Venture Capital Watch: Interview with Roberta Gilardi (G2 Startups) and Fabrizio Conicella (ZCube - Zambon and OpenZone) on how Covid-19 is affecting the Venture Capital

For our series of interviews with players of the venture capital industry, we asked Roberta Gilardi, CEO and partner of G2 Startups, and Fabrizio Conicella, general manager and board member of ZCube – Zambon and OpenZone, how Covid-19 is affecting the VC industry and what advice they would offer startups and the Italian legislature.

Both Roberta and Fabrizio run accelerator programs, so they have an up-close view and nuanced understanding of the subject. They are closely involved in helping founders and startups create, implement, and launch new projects in the early stages—always a fragile time in the business life cycle of an emerging company, and especially so these days.

  1. How is Covid-19 affecting the VC market? What are your expectations for future trends with respect to fundraising campaigns and the structure of VC transactions? Any experiences that you want to share in this regard? Any lessons that you have learned?

Roberta Gilardi:

My impression is that, at this stage, VC funds are focusing more tightly on the management of existing portfolios and not so much on new investments. The contingent situation will surely have an impact on investment and drive elements such as the health sector to centerstage. As always in crisis situations, on some fronts there are setbacks, and in other cases investments are on the rise. Regardless of the Covid-19 situation, what is happening in the Italian market (and not only in the Italian market) in relation to venture capital investments is an upward shift in average tickets, more late stage investments than seed ones. In our view this is both a gap and an opportunity. Seed investment is a riskier area, but without a structured seed, a project cannot develop and then arrive at later stages with adequate support.

I also think that one segment with potential is a new approach to corporate venture. I think that companies and corporate must now connect the innovation process to seed CVC more and not focus only on more mature stages of investment. Today innovation needs a dedicated ecosystem and specific financial support; that’s why we are promoting a new initiative (G-Gravity Hub) for corporate innovation and investments, with expertise specifically in health (digital health, medtech, and biopharma) and the open finance/insurtech sectors.

In the health sector, the initiative aims to create a full integrated layer of acceleration and robust operational innovation management on all fronts. Experience in innovation and seed capital confirms that we need to tackle them in a more coordinated way from the early stages, with stable financial support, as well as market and managerial development.

If VC goes to more structured projects and more late stage investments, you need someone who does the dirty work before, but with great attention to quality and selection. The Covid-19 pandemic has also further triggered the need to intercept tomorrow’s trends today. In my opinion, Covid-19 has had a positive effect on thinking of investments in more structural, not just speculative, ways and focusing on those in areas that are more useful to society, to people. In other words, a greater focus on the types of innovation and investment that create real impact on humanity.

Fabrizio Conicella:

COVID-19 has been a shock for the risk capital market in general. As during every crisis, most investors have become risk adverse. As stated in recent studies (C. Mason, “The Coronavirus economic crisis: its impact on venture capital and high growth enterprises,” JRC – EU Commission, April 2020; COVID-19’s Influence on the US VC Market, PitchBook, April 2020)) the impact has to be evaluated from both a short- and long-term perspective. From a short-term point of view, we are witnessing an immediate reduction in venture capital investing at the global level. This trend is impacting both those businesses that already raised capital in previous rounds and first-time capital-raising ventures. A series of different elements are contributing to this: first of all, in general startups will be affected by managerial problems during and immediately after the COVID crisis with a higher cash burn rate provoking a huge demand shock. Second, as a result of the pandemic it is expected to be much harder for VCs to raise funds. Last but not least, opportunities for investors to exit will diminish. Obviously, there will be exceptions. The behavior of VCs will also change as a reflection of a different approach to portfolio firms focused on keeping the portfolio firms afloat. The market, possibly with the notable exception of healthcare related companies, will be affected by a fall in market demand and startups will face more of a challenge in demonstrating market traction. A high burn rate will be considered too risky and negative. As a consequence, probably in the short term generally we will have less financing available for startups seeking to raise the first round of venture capital, and angels and seed investments are likely to remain resilient for a while. In the medium- to long-term, we will probably see a recovery based on the ability of better positioned startups and scaleups to deliver positive results for investors. That will stimulate an “imitation effect” that, if coupled with government stimulus, will support the growth of the risk capital market.

