Launching and growing a start-up is a complex journey that requires more than just a good idea: the success of a new venture started by entrepreneurs with no capital at their disposal often depends on their ability to attract and manage the necessary capital at the different stages of development. From pre-seed to exit, each stage of growth has its own characteristics and requires different approaches.
It all starts with the pre-seed phase, the moment when an innovative idea takes its first steps into the entrepreneurial world. At this stage, bootstrapping is often the first source of funding: the founders invest their meagre own resources, first showing that they believe in their project. It is a crucial moment, where self-financing serves not only to support the first expenses, but also to validate the business idea. It is not uncommon for the so-called FFF (Friends, Family and Fools) to intervene at this stage, i.e. that small circle of people willing to invest in the project on the basis of trust in the team of promoters, without any particular insight into the business project.
When the idea starts to structure itself and shows the first signs of validity, we enter the seed phase, the moment when development starts. At this stage, the financing requirement is typically between EUR 100,000 and EUR 500,000 and is aimed at the development of the prototype (MVP – minimum viable product) and the first market tests. Investors assess the initiative’s potential and growth prospects and provide the necessary resources for this crucial development phase. Given the embryonic stage of the initiative and the fact that it does not yet have any profitability or financial capacity, the need is almost always raised through a capital increase by selling shares in the project. A recourse to debt, in addition to the well-known limitations of a credit system that is very little oriented towards financing such projects, would have difficulties in defining repayment schedules since cash flows can still be estimated without reasonable accuracy.
The move to the Serie A round represents the entry into the structured expansion phase. The start-up has already proven the viability of its business model, perhaps it is even in a positive revenue situation, although typically cash flow needs more capital to accelerate growth. Investors at this stage look at and focus on concrete metrics: revenue growth rate, business unit economics, market potential, competitor reaction, as well as numerous metrics typical for digital projects (conversion rate, lifetime value, average cost of acquisition of each customer, repetitiveness of purchases of goods and services, etc.). The valuation of the company becomes more structured, based on market multiples and industry-specific metrics.
The funding path is now enriched with alternative avenues. Equity crowdfunding makes it possible to raise capital from a broad audience of investors through dedicated online platforms, representing a progressive democratisation of investment in start-ups. However, in the Italian context, the instrument is still struggling to express its full potential. Participatory financial instruments (PFS) and convertible instruments, on the other hand, offer greater flexibility in the structuring of investment agreements, even characterised by atypical or personal clauses in favour of the investor or by clauses that are directly linked to the exit phase.
The exit phase, i.e. the moment when the start-up’s economic capital is valued through sale to third parties, represents the culmination of a successful start-up’s journey and can be realised mainly through two routes: listing on the stock exchange (IPO) or acquisition by another company (M&A). In the case of the IPO, the start-up enters the public capital market, offering its shares to a wider audience of investors and providing more liquidity to its shareholders. The M&A, on the other hand, involves an acquisition by an industrial or financial player interested in integrating the start-up into its business or portfolio. In both cases, it is crucial to prepare the exit early in the start-up’s life, structuring investment agreements that include specific clauses to protect all stakeholders. Among these, liquidation preference defines priorities in the distribution of proceeds in the event of an exit, while tag-along and drag-along clauses regulate co-sale rights, ensuring an alignment of interests among the various investors.
In the Italian context, this path presents several structural criticalities. Investors tend to adopt a predominantly opportunistic approach, preferring to diversify risk across several initiatives with small sums, rather than focusing on selected projects with greater potential. Even when a start-up reaches or exceeds its goals, initial investors often do not participate in subsequent rounds, forcing start-ups to continuously and laboriously search for new capital. Equity crowdfunding, which could represent a valid financing alternative, suffers from two significant limitations: on the one hand, the excessive fractioning of the corporate base, which can significantly complicate the governance and operational management of the company; on the other hand, a scarce appeal on the Italian market, where retail investors still show a limited propensity for this type of high-risk investment. These inefficiencies highlight the need for a paradigm shift: it is not just a matter of diversifying risk, but of building a sustainable growth path, where early-stage investors continue to actively support the most promising initiatives, both financially and with their know-how. Only by overcoming the logic of opportunistic investment and developing a more mature and structured support ecosystem can the Italian start-up system truly accelerate its development and compete internationally. (photo by Precondo CA on Unsplash)
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