Starting a business in Italy is even harder than it is in Spain

This weekend Nina and I were in Rome. Original plans were just to hang out and enjoy what possibly is the most beautiful city in the world but a fortuitous encounter led me to give a talk to a group of techies in Trastevere on Sunday. The talk was very interactive, with me presenting but mostly asking questions about the Italian start up scene. The event was organised by Johanna of Frestyl, which is a website that brings fans and amateur bands together. Freestyl is currently under development and it is one of the investments of my friend Joichi Ito.

If you have read my article about creating businesses Europe you can probably imagine what I spoke about. It´s a mixed picture. The European scene for start ups is better because there is less competition, salaries are lower and medical and legal costs are much lower but it is worse because VCs are rare, markets are fragmented by language and labor laws make failure, common in start ups, extremely costly. But what I found in Italy was discouraging because, as opposed to Spain, where I live, labor laws are even worse, VCs are even rarer, Internet success stories are few, and the Italian language market is much smaller than the Spanish language market. After asking many questions about the Italian startup scene I reached the conclusion that, even though Spain’s economy is doing worse than Italy’s in general, our technology startup ecosystem is doing better. When we built Ya.com, for example, we invested 38 million euros, and sold it for 550 million. Of those 550 million euros, 70 went to 50 employees thanks to our stock option plans. Jazztel was a similar story depending on when employees cashed stock options after IPO, some did very well some didn´t. But out of all of those who did well many new angels emerged. Jon Berrojalbiz is one great example of a successful entrepreneur who came out of Ya.com. He is currently CEO of the very successful Trading Motion and an investor in other strat ups like Isolee. There is also the case of Miguel Salis, who was CFO at Jazztel and is today CEO of Eolia Renovables. Eolia, which was started when Miguel was the MD of my family office in 2004, is now the biggest independent alternative energy company in Spain. Over $1bn was invested, EBITDA is now over $120M and up 110% from a year ago and many jobs were created tons of carbon emissions saved. There are also many cases of companies that were sold successfully in Spain which had nothing to do with me. In Italy, however, I did not hear stories of 70 million euro stock option plans or cases in which wealth was created and distributed in a way that would create an angel network. As a result, the culture for small investors in Italy is lacking and entrepreneurs have to ask their parents or family for money which I consider in general a very bad idea. The only way to do well in VC type investing is to have a diversified portfolio, asking your parents to invest with you is contrary to that.

And then there is the cost of failure. Most start ups fail and that is true anywhere in the world, but in Italy the cost of failure is enormous. If a company shuts down because, for instance, their product had no demand and this company has say 100 employees, the costs for the entrepreneur can be brutal. In Fon, for example, we began with many employees. Unfortunately we had to lay off half of the team at one point and now that we are profitable we have started hiring again. This situation would have ruined us in Italy, because there they have different laws of forced severance payments for companies under 15 employees and over 15 employees. Significant startups can’t exist in this environment since they never know with certainty how many people they are going to need. On top of this, entrepreneurs who fail are seen as crooks. Not as people who tried to create a good product and create jobs but simply failed. Having an entrepreneur president who has barely escaped jail for many years now has given Italian entrepreneurs a bad name and that is not fair. So, on top of everything, I said before up and coming Italian entrepreneurs confront a mood very different to those of say Dutch entrepreneurs, Netherlands being the European country which in my view respects entrepreneurship the most. Now, to end on a positive mood, Italians are still very creative and have many SMEs who thrive on a European and sometimes global basis and hopefully this will soon also be the case of Italian Tech Companies.

And, in closing, here are some pictures of Rome.

• company creation
• Entrepreneurship
• Italy
• Spain