He's 30, Raised $25 Million, and Bought Two Boring Businesses | Giuseppe Balzano Interview

A 30-year-old buys Italy's overlooked industrial monopolies

Novaterra is a permanent capital holding company buying Italian industrial businesses with defensible technology, and Giuseppe Balzano intends to own them for decades. He raised $25m over two years from 15 or 16 investors who accepted a handshake buyback instead of a fixed exit. The edge is Italy's overlooked supply chain and a sourcing engine of phone calls and visits that no one else is running.

Takeaways

• Novaterra is permanent capital, not a fund. He says it is the first and last company he wants to build, and he hopes his children own it. A mentor who has held one company for 42 years invests and sits in governance.
• Italy's niche industrial suppliers are overlooked. His engineering background drew him to Italian supply chains that have led narrow niches for 40 to 50 years. Novaterra reviewed 1,300 companies this year with one analyst, and he says nobody else in Italy does this.
• Sourcing runs on calls and in-person visits. He built 130 mandates with accountants, notaries, banks and advisers and ranked a universe of 4,500 Italian companies. He makes seven calls a week and visits one company, because owners near 80 do not use email.
• Both acquisitions hold defensible near-monopolies. One makes a component that checks quality in pharmaceutical and food machinery, the only Italian company left in a niche that once held about 20. The other supplies aerospace and avionics with 700 IPs. He keeps management in place and leaves the CEO.
• Fundraising took two years and 130 conversations. He had more than 120 conversations with funds and angels and ended with 15 or 16 investors. He lost those who wanted a put or an exit in six to eight years and settled on a handshake buyback promise.
• Almost all his wealth sits inside Novaterra. 99.5% of his wealth is in the holding and he is a minority shareholder with two of five board seats. He took no salary for two and a half years, and team bonuses must be partly invested in equity.

Novaterra's next moves

• Novaterra has approved a $25m capital increase and targets three or four acquisitions a year. Going faster would need more capital and dilute Giuseppe.
• With $25m of equity and $25m of debt, buying at four to five times earnings gives $10m of cash flow, about $8.5m of it free cash flow for more deals.
• He may pause for twelve months to let cash flow build, and would return capital to shareholders if the best company in Italy appears.
• A third deal, in water management, is in exclusivity, and he says the holding model is now better understood in Italy, so local fundraising is easier.