Giovanni De Caro began his career in the world of finance with IntesaSanPaolo and since 2000 has entered the world of private equity as an investment manager. In 2008 he began managing venture capital funds, becoming over time a point of reference for the start-up ecosystem in southern Italy. With Vertis, he founded Univertis in 2022, the first business school to train young financial analysts experienced in private equity and venture capital funds. He is CEO of the company Volano, which does consulting for start-ups and SMEs and supports companies in strategic planning and investor search.
At SEIUNISA we had the opportunity to meet him.
Face to face with Giovanni De Caro
How did you get into the start-up world?
In fact, it was almost by accident. I was working in private equity, and as with all investment funds, there was an investment period and a management period. When the investment period ended, another fund was launched after management. This new fund was venture capital, in Naples, and I was asked to look after it. I had never done venture capital in my life; it was like taking a stake to the face. For a good year, I didn’t even know where to put my hands. Then slowly I learned and continued on that path.
Why did you choose the start-up world instead of staying in private equity?
Private equity is precision work, while venture capital is work that requires a lot of creativity. Precision is still necessary, especially when you go to negotiate contacts, but beyond that venture capital allows you to deal with the most disparate technologies, the most diverse business models, fields and even very particular types of people. In private equity, you typically face entrepreneurs and managers who already have their own history and established experience. In venture capital, on the other hand, you are dealing with much more interesting people, even from a human point of view. So venture capital is not only an investment and partner role acquisition, but there is also a “smart money” component. It is not just “money.” This must be complemented by other “smart” people or resources.
Can you explain what “smart money” means?
“Smart money” is an expression that stands for low-capital investment, to which resources must be added to help the entrepreneur. These resources can be skills, knowledge, experience. In a nutshell, you are paired with people who add value to the entrepreneur.
What does equity crowdfunding mean and how does it work?
Equity crowdfunding is a low-capital investment mode. This is a fund-raising system that allows people to obtain equity shares in exchange for an investment. This method can be very advantageous for startups seeking initial funding because it involves a high number of people investing relatively small amounts of money. This method is very different from venture capital, where the investment is made by a single investor or venture capital firm. In general, a venture capitalist tries to select the best possible venture and invest optimally, putting as little money as possible at the lowest possible valuation. On equity crowdfunding platforms, however, this reasoning is not done. While I as an investor have a specific interest in paying little because if I sell well I make a profit, the platform whether you pay little or pay dearly still retains 7 percent of the investment and this commission on fundraising defines its business model. In general, statistically, 20-30% overvaluation of assets is found in crowdfunding. In addition, because the main investor is the consumer himself, in equity crowdfunding you often have B2C business models as opposed to venture capital in which you invest primarily in B2B models.
What criteria do you use to select the startups you invest in?
When I select a startup to invest in, I try to identify the best possible opportunities and invest under the most favorable conditions. This means that I try to pay the lowest possible price to acquire the maximum possible share. The goal is to minimize risk and maximize gain.
How do you engage with investors to try to get funding?
This is a very sensitive issue. Typically a start-up to convince investors to give funds prepares a presentation to sell the idea. Often, if the pitch is weak or if the team fails to answer investor questions, even small ones, it is difficult for them to get funding. However, if the team is solid and the idea is good, the fundraising manager should help cover the gaps. It is critical to prepare the start-up in the best way to deal with the investor.
What are the key characteristics of a perfect pitch for a startup?
The perfect pitch must be thoroughly prepared and feature a solid, well-prepared team that can answer investors’ questions. In addition, the submitted project must be innovative and offer a competitive advantage over other solutions on the market.
What is the method used by funds to evaluate a start-up?
The funds have valuation models based on a method called the Venture Capital Method. This method takes into account three basic parameters: your ambition, i.e., your business plan; how the market behaves, i.e., at what prices companies like yours sell, or to be precise at what multiples of revenues they sell. These first two things, the revenues you expect to generate in 4 or 5 years, and the multiple of revenues at which companies like yours typically sell, are multiplied by each other to estimate the value of the company in 4 or 5 years. For example, if the multiple at which you sell a software company (SAS) is 5 times revenues and you think you will generate 10 million revenues in the fourth year, then the company will be sold for 50 million in 4 years. To estimate the present value of the company based on its estimated value in the future, a risk-adjusted discount rate is used. The higher the risk, the higher the discount rate and thus the lower the value of the company.
How is the discount rate determined?
There are methods that take into account a whole range of things about the life of the company, product, management, maturity, that help define, measure and quantify risk, discounting the value of the company.
When does risk appetite make an individual an entrepreneur and not a gambler?
They are two figures with completely different profiles. The gambler has something in common with the trader in that he or she is interested in making money in the financial markets. However, trading and entrepreneurship are two very different professions. The entrepreneur is born from a plan, not a bet. He has an idea to do something, and if he can put all the pieces together in the right way, he can complete his project. He is not betting.
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