This document discusses financing innovation and supporting innovative startups. It provides an overview of legislation in Italy that aims to promote innovative startups and their importance for economic growth. Specifically, it notes there is an estimated funding gap between the demand and supply of funding for innovative startups in Italy. It also outlines some of the benefits and opportunities provided by the Italian legislation for innovative startups, such as tax incentives and easier access to bank loans. Finally, it discusses common criteria for evaluating innovative startups and tech companies, such as evaluating the team and advisors, product development stage, addressable market, and economics.

1. Valuating and Financing Innovation
Giada Monti
European Innovation Academy July 2017

2. Intesa Sanpaolo 2017. Tutti i diritti riservati.
Financing Innovation: a crucial driver for the business system
and for the economic growth of a country
Countries with a focus on innovation
support (presence of Venture Capital
and high level of investments in R&D)
show a higher level of GDP
estimated growth
* Source: Accenture Strategy analysis; bubbles dimension = 2015-2017 GDP estimated growth, as per OECD data
1

3. Intesa Sanpaolo 2017. Tutti i diritti riservati.
2Italian Case: a Funding Gap yet to be filled
Demand and supply of funding need for innovative start ups
800-1.000 mln €* 200-250 mln €
600-750 mln €
Estimated funding
need
2015 funding offer
(equity and debt)
Funding need not
covered
* Estimates based on ~ 10,000 innovative startups in Italy with an average requirement of annual funding
ca. € 100K and EU average for investments in startups vs. GDP
On innovative startups segment is
estimated a gap between demand
and supply of funding need to
be covered with different
financing products
So what?

4. 3The Italian legislation in support of innovative startups (1/3)
A new industrial policy for economic development and competitiveness with the aim to create favourable conditions for the
development of a new business culture inclined towards innovation.
To reach these goals, since 2012 the Italian Government has been engaged in the creation of a coherent, all-encompassing
legislation intended to promote the establishment and the growth of new innovative enterprises with a high technological
value.
Spreading an innovation-oriented
entrepreneurial culture
Creating qualified employment, for
young people in particular
Promoting social mobility and merit
Attracting talents and capital from
abroad
Why are innovative
startups important?
Economic
growth!

5. 4The Italian legislation in support of innovative startups (1/3)
The legislation in support of innovative startups does not apply to all newly-established enterprises, but
only to those that present a clear character of technological innovation.
Besides this distinction, no industry-specific restriction has been made: the legislation is potentially
applicable to companies operating in any economic sector, from digital to manufacturing, from trade to
agriculture.
Definition of «innovative startup»
new businesses, or operational for less than 5 years
HQ in Italy or in another EU country, with at least a
production site branch in Italy easier to compensate VAT
credits
yearly turnover under €5 mln
not listed on a regulated market nor on a multilateral
negotiation system
do not distribute profits
are not a result of company merger, split-up or selling-off
have a clear character of technological innovation
expenses in R&D and innovation are at least
15% of either its annual costs or its turnover (the
largest value is considered)
employs highly qualified personnel (at least 1/3
PhD holders and students, or researchers, or at
least 2/3 Master’s graduates)
is the owner, depositary or licensee of a
registered patent, or the owner of a registered
software.
«Innovative» if it meets at least 1 of the 3
following criteria:

6. 5The Italian legislation in support of innovative startups (2/3)
Benefits and opportunities:
online, free of charge incorporation with digital signature
Instant access to the special section of the Italian Business Register by a self-
certification, sent online
cuts to red tapes and fees
Extension of terms for covering losses
easier to compensate VAT credits
Tailor made labour law (“Jobs Act”)
Stock options and work for equity schemes
Tax incentives for corporate and individual investments
Equity crowdfunding
Fail-fast procedure
…
www.sviluppoeconomico.gov.it

7. 6Easier access to bank loans
Free intervention
Fast-track investigation
Guarantee on up to 80% of the
total amount, with no evaluation of
the business plan and balance
sheets,
Maximum amount guaranteed:
€2.5 mln, which can also be
spread on several operations
Preferential access to
the Central Guarantee
Fund:
Banks need to learn
how to deal with
startups financing

