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Ugo Fratesi Politecnico di Milano and University of Pavia and Vittorio Modena

PAXIS JOINT WORKSHOP - Salamanca, June 2005 The attitude and the potentiality of VC in Italian small firms: a comparison of a traditional and a new sector. Ugo Fratesi Politecnico di Milano and University of Pavia and Vittorio Modena The University of Pavia. Objectives of the work.

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Ugo Fratesi Politecnico di Milano and University of Pavia and Vittorio Modena

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  1. PAXIS JOINT WORKSHOP - Salamanca, June 2005The attitude and thepotentiality of VC in Italian small firms: a comparison of a traditional anda new sector Ugo Fratesi Politecnico di Milano and University of Pavia and Vittorio Modena The University of Pavia

  2. Objectives of the work • To compare a new and a traditional sector on: • Knowledge and attitudes towards VC investment • Potentiality of VC to induce growth • Case study: Italy • Small and medium enterprises Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  3. Traditional sector: automotive • Capital intensity • Mass customization and “Lean production” method • Production is pulled by demand (just in time) • Production is a continuous flow • Production localised close to the final markets • Economies of scale at network level • Shrinking but long life-cycle of products Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  4. Traditional sector: automotive (2) • Outsourcing and global sourcing • First tier manufacturers (OEM) are also multinationals • Stricter ties with suppliers • Importance of co-location • High costs of R&D • SMEs tend to be low tier suppliers Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  5. New sector: software • Classified as services • Not all software is sold in the market • Immaterial imputs and outputs • “Experience good” • Role of knowledge (external and internal) • Role of R&D • “craft” activity Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  6. New sector: software (2) • Reproducible products • 2 types of firms: • Software producersHigh fixed costs, low marginal costs • Software servicesLower fixed costs, higher marginal costs Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  7. Italian consistency of sectors Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  8. Italian consistency of sectors Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  9. Geographic location (automotive) Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  10. Geographic location (software) Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  11. Methodology • Face to face interviews:Semi-structured questionnaire involving 6 topics: • General data, economic activity, growth, innovativeness, financial aspects, attitude towards VC • Interviews with informed persons Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  12. Automotive components Sector in crisis Automation as answer to competition Perceived advantage of quality Software Sector in a “consolidation” period M&A Perceived advantage of quality Results (1) Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  13. Automotive comp. No business plan Very small quota of market Adaptive behaviour Low innovativeness Minimum prices and low margins Standardized products Software Few business plan Self-limited market Small quota / niche High innovativeness Reasonable prices and customer assistance Results (2) Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  14. Automotive comp. Negative attitude towards banks Self-financing Incremental investment Software Negative attitude towards banks Self-financing Low initial invesment Higher needed investment above a ceiling Results (3) Financing Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  15. Automotive comp. VC normally not known Superficial knowledge Software VC normally known Knowledge normally superficial (confused) No knowledge of international VC No knowledge of mechanisms Results (4) VC awareness Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  16. Automotive comp. Normally no willingness to lose control Lacking ambition Low managerial abilities Who will take control? Software Less problems in giving up control with guarantees Higher ambition Low managerial abilities (perceived) Search of an industrial partner Results (5) VC attitude Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  17. Automotive comp. LOW Market is conservative Price concurrence already very high Difficult for SMEs to introduce innovations Sotware MEDIUM Market is (less) conservative Quality difficult to detect Difficult to reach the markets even with new and better products Results (6) VC potentiality Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  18. Automotive comp. LOW Incremental investments Difficult to get high returns investing in this sector Sotware MEDIUM Set-up of market structure Possibility of good returns Firms don’t search VC because they feel to be too small Results (6) VC potentiality Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  19. Automotive comp. LOW Need of structural change Sotware MEDIUM Need of structural change Products in pipeline Products with wider applications Difficulties to hire managers Overestimated advantage? Results (7) VC potentiality Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  20. Conclusions • More and better information is needed both in traditional and new sectors • Need of “learning” mechanisms? • Lack of investments in the range 200,000 to 800,000 Euro • VC alone not enough: need to assist firms/entrepreneurs with managerial expertise Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

  21. Thank you ! Ugo Fratesi Università degli Studi di Pavia and Politecnico di Milano P.zza Leonardo da Vinci, 32, I-20133 Tel. +39-02-2399-3966 ugo.fratesi@polimi.it http://www.unipv.it/ester/index.html Ugo Fratesi - ESTER project - PAXIS Salamanca, June 24, 2005

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