2. cash accounting, except for expense
reimbursement.
Each start-up is associated with a business life
cycle, which helps in identifying the objectives
and potential future difficulties while focusing
on the business’s success.
2. Focus on start-ups and their role
Sometimes, entrepreneurship and the creation
of new businesses are brought back to the center
of political and economic debate and indicated
as one of the main solutions to be supported
for employment, growth, and economic devel-
opment in the country. Some entrepreneurs get
extraordinary results; often the figure that comes
to mind is someone like Steve Jobs or Mark
Zuckerberg, but unfortunately most of them
have to deal with bankruptcy.
From the point of view of the possible future
entrepreneur, we must consider the fact that
wealth is not necessarily the only objective pur-
sued; actually, one can positively value one’s in-
dependence and autonomy. However, this
private benefit must not be guaranteed by public
affairs.
From a social point of view, a frequently
invoked reason to support start-ups is that they
create new jobs; however, a new entrepreneur
does not create any new job other than his or
her own; and in any case one arrives at the entre-
preneurial choice from the perspective of an
employee, not from unemployment. That is,
generally the creation of new businesses follows
a flow from dependent work to start-up, but not
necessarily to the creation of new jobs.
Often someone becomes an entrepreneur not
because he or she wants to seize an opportunity
that no one else has seen, an opportunity that can
really create value, but simply because of neces-
sity. And if this is certainly even more true in
developing countries, where real alternatives
are often lacking to secure an income, it is also
true in more established economies.
We can consider two types of entrepreneur-
ship: the routine one and the one with high tech-
nological content or growth potential. It is the
latter that we must mainly focus on for develop-
ment. And the best way to do this is simply to
create the institutions and infrastructures that
allow those who really have the ability to see
and seize these opportunities to do it in the
best way. In this case the new companies
created have a higher technological content,
can more easily draw on venture capital fund-
ing, and have a higher survival rate.
We can identify four different stages in the
start-up life cycle, which can be indicated as
follows:
1. Seed and preseed: This is the feasibility step,
the starting stage after the idea has been
conceived, in which market opportunities and
technical expertise should be evaluated. No
investments and revenues are yet forecasted.
2. Start-up: This is the execution stage, when the
company enters a market. This is the phase
for technically developing the entrepreneurial
idea, in which production starts and the first
revenues are generated.
3. Growth: This is the stage in which both
activity and profits grow, thanks to clients,
and sales increase. At this stage
supplementary human resources may be
necessary for activity expansion and for
meeting the increasing demand.
4. Exit: This is the transitional phase from start-
up to the next stage according to the
following exit typologies:
• IPO (initial public offering), whereby the
company goes public;
• acquisition by a third party;
• buyback, whereby the entrepreneur buys
the company shares back, if sold during
the investment collection, becoming the
sole owner;
• secondary sale, whereby the entrepreneur
sells some of the company shares to a third
party;
25. The role of start-up companies in creating job opportunities
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V. Making business with new technologies
3. • write-off, which is the phase in which the
company is close to bankruptcy and
investors withdraw from the investment.
Fig. 25.1 shows the life cycle of innovation
businesses. This and the finance typology,
shown below, are analyzed in the following
paragraphs.
Preseed financing: the financing during anal-
ysis and idea evaluation.
Seed financing: for the experimentation phase
of the innovative idea.
Start-up financing: for the advanced phase of
the idea. The idea has become a prototype, ready
for market validation.
3. Funding for innovation
The new entrepreneurial capitalism for
research and innovation is tech-based and
focused on research to compete and grow; it is
a form of capitalism generated by innovative
entrepreneurship boasting a postgraduate
education.
It is a form of capitalism that contributes,
through radiation and induction, to innovation
circulation, to the creation of firms with high
growth potential, sustaining economic growth.
It is a form of capitalism that attracts foreign
and national investments in the form of partici-
pation and green field investments.
Start-ups and spin-offs do not attract tradi-
tional financing forms of conventional credit
because they are not bankable, not able to
generate positive cash flows or viable business
models, do not access lines of credit such as
collateral requirements, and do not generate in-
terest for the banks, given the limited investment
(Fig. 25.2).
