What innovators say: Interview with Carolina Gianardi

1. How would you describe the “perfect” business angel, or BA?

Probably I would replace “perfect” with “effective” and refer to the combination of two elements: i) a business angel who supports a startup not only financially but also through his/her experience, expertise, and network and is always available when founders need a sounding board; ii) a business angel with a portfolio that is diversified (by stage, industry, geography).

2. What would you suggest to a person who wants to become a business angel? Are there specific guidelines to follow?

When I started, I decided to be part of a network of business angels, to learn, share, and establish some guidelines to follow; being an effective business angel requires passion but also structure and process, together with the ability to see and analyze many opportunities to develop your own investment methods and portfolio. Being part of a network makes all that possible and is particularly helpful at the beginning.

3. What role should a business angel play? What is the proper exit time for a business angel?

A business angel should be a subject expert, door opener, coach, and sparring partner; the balance of these roles depends on the startup stage and the founders’ characteristics and can change during the relationship.

Regarding the exit, I do not see a standard approach. It depends how much, at which stage, and during which evaluation the business angel invested. Generally speaking, once bigger investors enter with significant dilution and the return is already a sizable multiplier it might be a good time. At this stage, the role of the business angel as sparring partner becomes less important. In some cases, I would also consider partial exits. Another way to consider an exit is to be able to judge when the startup/founder can’t succeed and therefore to avoid continuing to invest without prospects. This is a studied strategic decision, and quite often the root cause is erroneous evaluation of the team at the beginning.

4. In your opinion, what are the most appropriate financing instruments for a business angel to use to invest in startups (i.e., SAFE, alternative financial instruments, convertible loans, subscription of new equity)? What are the financing instruments currently most commonly used by Italian business angels to invest in startups?

The financing instrument depends on the stage of the startup and if the investment is a single investment or a group. In the preseed phase, when there aren’t clear kpi for an evaluation, SAFE is becoming more and more standard; in the later rounds, typically it is subscription of a new equity. The investment can be made directly in the startup as shareholder or by leveraging a fiduciary. A vehicle makes sense when the number of shareholders and the size of the investment are significant. I see more and more SAFE in the preseed phase and more fiduciary leveraging and fewer vehicles for cost/efficiency reasons.

5. Why in Italy do we have more than one network of business angels? Do they work? Would it not be better to combine all the existing networks into one?

The increase in number is quite recent and, in my opinion, it is driven mainly by the development of the VC market in Italy. In addition to historical BA groups, we have business school alumni and regional and vertical networks. I consider this an opportunity if we are able to build synergy and share opportunities, something our country has not been good at doing. Fragmentation and limited scale continue to limit many sectors, including VC. There are some signs of light, but still not enough.

6. What should be done to improve the Italian BA ecosystem? Is there any specific initiative that, in your opinion, the government/legislature should undertake to support the investments of business angels?

As mentioned, it is important to have a specific BA ecosystem; today there is dilution within the ecosystem of VC funds, as interests and objectives are not exactly the same. That reduces the impact of the “voice” of the BA. With a clearly established BA ecosystem, the government/legislature could represent a specific stakeholder and make progress on the BA view and requirements. There are a lot of private funds that could be reinvested more in the real economy.