  1. What practical advice can be given to startups to successfully navigate their way through the current crisis?

Roberta Gilardi:

It’s not easy to give advice, but one piece of advice certainly would be to hold back and analyze the situation, to make changes and react actively to the context. Unfortunately, the measures taken by the government initially failed to address the needs of this sector. On the other hand, the recent news that the National Innovation Fund is finally launching is more than positive, as it has a budget of more than one billion and funds already in place. The investments that will be undertaken will support startups and the ecosystem. It’s a start. But we also need to stimulate more private capital, perhaps in connection to large-scale industry. Startups offer a way to trigger the real economy beyond mere financial investment.

Fabrizio Conicella:

Cash is still king. My suggestion for all startups is to be careful about their burn rates. A high burn rate in the short term will be probably perceived as too risky. At the same time, they must be ambitious about proposing a vision that can deliver value. It is a difficult compromise. You can act on several different levels to remove risk. Examples include a clear and direct market focus that follows a no-frills approach; an attentive milestone-based approach that will offer investors multiple go/no-go decision points; a lean and flexible business model in order to adapt easily to changes in the environment; a team that includes members with expertise in finance and business development and not only the technical and scientific aspects of the business; a prudent approach to pre-money valuation; and, last but not least, taking a fresh look at nontraditional investors, such as family offices and corporate investors. We will probably see accelerator initiatives, such as the Open Accelerator initiative (, return to the stage, along with support initiatives that will combine the traditional training and coaching mix with seed capital investments. Specifically, my experience managing the Open Accelerator—an acceleration program created by Zcube-Zambon Research Venture dedicated to startups in life sciences—is showing me that the usual approach to supporting startups has to be adapted and innovated. A focus on teams and business models with science and technology focus was a key starting point, but now forces must be marshalled to maximize speed, and the market approach needs to be tailored so that the science-based focus does not appear too strong, as that can be perceived as overly risky for a startup. COVID is also changing the way we are interpreting the market. Increased attention to online relationships and virtual transactions will influence the near future. It also presents opportunities in a range of sectors: health (digital health particularly), e-commerce, automation, data privacy, etc.

  1. Do you have any suggestions for Italian and European legislators with respect to further measures that in your opinion need to be introduced to support startups and VC operators as they face the current difficulties?

Roberta Gilardi:

It would be interesting to deal with the startup sector more homogeneously at the European level. Each country clearly has its own approach and speed. Italy is always a little behind other EU countries regarding innovation and investments. Our market is very fragmented, and we do not have an academic sector that is really connected to the industrial world as other countries do. Italian VC is still small compared to the EU average, and there is still little culture of risk capital, even though signs are positive and development rates potentially higher. In Italy we have good projects and initiatives and our market could be of strong interest to foreign investors, with some interesting valuation. Indeed, with a more integrated vision, fewer bureaucratic middlemen, and more ecosystem and connection development projects, the EU could compete more strongly globally on innovation and startups and face the moment in a more robust way, making it a driver of the real economy and real development for recovery.

Fabrizio Conicella:

Clearly, the startup situation and VC resilience are not a top priority at a time when we still have infected people and are dealing with issues involved in managing the pandemic. But in many countries, including Italy, specific initiatives have been implemented to support survival of the startup ecosystem. There are issues in terms of both the quantity and the quality of these support initiatives. From a quantitative point of view, support packages have to be conceived to have impact at a systemic level, both encouraging the risk capital market to invest at a different level (from business angels to structured VCs) and pushing startups to exploit investment opportunities. In Italy, Art. 38 of the “Decreto Rilancio” proposes several different initiatives involving various phases of development for companies, from support from external actors (accelerators, incubators, science parks, business angels, etc.) to stimulus for investors. We can debate figurers and quantitative sufficiency, but from a qualitative point of view a lot has been proposed. The recent CDP Ventures industrial plan complements these initiatives with a unique set of tools that will invigorate the market. Could we ask for more initiatives? Yes, but there are real risks involved in failing to go from talk to action in a short period of time. We have to be quick about managing the impact on the startup situation—otherwise we risk both a drop in startup creation and a change in investor focus, and that will make the Italian market considerably less attractive. At the European level the situation is a little bit more complicated. The different support packages (MES, Recovery Fund, etc.) are designed to support different national states in recovering from the pandemic’s impact. Individual states have to propose their own ideas for using the funds. Aside from the discussion of whether or not it is opportune to use such funds, the real danger is that Italy will not be able to mobilize enough initiatives quickly to take advantage of these opportunities. The structural funds lesson is teaching us that simply having the money available is not enough. You also need to be able to spend it wisely. From this point of view, we have to make a change to become more “visionary” and attentive not only to short-term results but also to medium- to long-term growth. Based on that, investing in a radical change to the role of the startup in influencing the economy may be an interesting option.

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