There are different types of financing, among
which are business angels and venture capital
funds.
3.1 Venture capital
• Venture capital is the financing of
entrepreneurial initiatives in high technology
sectors during the start-up phase.
• Investments in venture capital from a venture
capitalist operate in favor of companies with
high development potential.
• The strategy is to make a return on the
investment with the aim of a largely
rewarded exit.
• Its limitation is a team characterized by high
managerial competences.
FIGURE 25.1 Life cycle of innovation businesses.
3. Funding for innovation 501
V. Making business with new technologies
4. 3.2 Private equity
• Private equity funds are characterized by an
investment period that can range from 4 to 5
years. Investors’ operations are defined so as
to finance the firm’s business development or
its business change.
3.3 Business angels
• These are noninstitutional investors (such as
managers) that can contribute by providing
managerial support and forms of direct
financing to firms still in an embryonic stage
or requiring limited financial resources.
• Business angels have a strong risk appetite,
although limiting their participation to the
risk capital in firms with high development
potential and providing valuable
management and financial consulting.
4. The importance of the start-up for the
economy
In a modern economy like ours, the birth of
start-ups and new companies is fundamental.
In fact, it has been proven that, on average, 1%
of the most dynamic start-ups are responsible
for creating 40% of the total new jobs generated
in a year: a factor that should push governments
to give birth to new start-ups rather than
focusing on the rescue of traditional businesses.
Other interesting data that emerge from the
research concern the rate of creation of new busi-
nesses, which is in decline, as well as the need to
favor the development of entrepreneurship
through the immigration of entrepreneurial
talents.
This evidence shows that politics must focus
carefully on legislation in favor of start-ups. In
the United States it is estimated that, every
month, 3 of 1000 people can become successful
entrepreneurs; however, it is necessary that the
other 997 people work hard so that those 3 tal-
ents are facilitated in the creation of new success-
ful companies.
Facilitating the birth of a new business must
be the mantra of a nation: in particular, all pol-
icies aimed at simplifying the existence of a com-
pany and promoting work flexibility should be a
priority in the legislators’ agenda.
At the end of 2018, innovative start-ups in
Italy numbered 9758, an increase compared
with previous years, and had generated about
13,000 jobs, employing an average of three em-
ployees each. The innovative start-ups with a
prevalence of young people (under 35) reached
2033, 21% of the total: this is more than 3%
higher than is found among the new
R
I
S
K
Basic research
Applied research
Licenses and
Industrialization
Innovation
Public-private partnerships
(venture capital, shareholder loans,
Venture capital funds
High-tech incentive investments
100% public financing
(incentives, contributions,
FIGURE 25.2 Funding for innovation.
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V. Making business with new technologies
5. noninnovative companies. The difference is even
greater if we consider the companies in which at
least one young person is present in the social
structure: 46% of the start-ups against 36% of
the other companies.
To create a start-up, in addition to the idea and
the team, aswe statedat the beginning ofthe chap-
ter, capital is needed, and this industry is called
venture capital. Venture capital investments in
the start-ups of our country amounted to around
600 million euros in 2018, which on one hand rep-
resents a record (more than double the value of in-
vestments compared with 2017), but on the other
shows the delay in capital terms that Italy has
accumulated compared with other European
countries (V7.7 billion in the United Kingdom,
V4.4 billion in Germany, and V3.7 billion in
France): this delay will not allow us to sustain
long-term innovation and retain our talent.
But it is not only the policy of the central gov-
ernment that can favor the creation and growth
of start-ups: a very important role is also played
by the activities aimed at the creation of new
businesses carried out by the local communities.
Althoughthe new innovativeentrepreneurship
can be the solution for a nation like Italy, the topic
is out of the current political debate, centered on
assistance maneuvers rather than on policies to
strengthen a person’s entrepreneurial skills.
The main topic is to develop a culture of entre-
preneurship. If you want to support the develop-
ment of a country, it is necessary to promote the
spread of entrepreneurial culture as early as
middle school and high school, and even more
so in universities. In short, the entrepreneurial
spirit must be cultivated from childhood, since
the entrepreneur is the one who, through inno-
vation, creates jobs and makes society richer.
