Private investment in technology-based startups.
In Spain, there are numerous grants that make it possible to heavily leverage private capital with funds from public bodies. These funds can be obtained for very reasonable amounts that, most of the time, make it possible to develop prototypes, test business models, and pay decent salaries to employees and entrepreneurs for a reasonable period of time. And a proven business model is usually a very good argument for obtaining other rounds of funding from more generous private funds, which in turn allow them to be leveraged again with new public funds.
But, if it's so easy to get initial capital, why isn't Spain producing more successful technology companies?
We go in parts, although there is a good amount of public capital available, the problem is that to obtain it we first need private capital. And raising private capital isn't that easy. It is not for several reasons. The first is that in Spain there are numerous grants that make it possible to heavily leverage private capital with funds from public bodies. These funds can be obtained for very reasonable amounts that, most of the time, make it possible to develop prototypes, test business models, and pay decent salaries to employees and entrepreneurs for a reasonable period of time. And a proven business model is usually a very good argument for obtaining other rounds of funding from more generous private funds, which in turn allow them to be leveraged again with new public funds.
But, if it's so easy to get initial capital, why isn't Spain producing more successful technology companies?
We go in parts, although there is a good amount of public capital available, the problem is that to obtain it we first need private capital. And raising private capital isn't that easy. It is not for a number of reasons. The first is that venture capital in Spain is a recent business and as such it has had to learn the rules of the art... because learning is learned by doing. And since in learning by doing, error is the linchpin of the method, venture capital funds have made mistakes. And since they have made mistakes, it has been difficult for them to successfully divest and therefore even more so to get new funds back than to continue investing. To make matters worse, the time when almost everyone should divest has coincided with the economic crisis of 2008, which has helped to make matters worse. Consequently, in Spain, venture capital funds for technology-based companies with sufficient liquidity to participate in rounds of €1.0M or more can be counted on the fingers of one hand. And to close this paragraph and make everything clear, without private capital there is no public capital. Because the entire system on which the structure of current public capital is based foresees that its role is to accompany private capital. Which I particularly think is very accurate.
However, to take the first steps and get the first public capital aid, we could ultimately try to get by without having to resort to venture capital firms. However, since without venture capital funds, the capital that can be obtained is usually not much or very generous — neither in terms of amounts nor in terms of valuation — it is vital to know in detail the complete regulations (that is, the written and the unwritten ones as well) of all public aid, in order to achieve the highest possible leverage for each Euro of private capital. And this, as bad as it weighs us down, is a small science that requires a good dose of time and a lot of projects to perfect. Now if, once perfected, those who use this knowledge can gain a lot of ground.
Some time ago, a software company came to see us and told us that they had invested a huge amount of money in the development of a great product. And now I needed help for another significant amount of money to market the product... My partner and I looked at each other with dismay... we said before that venture capital firms capable of investing the kind of amount this company needed are few, very few. But the discomfort did not come so much from there, but from knowing that if they had come to see us before having decided to dedicate a large part of their own investment to software development, we could have instructed them to carry out a small increase in capital, to leverage it with that public capital specially designed to help in the R&D phase, and to save the rest of their capital and then dedicate it to developing commercial expansion - a stage in which - by regulation - there is very little public capital that can assume any role.
On another occasion, we had a meeting with some entrepreneurs who were planning to invest in the development of a very creative and very unique website at a global level, and they wanted to know how to leverage themselves with public capital. The problem is that they had already established the company and the owners were several different companies, some even interposed by one of the entrepreneurs themselves. The point is that all entrepreneurs did not manage to hold 51% of the capital and that some of the above-mentioned companies had more than 25% of the startup. And as they had done things, it was no longer possible to turn back. Without knowing or wanting it, they excluded themselves from one of the most interesting grants for technology-based startups, the Neotec I initiative.
Finally, a few days ago, a company asked us what to do, whether to request an Avanza Plan or an R&D Loan from the CDTI. As things in the Administration are changing with the same vertiginous speed with which technologies evolve, this answer is not the same today as the one we could have given a year ago, nor the one that we should possibly give a few months from now. But right now, unless the amount is very high, we think it's better to request a PID than an Avanza Plan. There are several compelling reasons: 1) The Avanza Plan is incompatible with almost all other grants, which means that during the period of analysis, other grants cannot be requested - even preventively -; 2) The amounts of grants - due to budget cuts - rarely reach the intensity of previous years (when they could reach 45%) and are rather in the order of a fifth of the total aid, which greatly assimilates them to the PID; and 3) The evaluation process of the Avanza Plan is temporary and closed, that is to say the evaluations are carried out once or twice a year, with little time between the submission of the bases and the closing of the presentations, and the analysts available to the Ministry of Industry, Tourism and Commerce for these purposes are so scarce that they do not have time to deepen the analysis with personalized interviews with any company, which, added to the large number that is submitted to this aid, makes the chances of receiving it quite low (in the order of 20%) .As can be seen, having good information when deciding The capital structure of a startup is not a minor issue, quite the contrary, it can represent the difference between the company's success and failure.
