New sources of finance

Published on March 30, 2023   14 min

A selection of talks on Technology & Operations

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My name is Pierangelo Rosati. The topic of this talk is new sources of entrepreneurial finance.
Startups and new ventures are the lifeblood of innovation. In the traditional setting, the entrepreneurial journey typically starts with a business plan. This is a document that contains the go-to-market strategy and the projection for future growth. When looking for funding, this document is typically sent to a series of venture capitalists. These are professional investors, who receive tens or hundreds of business plans every week. So they will go to a screening and decide which ideas are worth of pitching. Once an idea gets to a pitch stage, they stimulate competition given the resources are quite limited. The best idea is typically brought to the next stage, which is a due diligence stage where the company and the idea, and the vastness of the projections are typically tested and checked. If the outcome of the due diligence stage is successful, then the venture capitalists will decide how much they want to invest in the company and they start a negotiation process with the entrepreneur or the entrepreneurs to decide what they're asking in exchange for it. Venture capitalists will typically stay in the company as an every day part of the equity until the company is brought to an international problem public offering if they are particularly successful.
Since the beginning of the century, major structural changes have occurred in the entrepreneurial finance market. This can be classified into five main changes. The first one is the demise of classic venture capital, which is seen as essentially the institutional venture capital move away from the startup and early-stage capital market and moving more towards scale-up companies. This is mostly due to the economics of managing and investing increasingly larger funds. The second trend is the closure of the IPO market, which now is available only to larger companies. It's just become way more expensive and more and more competitive than it used to be. The third change is the emergence of formal angel groups. Development of them with the government support of business angel networks, which act as matchmaking services for entrepreneurs and investors. The first trend is the so-called scale-up problem. It sees essentially the displacement of individual business angels by business angels networks and the requirement for larger long-term investment commitments may result in a first equity gap. The fifth trend is the change in geography or venture capitalists, which sees the venture capital investment being concentrated more and more into a relatively small number of cities around the world. All these trends have created a gap in the entrepreneurial finance market that needs to be addressed in order to exploit the future opportunities for growth.