More than 100 investments with an aggregate rate of return of 20%. What have been the key drivers to achieve this success?
My vision since day one was to find correlations between different variables in different sectors, and this was before big data was available. Since Italy is 90% SMEs, especially so in the Venetian area, instead of getting involved with something large, I decided to invest in companies where I could understand 100% of what was going on regarding marketing, production, and communication. During the first phase, it was difficult to demonstrate that my theory was right, because we were doing minority cases. By the end of the 1990s, I realized that my approach was right in many cases. Over the years, we have found that in order to create value, you need a vision, and the vision can be substantiated by an opportunity during a change in the system. We need to sell companies that are better than companies that we acquired.
What are the defining criteria in selecting the companies in which you will invest? What success stories are you most proud of?
The movie theater sector with Space Cinema is a great example of discontinuity. We entered a sector with no margins; everyone expected technology to kill the sector, as people shifted to watching movies on their phones, tablets, and computers. We looked at it from another way. In the US, the sector still represented aggregation from a social point of view. Starting from this observation, we envisioned a different market. Everyone was losing money in the sector due to extremely high fragmentation and conflicts of interest; most of the players were in the production business as well. They had to make money selling movies and were negotiating with tough distributors. We started by investing in side businesses such as food and books that are sold there to solidify our revenue streams. We did not see a reason for theaters to be empty on Saturday mornings, for example, and began streaming football games or documentaries for schools, or live opera using satellite technology. We boosted sales that way and consolidated about 30% of the market share in Italy. Then, it was time to go to the majors, and we told them we did not want to pay the huge prices they were demanding. After negotiations, it became a sector where everyone makes money. We were truly a game changer, and even though it is not well known, we made a difference. Then, there was Pittarosso; the success there was starting to apply the same industrial approach of continuously changing the collection, applying a fast fashion vision to the shoe business for the first time. For Forno D'Asolo, it was more of a straightforward situation, as we believed the frozen food technology could improve enormously. It is the only company with its own frozen food distribution chain. We invested heavily in technology, and the quality of the product increased. We also made many investments in terms of the workforce. That was the first case in which we fully applied the shared value approach with local communities and schools. There is also a case in the wine industry with Farnese, perhaps the most eloquent case of shared value. We collaborated with entrepreneurs talented in commercial business to design a method to teach small local suppliers how to maintain a high level of quality that takes quantity out of the equation. We designed a program to certify good suppliers, which changed the process in the sense that people who truly care about their vineyards can continue to do an incredible job and gain recognition for it rather than rushing to produce a large quantity of wine. It was a sector that was doing well but had not seen big growth; however, as a result of our work, we tripled sales and profit. On average, the above companies have tripled their profit.
What sectors hold the biggest potential in the coming years?
I look for situations where we can add a different perspective. I am skeptical of anything where we are expected to work in continuity. We do not say we have to be revolutionary, though we are looking for something new. Today, with technological advancement, all sectors are heavily influenced. People live and work differently than they did before. People eat and move differently. Therefore, distribution and food are at the top of my list.
What are some of 21 Invest's commitments to sustainability?
We are the first private equity company in the world to have joined Michael Porter's Shared Value initiative. When I first met Al Gore in the mid 1990s, he told me that when talking about sustainability, one has to make sure what they are doing is advantageous for people. We should focus on philanthropy and good practices; however, at the end of the day, the important thing is to make it convenient. I have always kept that in mind, and we have proven that commitment. Our business is to find excellent companies and spot excellent entrepreneurs that create value for both investors and society.
How do you plan to further increase the commitment of your investors in the coming years?
What makes us unique in today's landscape is that we are a good balance between a reasonable size and a distinguished footprint in the way we approach investment. Our competitive advantage is that each company, no matter how small, is part of our own family. We really do care and bring a level of relationship, knowledge, and brainpower. Having said that, growth is our objective. We probably grow every new fund by about 20% of the prior fund. We have an industrial vision, and one thing that is important is that our companies outperform their budgets after they are sold. This means we have done a good job.
How do you assess the appetite for private equity in Veneto?
Now, compared to where we started, there are many more options. It will continue to be a healthy business because, despite pessimism in recent years, looking at statistics, many companies are doing well. That says there is still fertile ground for entrepreneurs and activities, and I see no reason why that should not continue.
On the other hand, what challenges does this sector face?
They are many, including technological and managerial. Size is a factor. Sometimes, you end up in sectors where size does matter, and that means you need to know enough about managerial skills and organizational skills. In Italy, we are not strong in that respect. At the same time, there is an incredible level of ability in terms of adaptation, and we can capitalize on that.
What can we expect from 2020?
We are becoming better at measuring what we do and the shared value approach. There is a new aspect today that is profound and has not been recognized yet, namely social sustainability, which means taking sustainability to an even more advanced level. The consumer of the future will recognize the role of companies that care about social sustainability. This is a trend that we have been following since we were established.