8. ADDRESSABLE MARKET
ECONOMICS
TEAM & ADVISORS
PRODUCT & DEVELOPMENT STAGE
BARRIERS TO ENTRY /
TRACTION
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Valuating Innovation: most common screening criteria

9. TEAM & ADVISORS
8
Valuating Innovation: most common screening criteria

10. TEAM & ADVISORS
9
Valuating Innovation: most common screening criteria
Complementary Skills
Credibility and commitment
Track record and previous experience
Advisory Board!

11. BARRIERS TO ENTRY /
TRACTION
10
Valuating Innovation: most common screening criteria

12. BARRIERS TO ENTRY /
TRACTION
11
Valuating Innovation: most common screening criteria
Barriers to entry
(non-digital startup)
Intellectual Property
(are you ready to defend it?)
Business applicability
First-mover advantage
Feature differentiation

13. BARRIERS TO ENTRY /
TRACTION
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Valuating Innovation: most common screening criteria
Key metrics (users, pageviews,
downloads, …)
Adoption & conversion rates
Monetization & revenue
evidence
Be wary of vanity metrics (e.g.
# of retweets)
Traction
(digital startup)

14. PRODUCT & DEVELOPMENT STAGE
13
Valuating Innovation: most common screening criteria

15. PRODUCT & DEVELOPMENT STAGE
14
Valuating Innovation: most common screening criteria
Clear identification of pain points
Product-Market fit
Expansion potential and product
pipeline
Development stage (e.g.
Design, Prototype/Beta, on the
Market)

16. ADDRESSABLE MARKET
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Valuating Innovation: most common screening criteria

17. ADDRESSABLE MARKET
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Valuating Innovation: most common screening criteria
Correct identification of size and growth trend
Inherent barriers to entry (e.g. crowded,
concentrated)
Competitive analysis (direct & indirect
competitors)

18. ECONOMICS
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Valuating Innovation: most common screening criteria

19. ECONOMICS
18
Valuating Innovation: most common screening criteria
ROI potential for investors
Credible use of funds
Income Statement, Cash Flow Analysis

20. Risk-Reward Management Assessment System to evaluate Tech Startups
and SMEs for Investment and Commercial Partnering
WHAT
WHY
To support traditional credit risk assessment of early stage Tech companies
HOW
Venture Capital asset-class evaluation tool
forward looking valuation
growth potential analysis
Increase bancability
foster innovation culture
Type of Analysis: Qualitative to Quantitative (Objective question-based
model; Weighted evaluation & analysis)
Proprietary algorythm
ISP developed an internal model (Due Diligence Assessment Tool Scorecard or DATS), based on a Venture
Capital logic, adapted to support credit assessment of Start ups and innovative SMEs by integrating ISP credit
application with qualitative elements
How to evaluate Startups and SMEs?

21. Core Evaluation Criteria
Team Fit/
Team & company readiness
Assess founders & management team
# of managers and quality / relevance of skill sets
Readiness for investment or commercial acceleration
Direct interaction feedback assessment (interview, 1:1 coaching,
strategic review session, …)
Market Opportunity /
Customer need /Competition
Is Company creating or modifying a new market
Is there an unmet customer need or incremental improvement of
known gap
Assess direct and indirect competitors and potential threats to
business idea
Product /Service Offering
Product unique and a breakthrough technology
Complexity to build, ease of use, user interface / experience

22. Core Evaluation Criteria
Pitch Plan & Development
Stage
Evaluation of plan and pitch readiness
Current stage of product / financial growth
Financials & Funds requested Assess financial scenario including the funds requested and
proposed use of those funds

23. One step at a time…
Banks need to learn
how to deal with
startups financing
Why are innovative
startups important?
Economic
growth!

24. Thank you!
giada.monti@intesasanpaolo.com