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New article published on ESiIF Journal

Finally also the hard-copy arrived!

My article title "Public-Private Early Stage Funds Co-Financed by ERDF Money: The Italian Experiece of Ingenium Funds", co-written with Luigi Amati and Francesca Natali has been accepted and published by ESiIF - European Structural and Investment Funds Journal. 

The article presents the experience of Ingenium Emilia Romagna Funds in the context of financing innovative high technology start-ups through the usage of public-private venture capital funds.

As the primary readers of the review are Managing Authorities of European Regions, we wanted to highlight our experience in managing these instruments, to improve the design on new ones during next ERDF programming period.

Hope some key take-ways will be helpful for readers. 

[acaddeo]

Economic Growth and Venture Capital

My reading for the winter holidays has been “Capital in XXI Century” by Thomas Piketty. One of the many enlightening passages that among others captured my attention has been the long-term vision that slowing population growth and moderate increases in productivity gains are expected to bring us back in a period of low or null long-term growth.

What surprised me most was the reference to the vision of Prof. Robert J Gordon from Northwestern University which, in his 2012 paper, states there has been virtually no economic growth before 1750.

What virtually generated the growth in the last 250 years was generated mainly by the three industrial revolutions:

the first, between 1750 and 1830 was started by the invention of steam engines, cotton spinning and railroads;

the second, between 1870 and 1900 (considered the most important) was driven by the inventions of electricity, the internal combustion engine and the running water with indoor plumbing;

the third, between 1960 and 1990, was related to the introduction of the computer and the internet revolution.

The interpretation of data collected and the view of the author that mostly surprised me is the fact that the first and the second industrial revolutions required about 100 years to unleash their full effects to percolate through the economy, whilst the author considers the dot.com era had a limited impact on productivity increase that showed its effects in the first eight years and then slowed his follow-up process.

  Being the GDP per capita a measure of our current wealth and average standard of living, the concrete meaning of their predictions is to expect no improvement of our condition but instead a future as of today. No more growth and improvements as experienced by the last two generations.

As a professional, working in the venture capital industry for several years, this graph and following considerations let me think for a while, questioning the truth of all the start-up credos on innovation, growth and productivity. 

Recent studies on entrepreneurship such as those provided by the Global Entrepreneuship Monitor or by Kauffman Foundation are more and more highlighting the fact that 2/3 of new jobs are created by innovative start-ups as well as at each pitching session entrepreneurs present their next “breakthrough” innovation.

Is this really true or just a part of a marketing value proposition in the venture capital industry?

I thought a bit at it, at the investments I valuated as a “GO” and at the investments of other funds. It is true, that no breakthrough innovations comparable to the way electric light, motor cars or indoor plumbing changed the standard of living worldwide can be found, but probably the best progress in technology, health and standards of living is yet to come:

personalized medicine is said to revolutionize the way we cure ourselves. The convergence of biotech and computers will accelerate the redesign of all living things, enhancing the capability to eliminate undesired characteristics or alter genes or turn off and on certain genes. Life expectation is predicted to prolong, leading to increased quality of our lives;

ICT and electronics improvements will surround us in an even more connected environment, with smaller, cheaper, more powerful chips and sensors, which if not increasing our productivity, will for sure increase our well-being. Data analysis will also offer even more tailored services and information;

green technologies will enable cheaper and cleaner energy (if the current down-trend of oil price will stop) and innovation in chemical processes will drive us through more environmentally friendly productions. Even China in 2014 took pollution as one of its biggest challenges for the next 25 years.

So, shortly, my first conclusion is that I still have an optimistic view for future growth due to technological enhancements that will continue a positive trend in real GDP per capita, probably slower than what had happened in the XX century, but still important to sustain a concrete improvement in the standard of living of majority of the population. Gordon, moreover, analyses the specific case of USA, not taking into consideration the possibility of catch-up with underdeveloped economies such as Africa and part of Asia. 

Secondly, it is also true that venture capital does not always finance real breakthrough innovation. Nobody says this but, at least in Europe, venture investors rarely look for the next big think in such a broad way. Priority is given to good technologies with a certain degree of competitive advantage in a stage where the main concern is market acquisition, rather than pure research.

Therefore it is less common to expect real breakthrough innovation, although some high tech companies with high innovation potential are present on the market. I think for example of two of our venture backed start-ups, such as CellPly, which is developing a new microsystem technology enabling revolutionary methods in personalized cancer treatment, or Angiodroid, which developed a new CO2 injector for peripheral interventional angiography. They are not introducing water in the house, but they surely, as many other high tech company, are contributing to an increase in life standard, granting important progress in their field and a better living for the society.