5. Link between university and business
It is important to raise young people in a cul-
ture of entrepreneurship, educating them from
an early age, imparting the right sensitivity to
them, and then perfecting it with university
studies. A fundamental point is the presence of
industrial companies inside the university, for
advantages to both sides. The advantage for
the university is the introduction of the company
inside and providing students with managerial
training.
Often what is missing inside the university is
contact with the world of work; therefore the
“participation” of an industrial company as a
partner can bring added value by transmitting
to the students the experiences of the managers
and knowledge in the context in which it works.
The industrial partner can present seminars
on targeted topics, to be defined with the univer-
sities, conducted by qualified managers affirmed
in the industrial world, and offer the possibility
of doing theses and internships in the workplace.
It is possible to identify and promote activities
that allow the various training paths to corre-
spond to the needs of innovation and business
development and to transmit to students the
skills and professionalism appropriate to the
needs of the world of work. This could be an op-
portunity to facilitate the integration of young
people into the world of work and promote
knowledge, in students and in the university
world, of industrial and entrepreneurial realities,
their needs, and their potential. Last, but not
least, can be an opportunity to promote students’
knowledge of industrial and entrepreneurial re-
alities, offering them the opportunity to carry
out visits and internships to have an overview
of the work worldwide.
6. Planning and control
One of the key aspects of setting up a start-up
is the drafting of a good strategic plan, that is, a
business plan. The business plan aims at:
• providing a strategic guide;
• evaluating the strengths and weaknesses so as
to identify the optimal strategies;
6. Planning and control 503
V. Making business with new technologies
6. • determining a point of reference for future
decisions and business results;
• promoting relationships with potential joint
venture partners, clients, and suppliers.
The drafting of an accurate business plan has
an internal and external advantage. Internally, it
helps to put ideas on paper, to develop them
constructively and analyze them as they move
forward. Externally, it helps in making the plan
explicit to potential investors and clients, attract-
ing their interest in the business idea.
The market analysis is undoubtedly a neces-
sary survey to examine the sector you are willing
to operate in. The survey considers the rules gov-
erning the market, evaluating the average profit-
ability, potential economies of scale, and the
suppliers’ buying power, not forgetting to
examine direct and indirect competition.
A study of potential clients/customers and
their tastes and tendencies, geographical origin,
and social, economic, and demographic group
identity (age, sex, salary, social background, edu-
cation, country of origin) is included. The market-
ing strategy will consider the aforesaid analysis,
establishing the commercial purposes and devel-
oping an operating plan concerning the sale (price
comparison with the competitors), promotional,
and distribution policies as well as communica-
tion and advertising strategies. Having all these
elements available, it will be possible to proceed
with the calculation of the market share and fore-
cast the turnover for the business period taken
into consideration (usually 3 years).
An important section is dedicated to the proj-
ect description, the motivation for setting up a
business, and the objectives to be achieved, iden-
tifying the product or service to offer, the tech-
nical specifications, and the strengths
compared with the competition, as well as the
technologies developed, patents, or know-how
of the business group who can support the idea’s
feasibility. Together with the qualitative anal-
ysis, a quantitative search should be carried
out, providing a detailed financial plan with
full cost estimates, revenues, and investments.
The financial requirement shall be estimated,
calculating the cash outflow for the so-called
circulating active capital (supplies, credit, VAT,
current assets) and indicating potential sources
of financing and debt repayment terms and con-
ditions. A budget estimate and a cash-flow state-
ment will be included, forecasting expenditures
for the first company running year. The business
starters should be able to easily comprehend if
the revenues deriving from the venture capital,
return on sales, credit institution financing, or
other facilities can cover the costs of investment
and management.
6.1 Focus on Italy
Making Italy a more attractive country for
innovative firms like start-upsdno matter if dig-
ital, industrial, artisanal, social, trade, or agricul-
tural businessesdmeans first making a
turnaround in economic and employment
growth, especially youth employment. It also
means driving the change so as to make Italy a
more dynamic country, able to deal with its
best energies in terms of human factors.
