Lucrezia Lucotti is an Investment Director at 360 Capital.

She joined the venture capital fund in 2020 following a first experience in strategy consulting at Roland Berger. She holds an MSc in Economics and Management of Innovation and Technology from Bocconi University in Milan with a Double Degree program in Strategy and Innovation at Wirtschaftsuniversität Wien.

Today, we welcome Lucrezia for a conversation on all things equity, 360 Capital’s investment strategy, and more you discover below. But first, let's get to know her better and dive into what makes 360 Capital truly unique.

Who is Lucrezia Lucotti & 360 Capital?

Lucrezia Lucotti has been a dedicated VC investor at 360 Capital since 2020.

Her primary role revolves around supporting the deal flow sourcing and scouting initiatives for promising startups within the Italian market. Additionally, she plays a key role in nurturing various companies within the extensive 360 Capital portfolio, contributing to the growth and success of these innovative businesses.

As for 360 Capital, it's different from your average venture capital firm. Established in 1997 with roots in Italy and France, this VC company has been at the forefront of funding innovation for over two decades.

They specialize in supporting digital, deep tech, and energy transition startups. 360 Capital provides the financial fuel, with investment tickets ranging from Euro 200k to 5M, whether at the pre-seed, seed, or series A stage. With a portfolio of over 160 companies funded and around 60 exits, they've proven their knack for spotting the next big thing.

360 Capital is also deeply committed to the energy transition, launching an Ecological Transition Fund in 2020 in collaboration with A2A. This forward-thinking approach signifies their dedication to sustainability and intention to continue investing in this crucial area.

The Investment Process of 360 Capital

Now that you know who Lucrezia Lucotti and 360 Capital are, let's peel back the curtain and look at their investment process.

Lucrezia and the team at 360 Capital have a clear vision when it comes to their investment process. They understand the unique challenges of the Italian market, known for its lengthy investment timelines, especially in critical sectors like deep tech startups. In Italy, navigating through bureaucratic problems often takes up to two months, creating delays in funding.

“Here, at 360 Capital, we are determined to streamline these processes and align with European investment standards. We aim to keep the process smooth and around 3-5 weeks before signing the term sheets.

Finding promising startups in Italy is more complex than waiting for them to come knocking. 360 Capital takes a proactive approach by actively seeking out potential investments.

_Here is what a typical investment process looks like: _

• The investment team does the scouting phase through our outbound process through different approaches.
• The investment team does the first call, and we decide based on our investment scope and thesis, team quality, technology risk, and market risk.
• The next step is the analysis phase with reference calls, a business plan deep dive, and other meetings involving our GPs.
• If everything is going well, we prepare an investment memo to inform the target team of our conditions and schedule an investment committee where the startup pitches in front of the GPs and the investment team.
• We draft a Term Sheet, and then we finalize contracts.

Our evaluation focuses on critical factors such as team quality, market potential, and technological readiness. We also understand the particularities of deep tech investments, so we also look for intellectual property and technology validation.”

Lucrezia and her colleagues want a transparent connection with founders beyond the papers. So, they organize an Investment Committee where founders present their companies to the entire fund team. So, the decision-making process involves a collective vote.

“Before we wrap up the term sheet, we sit for an honest chat with the founders. During this talk, we openly share our key terms, giving them a simplified summary of important things like valuation, dilution, ticket size, liquidation preference, and more.

It ensures everyone is on the same page before we take the next steps, setting a strong foundation for our partnership.”

360 Capital’s Approach to Equity Ownership

The primary message at 360 Capital centers on motivating and inspiring founders while maintaining a balanced perspective on equity ownership.

“We want our founders to be driven and ambitious in pursuing a successful exit. They must understand the significance of the quantity of shares they hold.

However, we also caution against founders becoming overly fixated on small percentage differences in their equity, especially in the early stages of their journey. In today's market, which has been challenging for over a year due to global events and economic uncertainty, fundraising has become more demanding, even for early-stage startups.

Over time, founders with relatively smaller equity portions in a thriving company fare better in negotiations and exit scenarios.”

Additionally, founders should be aware that they enter into a partnership involving certain decision-making clauses when raising from a VC.

“While they may still hold the majority of shares, it's important to understand that VC investors often have significant rights outlined in common term sheets.

Finding a balance between maintaining control and securing investment is key to fostering a successful and harmonious relationship with us as investors.”

