We need a much more determined, fast and concrete movement of the representatives of the country system so that from the current drama we can take the opportunity to finally put innovation at the center of the Italian agenda“. The same has been done by the startups in the portfolio in which the angel investor Assereto has invested: “They are worried about the situation, but they have begun to draw up updated plans for the new 2020 scenario: the emergency triggered by the coronavirus has revealed the character of the people behind the companies in which we have invested”.
What can startups do today to deal with the crisis? “The current crisis is also an opportunity to develop new projects (new ideas/business lines) and take care of the details, which startups usually don’t have much time to devote to,” Assereto suggests. “For startups, people count in the first place (the idea counts only 20%), but also having a process structure, standard procedures and quality consultants, from an industrial point of view, to be able to react to unforeseen situations that change the competitive context, using contingency plans”, Della Marina advises.
Startups can also learn useful lessons for the future from the coronavirus. First of all: the importance of institutional investors. It is expected that business angels will block financing for 12-18 months, on which most of the Italian startups rely. “Funds and large institutional investors in general are behaving differently: they have broad shoulders and are therefore in the position to support companies that have in their portfolios through cash or bridge financing,” explained Assereto, so it is important that startups evolve, also by attracting this category of investors and overcome the long-standing problem of dwarfism of Italian startups, as confirmed by Della Marina, “with an adequate structuring of processes, which is often not necessary at a preliminary stage of development” but “allows you to scale-up faster and access to institutional investors.
If “the crisis is going to frustrate many companies that have not planned for the long term,” continues Della Marina, on the other hand innovation is becoming open, because large companies prefer to buy it outside, with lower costs, rather than develop it internally Moreover, big companies may “pull the oars in the boat”, for their survival, so the issue innovation may be addressed at public and supranational level.
This situation of financial tension for startups can also be an opportunity for the Italian government to begin supporting startups for real, as France has already done, by providing 4 billion euros. “It must be a moment of disruption at the public level, to grow large funds in Italy, which put real money in the startups,” Assereto hopes. “Innovation has never been at the center of Italy’s strategy, but the crisis can be an opportunity to start doing so,” hopes Abelli. “I would like to see a real fund of funds in Italy, or more than one, and CDP that deals with venture capital. Today Italian startups, if they pass the early stage stage, have to try to raise capital from international investors (who are very suspicious of Italy), otherwise they die,” warns Della Marina. In his opinion, the economic crisis triggered by the coronavirus could also be an opportunity to get many weak companies out of the market.
For the trader Cioli Puviani, “Now there is more hope for startups because of the disruption, which could change the system, with global reflection and catharsis”. Puviani’s reflection comes just after the premise that, going to analyze for example the effects of Draghi’s actions on the Europe system by introducing large amounts of money into the post-crisis system 2008-2009 “the drastic lowering of interest rates has had the effect that the intermediary actors of this flow (the banks), no longer having sufficient intermediation margins, have in fact supported the real economy and companies that made innovation to a minimal extent“. And he adds that “actions such as helicopter money or any instrument of introduction of liquidity into the system, although objectively necessary today, takes place in a situation of high abuse of these instruments in the last decade, that have generated habituation and marginal utility increasingly reduced”. Therefore, at that time, the wealth created by the liquidity of the central banks went to create a great wealth of financial assets alone. Therefore, completed the reflection “an investment in a fund that invests in startups and innovation/baskets of startups would today represent a better choice in prospective terms than staying only in the financial market by investing in single shares, more subject to market volatility”.
Just what Seed Venture does, using Seed tokens and a decentralised, blockchain-based system. “The blockchain is atomic-proof because it’s decentralized. Decentralizing does not mean going it alone, but respecting a common protocol, even if conceptually it is still difficult to understand because it questions many models – which today show many limits – and requires a profound rethinking of them and in approaching this new technology”, said Crotta. And he explains this with a simple example, that of internet connectivity, which is not decentralized because “the twisted pair that connects us to our telephone carrier is one, and it is the one for the whole area“, concluding that “thinking by design to new resilient, distributed, unstoppable models will represent the solutions of tomorrow.
But we are still in the beginning, a bit like when the internet began to exist, so explaining it, or explaining how to send an email, was a puzzle. Many decentralized projects in 2017 failed because they were either too innovative or too speculative, meaning too much money came to the team that developed them. “If we had launched Seed Venture earlier, we would have raised a lot of money, but we would have disbanded earlier. To manage that much money, you need a structure and approach that most startups don’t have. In 2018-2019, the spotlight was not on decentralization, which has made huge strides forward in all areas. Seed Venture worked during this period, albeit with the disadvantage that it did not raise as much money as it could have done in an era of media clamour. But the spotlight can burn the one who is exposed to it, like an ant under a magnifying glass,” concluded Sergio De Prisco, co-founder of Seed Venture.
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