Abstract
This chapter describes the venture capital (VC) industry in Italy. Italy has historically been considered as having a bank-based financial system, with a relatively marginal role played by the stock market, poor shareholder protection, and significant importance of state-owned companies, even when compared with other countries in continental Europe. The chapter outlines the evolution of the VC industry since the mid-1990s in terms of investments, divestments, and fundraising activity. It also provides evidence that prove that New Technology-Based Firms (NTBFs) in Italy benefit significantly from VC investments. The framework of policies supporting VC has been described. Despite the bank-centric nature of the financial system in Italy that slowed down the emergence of the industry, VC has proved to be able to improve dramatically the performance of recipient firms. Nevertheless, this does not seem to be sufficient to feed the "virtuous capital cycle" that usually characterizes the VC industry. The recent evolution of the industry in Italy is interpreted as a switch in the demand/supply equilibrium with rational expectations on both sides: on the one hand VC funds do not invest in seed and early stage companies because of the lack of good investment opportunities; on the other, entrepreneurs, being aware of the scarcity of VC support for new firms, refrain from starting new ventures. The chapter concludes by defining those characteristics a VC-related policy should have in order to succeed.