The State of Equity Ownership in Italy

A good understanding of equity ownership in Italy varies depending on the region and the level of development within its startup ecosystem. In more advanced hubs like Milan, Rome, and Turin, there is generally a good understanding of equity-related concepts. However, this knowledge may be less present in other parts of Italy.

“In central startup ecosystems, such as Milan**, startups know what equity is and how to approach it in their company.** Most of them are coming out of accelerations and innovation programs, where they get access to learn about it.

However, the situation changes when you go into smaller ecosystems in Italy. More private individuals or corporations investing must familiarize themselves with cap tables and equity management.

Equity ownership dynamics in Italy have seen some interesting shifts, particularly during the challenging period of the COVID-19 pandemic and with the recent economic downturn due to the recession. In particular, over the last 18 months, there has been a significant decrease in the valuations of startups attributed to various factors, including the post-COVID economic situation, rising inflation, and higher interest rates.

These circumstances have led to a shift in emphasis towards profitability or having a clear path to profitability rather than prioritizing rapid growth without considering costs. Many startups facing fundraising difficulties in the last couple of years found themselves in situations where they had to part with a significant portion of their equity to secure much-needed capital.

“When money was hard to raise, especially during the first COVID-19 wave and in the last 18 months, we saw startups giving away a substantial portion of their equity to raise.

However, this isn’t necessarily a bad move. When you want to grow, and you still need funding to do it, you have to make a choice. It’s all about choices.”

We learn from Lucrezia that one significant challenge revolves around dilution at the pre-seed and seed stages, often caused by non-institutional investors or multiple financing rounds.

Another important aspect is the importance of the storytelling on a startup’s equity story when approaching the next financing round:

“If I raised a pre-seed at $2M post-money valuation six months ago. How could I raise a seed at $10M pre-money if great metrics and an attractive growth curve do not support me?

​​On the other hand, things are improving towards ESOP plans, which are perceived as a strategic tool to retain key talents and align the startups' objectives with the employees. Italian Accelerators and incubators are working to improve knowledge about these topics, but early-stage funds like 360 Capital are also dedicating ad hoc sessions to address this topic.”

The Impact of Equity in Funding Decisions

“Usually, we don’t receive good cap tables, and the majority we see are very basic versions in Excel that look messy.

As an investor, having a good and well-structured cap table indicates your quality as a startup. It’s also an indicator of your CFO and the structure of your financial department.”

In the Italian startup landscape, it's common for founders to part with a substantial share of their equity when securing funding from private investors.

“Accelerators and incubators are beginning to establish standard market practices, typically offering funding in exchange for a set percentage of equity, often around 3-7%.

However, in pre-seed funding rounds with private and institutional investors, you can still encounter a wide range of scenarios, sometimes involving exchanging a substantial portion (>30%) of the company's ownership for relatively small amounts of funding, which may seem unusual.

Sometimes, there is a cap table where the majority of shares is owned by some non-operative founders who are not involved full-time in the business.

So, in some cases, it is the consequence of difficult timing. However, for the majority, it needs more knowledge and culture. Here, we need better storytelling on equity importance across different funding rounds.

Every venture capital fund and individual investor in Italy should improve their knowledge of equity ownership and management.”

Preparing Your Next Round

In the context of equity ownership in Italy, early-stage startups seeking their initial funding rounds, such as a pre-seed raise, find it incredibly valuable to receive guidance from qualified investors.

“At 360 Capital, we strongly believe in the significance of this aspect.

It’s why we actively organize recurring masterclasses and events in collaboration with various accelerators and institutions across Italy, even with universities such as the Polytechnic of Milan.”

These efforts aim to empower early-stage founders incubated within specific programs to gain comprehensive insights into cap tables, employee stock option plans, term sheets, and other vital financial aspects directly from investors.

“This approach allows startups to establish a valuable connection with the entities they may seek funding from soon. There is a collective effort coming from other actors in the Italian startup ecosystem, such as the various incubation programs like Polihub, B4i, i3P, CDP’s many incubators programs, and Vento Ventures by Exor Ventures, which is also heavily investing in pre-seed stages.

When founders engage in these activities and address specific questions, it signals that these incubators and accelerators have done an excellent job preparing them for their fundraising journeys, emphasizing the growing importance of these educational initiatives in Italy.”

Resources mentioned in the discussion:

Connect with Lucrezia:

• Linkedin
• 360 Capital

Other Resources:

• A2A
• Vento Ventures by Exor Ventures