First rule of talking to VC's — Show metrics that support the story you're telling
We talked with two of the most successful VC firms in Spain — this is what they think of the future.
The VC landscape in Spain has changed drastically the last decade, but two firms that have been consistently making investments in Spanish entrepreneurs for a long time are Nauta Capital and Active Venture Partners.
We invited two of their partners, Jordi Viñas and Blair MacLaren to discuss the Spanish VC landscape, how entrepreneurs should approach investors and how much VC's should offer startups apart from money.
VC's are startups
Just like with entrepreneurs, also VC's need to ask for money to invest, a process that can take up to 3–4 years, according to Viñas from Nauta:
Many entrepreneurs think we are banks, but raising money for investing in startups is actually very hard, and often takes more time than for a founder to raise money for a startup.
Nauta started with four partners and colleagues working together in a consultancy called the Diamond Cluster, which at a point decided to switch line of work and help entrepreneurs build companies.
They have raised four funds with portfolio companies such as Social Point, Scytl and Privalia. Their last fund was closed two weeks ago counting $170 million, where 1/3 will be invested in Spain.
Most entrepreneurs do mistakes early in their career, and so did Nauta with their first venture fund according to Viñas:
We made a lot of mistakes with our first fund, too few investments, no thesis and no geographical focus. We managed to raise another fund in 2006, and since then we've had a much clearer thesis and strategy for our investment, and that has paid off.
Active Venture Partners started out at the same time as Nauta, in 2014, by managing a fund of a family office in Barcelona called Molins Capital. They have since raised a second fund of €54 million from different limited partners with portfolio companies like Buyvip and Ticketbis, and are currently planning to raise a third fund, according to partner MacLaren:
We’re in the process of setting up a third fund. We started out at the same time as Nauta, but the experience of our partners is a bit different. All our partners come from different backgrounds, everything from IT entrepreneurship, to investment banking and consulting.
Just like Nauta, also Active admit doing mistakes in the beginning of their investment careers:
Our initial mistake was investing in innovation, also non-tech. The technology investments went well, but the non-tech didn't. Now we're only doing tech investments.
All about execution
Starting the process of investing in a company comes long after the VC's actually get to know the founders, according to MacLaren:
We often start talking with people 18 months before they actually need funding, so we already have a relationship.
When MacLaren and Active look for promising projects it's not so much about metrics and numbers, as it is seeing that the entrepreneurs have been able to reach the milestones:
I want to see that the startup has been able to execute on the goals they told me about. If not, I want to know why, and what they have learned in the process.
If you show me metrics I want them to match the story you're telling me.
The partner goes on to explain that they can invest in a company without a clear business model, but then both the team and the technology must be extraordinary and the plan on how to use the tech must be clear:
We did one of these investment, Traity, which made a passport for your online reputation. Obviously, we can't have a portfolio full of these companies without a business model.
If Viñas from Nauta would shorten his basis for investing in a company into one sentence it would sound something like this:
We're looking for a strict consistency between who they are today, how much money they are raising, and who they want to be when that money disappears.
The goal he explains is that 18–20 months after the investment both the company and the investors have several options. Those could be selling, continuing towards profitability etc.
On average he explains that they're looking closely into three companies every month.
While we're talking about VC's — also read:
Investors providing services or just money?
An increasing amount of investors are providing more than just money to their portfolio companies, like recruitment, marketing, and other services.
MacLaren is not convinced that VC's should do too many services for their portfolio companies:
If you're investing in seed-stage projects with few employees you might be able to add value in terms of marketing or hiring, but for us who invest in later stage companies with a team that can be between 50-100 people, it's limited what we can offer them.
He adds that this kind of service providing is something Active is considering going forward with, but not as a standardized offering:
I think good investors see where they actually can add more value than the founder can, and help out, but they also see where the founder is good on his own.
Both Viñas and MacLaren have noticed stronger verticals among VC’s, and Viñas mentions several names of firms he thinks are positioned well in Europe:
If I would mention someone by name, I would say more niche firms such as Point Nine Capital in Berlin, and in London, you have Passion Capital as well as Notion Capital.
MacLaren adds that when working towards a certain niche, it becomes more natural to add more than just your money.
The more you’re going into a certain vertical the more you dominate a market and the easier it will be to offer add-on services because your network becomes more focused.
Entrepreneurial ecosystem getting better, but not good enough
Viñas thinks entrepreneurs in Spain have advanced a lot the last years:
The quality of Spanish entrepreneurial projects has significantly improved over the last decade, but it’s still not where we want it to be.
He adds that he thinks it doesn’t boil down to money or funding, but it’s about a culture change, education and schools:
Money is around when the quality of the project is high enough.
Viñas has partners in both London and Boston, and notices a drastic difference in good deal flow:
My partners could invest in projects every month because there’s a steady stream of great startups. We don’t see this in Spain yet, and the great projects come in periods, so for example 2016 was a good year for us, but 2017 has been dry so far.
MacLaren sees a strong SaaS community along with other verticals continue to grow in Spain:
The startups we will continue to see grow in Spain are the ones that are easy to start, because there are many who look to become entrepreneurs, but with limited funds. Examples are SaaS companies and apps where a small group with few resources can get started fast, and this model can be applied to many types of verticals.
To get all the insights from the two experienced VC’s see the full video here.
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