Europe needs swagger

Italy: Europe’s next big start-up hub?

Italy's economy may have contracted for the past three years but one sector is giving entrepreneurs and investors some confidence: technology start-ups.

The growing success of Europe's technology sector has often focused on the powerhouses of the U.K. and Germany but Italy is beginning to gain traction.

Italy, the fourth largest economy in the Europe, was one of the worst hit during the financial crisis and the mistrust of large companies that rose during this period is one of the reasons people are flocking to start-ups, one investor said.

"I do think they (start-ups) have been getting a bit more help and focus in the last few years since the crisis where people have been generally got more skeptical about the big companies which In Italy that were seen as the ideal employers, people are more open to startups," Tony Zappala, partner at Highland Capital, an investor in Italian start-up Shopfully.

Start-ups ‘at the right price’

Italy is also enjoying an increase in venture capital money. Venture capital funding into the country hit $56 million in the first six months of the year, a 12 percent rise from the $50 million during the same period last year.

Filippo Monteforte | AFP | Getty Images

One start-up benefitting from the recent interest in Italy is Shopfully, which has made an app that delivers deals on products based on stores near where you are. Founded in 2010, the firm claims to be used by over 13 million people globally and works with over 200 leading brands and retailers.

Zappala led a 10 million euro ($ conversion) funding round in Shopfully this month. Stefano Portu, founder and CEO of the start-up, said that VCs find Italy attractive because valuations of companies are not too high, especially compared to more established territories such as the U.S. and other areas of Europe.

"If you are an analyst and you look in Italy, it's easier to find something at the right price in Italy rather than an overcrowded market in Berlin and London," Portu told CNBC by phone.

"There is less competition in terms of funding, so you can get better opportunities and a lot of funds are starting to see that."

Improving fundamentals

Italy's growing start-up scene has been helped by government backing. A group called Invitalia, owned by the Italian economy ministry, exists to fund projects across the country. It recently launched a 100 million euro fund, with half of the money coming from the government and the other half from private investors.

The Italia Venture I Fund aims to at investing in Series A rounds with sums of 500,000 euros to 1.5 million euros.

Domenico Arcuri, the chief executive of Invitalia, pointed towards this fund and other government legislation as the reason behind a renewed interest in Italy.

"Italy is again a place in which you can invest your money, your time and your energy compared to a couple of years ago. Our economic fundamentals are beginning to get better," Arcuri told CNBC by phone.

But Italy still has some work to do. Unlike Silicon Valley or even London, Italy does not have a lot of huge, international, success stories to point to. Online fashion retailer Yoox – which recently merged with Net-A-Porter – is one of the country's tech darlings. Arcuri admitted that two challenges include getting global financial investors to put money into Italian start-ups, and also fostering an ecosystem for entrepreneurs. Still, he said country is on the right track.

"We are not at the moment the place in the world in which it's fantastic to create a start-up like Silicon Valley but we are definitely moving forward," the CEO told CNBC.