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May 27, 2008

Globetrotting: Where Entrepreneurship Is Foreign

John Shoaf '10, Tommaso Pizzi '10
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This post is part of a series following the “Pre-MBA World Tour,” organized by Shoaf and members of the class of 2010.

To better understand the business environment in Italy, we attended a private equity conference, where we had the opportunity to meet with the U. S. ambassador to Italy.

After a successful career at his private equity firm, Freeman Spogli, Ambassador Ronald Spogli entered the U.S. State Department, where he came to believe it was in the best interest of the United States to help modernize the stagnant Italian economy. The embassy recently established an initiative called the Partnership for Growth, which is designed to help foster the entrepreneurial mindset in Italy through four main objectives: (1) stimulate the venture capital industry and promote Italian entrepreneurial role models, (2) modernize the country’s capital markets, (3) spur innovation by protecting intellectual property rights and (4) send Italian students to U.S. schools to learn the American way of doing business.

In fact, the Italian venture capital industry is really quite nascent. A major constraint is that the entrepreneurial mindset — which is quite common to most people here in the U.S. — is foreign to most Italians. One of the reasons for this lack of entrepreneurial drive is the fear of bankruptcy. In the U.S., most new businesses fail . . . and it’s okay to fail and try again. But in Italy, if a new business fails, it’s not just the business that fails, the entrepreneur’s personal life might be ruined as well (e.g., the person would no longer able to vote or get another loan, would experience social failure, etc.).

Italian investors are also not typically comfortable with stomaching the risk required for PE/VC investments; they prefer to invest in more traditional asset classes, such as public equities and bonds. As evidence, consider this statistic: in the U.S., pension funds typically supply nearly 60 percent of the total capital invested in new private equity funds. In Italy, pension funds supply only 1 percent of such capital.

The embassy is already seeing some good results. Last year, it sent several Italian investors to Silicon Valley to learn the American approach to venture capital. Within three months of their return to Italy, these investors have already established a formal angel network and reviewed nearly 200 new business plans! As you can imagine, there was a great amount of energy in the air at the conference.

We’re looking forward to the many opportunities to learn entrepreneurial skills at CBS — which hopefully can inspire a similar energy among our class, and perhaps serve as catalysts for change in the renovation of the Italian economy.

Photo Credit: Diliff