In 2012 a new definition of innovative firm
was introduced in Italy, the so-called innovative
start-up. For this newly defined concept of com-
panies, a national framework has been provided
for acting on different aspects such as adminis-
trative simplification, labor market, tax relief,
and insolvency law.
Another issue to deal with is the lack of
knowledge. Young people between 18 and 35
years of age are willing to establish start-ups
and to develop their ideas, but they mainly
lack the know-how, not only entrepreneurs but
also employees. The only way to revive the
start-up model and make it a leader of the Italian
economy is to cooperate with universities by
creating specific classes on the fourth industrial
revolution.
25. The role of start-up companies in creating job opportunities
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V. Making business with new technologies
7. 6.2 Focus on start-ups based on the green
economy
This section discussed the circular and digital
economy using practical examples of start-ups.
The challenge for the digital and circular econ-
omy is giving things a new life. Effectiveness,
knowledge, and savings are the core issues for
the development of innovative technologies
together with new business models that the mar-
ket needs to implement.
In Italy, green companies rose by 26% in the
2010s. According to a survey carried out by
GreenItaly, the data are very optimistic, to such
an extent that Italy has become the European
leader in industrial recycling. We are talking, in
fact, of 47 million tons of nonhazardous recov-
ered wastedthe maximum figure recorded in
Europedwith savings of over 17 million tons
of oil and 60 million tons of CO2 equivalents.
This is a goodbye for good to the old tradi-
tional economic model based on consumption
and exploitation of natural resources. The
limited availability of natural resources and
rise in prices are evident issues. Which is the
way we are going? To get an idea of the circular
realities, you can consult the Circle Market data-
base, which is an app providing a list of com-
panies and products that reduce and dispose of
waste, diversifying the sources of supply and
maximizing the value in the use of consumer
products.
The circular economy aims at putting the
product back into circulation. The product life
cycle is not limited to product selling and con-
sumption, but keeps on recycling itself, starting
new virtuous cycles. Production discards can
turn into raw materials to be used for other activ-
ities, thus generating many advantages. By
selling their waste, companies generate new rev-
enues in the budget, while buying recycled raw
materials at lower prices and creating employ-
ment, which turns into new consumers. A report
on the circular economy and start-ups, made by
the business incubators of innovative companies
of Torino Politecnico, estimates the impact of the
green revolution to be 604 billion euros in sav-
ings for European companies, 3.5% of the Euro-
pean yearly GDP, and 2 million jobs.
The circular economy allows the creation of
new business models that complement innova-
tion and sustainability as a strategic choice for
competitiveness. The range of products goes
from fabrics made from winemaking discards
to organic paste from microalgae, from shearing
waste used for thermal insulation to coffee
grounds used for growing mushrooms. The list
already features 250 Italian companies.
Among the companies worth mentioning is
Sfridoo, one of the short-listed start-ups from
the first batch of the Nana Bianca acceleration
program in 2017. The Sfridoo proposal is simple
and effective: a website for interchange between
small and medium enterprises and microenter-
prises to buy and sell production discards. A
burden on a company provides resources for
another, generating the first community in the
circular economy sector. Everything is contained
in the Sfridoo motto: Give Value to Your Waste!
6.3 Focus on Europe
The European Commission established, in
January 2014, at the World Economic Forum in
Davos, the Startup Europe partnership, which
is the first European open innovation platform
dedicated to transforming European start-ups
into scale-ups by linking them with global corpo-
rations and stock exchanges (Fig. 25.3).
The companies participating in this program
have access to the best technologies, having the
chance to initiate business partnerships and ven-
ture corporate investments. Scale-ups are
exposed to qualified sales and strategic opportu-
nities as well as funding options via either ven-
ture capital or private placements.
The collaboration between established com-
panies and start-ups can be a font of benefits
for both. Start-ups get the possibility to access
6. Planning and control 505
V. Making business with new technologies
8. the market, while, for established companies,
such collaborations can be a strong driver of
innovation. We can highlight six modes of
collaboration, which are not mutually exclusive
and may often be complementary:
• gaining “exposure” to start-ups (through one-
off events, as well as sponsoring co-working
spaces);
• “trend spotting” (through a direct presence in
global technology hot spots, such as Israel or
Silicon Valley);
• acceleration program;
• procurement and codevelopment;
• investment;
• acquisitions.
6.4 Exposure: one-off events, coworking,
free resources
Some companies begin their start-up engage-
ment by increasing their exposure to start-ups
and entrepreneurial culture, by running one-off
organized start-up events, using competition
tools, sharing resources, and providing start-
ups with co-working spaces.
6.5 Trend spotting: innovation outposts
If companies want more regular or structured
engagement with start-ups, they can establish
dedicated “outposts” within the most active
FIGURE 25.3 Mind the bridge. The status of open innovation in Europe, 2018.
25. The role of start-up companies in creating job opportunities
506
V. Making business with new technologies
9. start-up ecosystems, such as Israel or Silicon Val-
ley. These often serve a trend-spotting function,
being a more structured way for scouting inno-
vative commercial or strategic solutions
(Fig. 25.4).
6.6 Acceleration program
Accelerators are a step beyond innovation
outposts, typically providing substantial sup-
port to start-ups, as well as deeper engagement
with the companies.
6.7 Procurement and codevelopment
For start-ups, a corporate client can provide
crucial validation; for companies, the procure-
ment is an important means of bringing in new
ideas and technologies or incorporating innova-
tions into supply chains for the benefit of the
end users.
6.8 Investments
Investment in start-ups requires significant re-
sources and expertise, often creating a competi-
tive advantage through exclusive access.
Sectors for investments include biotech, energy,
health, finance, communication, and retail, with
a slight preference for software and hardware
start-ups (Fig. 25.5).
6.9 Acquisitions
European companies remain significantly less
acquisitive than US companies. However, this
trend is changing, as more European corpora-
tions realize that the acquisition of young
companies is an effective way of building up
next-generation products, expanding to new
markets, or simply acquiring new (digital) capa-
bilities. Depending on the reason for the acquisi-
tion, start-ups either joined an existing unit or
continued to operate as an independent unit.
Some acquisitions are also aimed at internalizing
FIGURE 25.4 Mind the bridge. The status of open innovation in Europe, 2018.
6. Planning and control 507
V. Making business with new technologies
10. people and talent rather than products and tech-
nologies; in such situations the start-up team is
often integrated into the buyer’s corporate
structure.
6.10 Trends 2019
Inside the modes of collaboration between
companies and start-ups, we can highlight
some macro-trends for companies active in
open innovation (Fig. 25.6):
- Procurement (via funded proofs of concept
and codevelopment programs) continues to
be the predominant mode of corporateestart-
up engagement (the forecast is that 97% of
innovation leaders will use this mechanism).
- More corporations are planning to open
innovation outposts in Silicon Valley and
Israel. Six of 10 innovation leaders will have a
presence in Silicon Valley in 2019, and 5 of 10
in Israel.
- More corporations are abandoning/
downsizing their accelerator programs
(down from 69% to 60%).
- Investment and acquisitions are strategic
options prevalently used to leverage
successful commercial engagements. Only
50% of innovation leaders are using the
merge and acquisition channel, while 90% are
planning to invest in start-ups.
The current economic climate and political
uncertainty are not to be barriers to the growth
of open innovation; more troublesome are the
corporate culture of risk aversion and the inter-
nal processes that are the main reported obsta-
cles to innovation.
Another key barrier to implementation is the
lack of internal resources to support start-ups;
in fact, the open innovation units are typically
small and not generally able to manage the
growth of open innovation activities.
That is why innovation leaders are turning to
start-up scouting and outsourcing models, while
focusing their resources on internal
implementation.
7. Concluding remarks and future trends
Silicon Valley had been slowly baking the
venture capital model for many years before
the internet became usable (for lack of a better
term), and suddenly, this high-stakes game
was on the media radar for every investor in
FIGURE 25.5 Mind the bridge. The status of open innovation in Europe, 2018.
25. The role of start-up companies in creating job opportunities
508
V. Making business with new technologies
11. the United States waiting patiently for the “pub-
lic offering.” Every new business is a start-up,
but we use the term today in a way that implies
big money, innovation, Silicon Valley, Tesla, a
dubious idea, or a great idea like eBay or Tesla.
Genius or folly, being part of a start-up is a
badge of honor that says, “I am smart, I am
funded, I am going to be rich.”
The start-up cycle means big money is mov-
ing in, and with that money comes high-paying
jobs, local investment, and consumer spending.
Where the business cycle used to take years to
have an impact on an economy, successful
start-up funding can now take shape almost
overnight and give immediate juice to the econ-
omy, and in many cases, too much juice.
7.1 Implications of booming wealth
This type of activity propels the surrounding
areas into economic expansion, with large sums
of money flowing into local economies. The
best talent comes to participate, more innovators
come to harvest the talent, more venture capital
comes to fund the innovators in a high-level eco-
nomic cycle, but there is a downside.
7.2 Micro and macro
Boom and bust cycles are the expected
behavior of the start-up economy where
everyone wants a piece of the action. So, how
does this affect the economy on both the national
97%
60%
90% of
innovator
leaders
invest into
startups
50% of
innovator
leaders use
the M&A
channel
Silicon
Valley
Israel
FIGURE 25.6 Open innovation rate. M&A, merge and acquisition.
7. Concluding remarks and future trends 509
V. Making business with new technologies
12. and the local level? One of the general outcomes
of technical innovation is to automate or reduce
the labor required to make commodities readily
available or to automate manufacturing pro-
cesses. Sometimes these innovations are simply
for entertainment or go as far as providing some-
thing new that makes our lives easier. When a
high-flying start-up settles in a locality, all of
the benefits of high finance come along with it,
fueling the local economy on all levels. It is to
be hoped that, like in Silicon Valley, there is
enough momentum so that many new busi-
nesses homestead there, evening out the rough
edges of high-stakes betting. On the macro level
it can look a lot different. Innovations can ulti-
mately reduce jobs; more entertainment choices
can reduce productivity; more of a commodity
can cause deflation. While the presence of the
start-up economy contributes quite a bit to the
GDP, there is an offset that can occur due to
the success of the business or technology.
7.3 The end game
Start-up impacts on the economy are not as
straightforward as you would first think. At first
glance we might give a huge thumbs-up, but the
downstream ramifications of the boom and bust
mentality and the effects of innovation on jobs
can be negative.
We could have some mixed effects, not al-
ways positive, on the economy in general. We
can have positive impacts on local economies,
but questions on the validity of the GDP mea-
sure, and many on Main Street are left behind.
For sure, the impact of the start-up economy
has changed the way we investdvalue is out,
speculation is indcreating jobs here, maybe
reducing jobs there. At any rate, we can have
exciting dreams of high finance for great ideas,
confident that everywhere innovation comes,
progress is also always present.
List of abbreviations and acronyms
GDP gross domestic product
IPO initial public offering
M&A merge and acquisition
SMEs small and medium enterprises
VAT value added tax
Further reading
[1] Evolve N. 1- May 2018 The Maire Tecnimont Group
Magazine.
[2] Be Adaptive e how to turn the change into evolu-
tionary growth.
[3] VZ19 STARTUP FACTORY.
[4] Report “Restart Italia” of the Italian Ministry of Eco-
nomic Development.
[5] R. Grant, “Analisi strategica per le decisioni aziendali”
e Il Mulino, bologna, 2011.
[6] R. Grant, “Contemporary Strategy Analysis” e
Blackwell.
[7] M. Dogson, D. Gann, A. Salter. “The Management of
TechnologicalInnovation” e Oxford University press.
[8] Henry C, “OPEN (modelli di business per l’innova-
zione)” e EGEA.
[9] Il Sole 24 Ore.
[10] https://www.mise.gov.it.
[11] https://medium.com/nana-bianca-community.
[12] https://mindthebridge.com.
[13] Evolve N. 2- November 2018 The Maire Tecnimont
Group Magazine.
[14] Ride the Turnaround e Connecting Talents to Drive
Change.
[15] World Economic Forum .
[16] Startup Europe Partnership.
[17] Globalization 4.0 e Shaping a New Global Architecture
in the Age of the Fourth Industrial Revolution.
25. The role of start-up companies in creating job opportunities
510
V. Making business with new technologies
