Every startup aspires to be chosen by investors who will make it grow. However, it is estimated that only 1% achieve it, so it is vital that entrepreneurs open themselves to the other financing options available. To present these alternatives, Banco Sabadell’s BStartup has organized the session The challenges of financing your startup today in the Ágora auditorium of 4YFN (4 Years From Now), the great meeting for the ecosystem within the Mobile World Congress. Participating in this panel were Ángel Buigues, BStartup segment director; Laurent Arens, director of BStartup10, Anna Niubó, investment manager of Sabadell Venture Capital, Lluís Vidal, CEO of Exoticca, and Jaime Medina, CEO of Startup CFO, served as moderator.
All the speakers have agreed on encouraging startups, even if they are in an incipient phase, to seek support and advice from financial entities in order to build a relationship necessary for other phases of their project.
“Venture capital is not for everyone.” This is how Laurent Arens, director of BStartup10, and focused on the equity part, is clear, for whom “capital is the most expensive means of financing, since, although you do not have to return it, you are giving up part of your company to the investor. , and this tomorrow will have a much higher cost than traditional financing. Venture capital requires adapting your business structure for a hyper-growth model and entering the cycle of growing very quickly, oversizing your structure to seek more rounds when you run out of money. Therefore, this type of growth is not made for all startups, you have to know very well what you want for your company.” BStartup10 is Banco Sabadell’s investment vehicle in emerging companies based in Spain, and invests mainly in projects in the seed and pre-seed phase.
Along these lines, Jaime Medina, from Startup CFO, points out that “startups are facing additional challenges right now than those they have always faced: by definition it is very difficult to grow an innovation business, but now the sources of financing, especially venture capital, is costing more and investment times are lengthening. That is why it is advisable to complement with bank financing.”
With the vision that daily work with startups for nine years gives him, Ángel Buigues considers that “the current context of capital investment has been slower than in previous years. We see a positive aspect in the startup sector, and that is that the majority have been able to adapt to this scenario and prioritize more solid growth. This allows them to find new financing opportunities, such as banking, in which the risk-return binomial would be positioned in a different space than capital investment.” For the BStartup segment director, “a key aspect is knowing how to identify the best financing opportunities, according to the need that has been identified, optimizing or making more efficient the cost of debt and the guarantees of success when seeking funding.”
For her part, Anna Niubó confirms that “now in the ecosystem the pace at which investment rounds are closed is slowing down, startups must have a plan B to achieve profitability in case the round does not end up happening. At Sabadell Venture Capital we invest in both equity and debt, and we encourage all startups that are not afraid to contact us, even if they are at a very early stage, because relationships are built over time and we like to monitor them from very early stages. ”.
Niubó explains what venture debt consists of, a lesser-known option halfway between equity and debt that Banco Sabadell launched for the first time in Spain: “it is a hybrid product between capital and debt, much more expensive than bank debt, but much cheaper than an equity investment round due to dilution.” The investments in this case range from 500,000 to 10 million euros. “It is a complex product, in which the terms to take into account are interest rate, grace period and warrant coverage, a percentage in the form of shares in the company,” he adds.
Finally, Lluís Vidal, founder of the startup Exoticca, values ??that “now the ecosystem is more sophisticated, you have more options and you have to dedicate more time to understanding the market and focusing on the business. In this sense, it is relevant to know when it is time to request a complementary receipt from the bank.”
Faced with the challenge of obtaining financing, the team of a startup must be “patient, positive and resilient, because it is a long process,” warns Anna Niubó, who considers it a priority “that they plan their investment very well, that they build relationships with financial entities. and the materials will be prepared from the first moment.”
According to Laurent Arens, “look for good partners, not only as co-founders when you set up your company, but when you go to look for financing avenues, whether it be a bank, venture or equity, you always add one more partner into your company.” . It is very important to know who you are bringing in, that they can help you grow, that they are aligned with your vision, with the team… go a little beyond purely money.” Thus, at BStartup 10 they support companies by advising them on growth models, attracting talent, how to focus the next round, how to make the business plan to reach the objectives and reach the next round…
Ángel Buigas also recommends “choosing partners who can give you an overview of various solutions and needs” and adds that from BStartup “we can develop many tools as a bank, we are flexible and we make the solutions more efficient.”
From the point of view of the entrepreneur, Lluís Vidal, whose company has managed to raise 60 million euros, “financing is not the most important thing, but building a solid business. Since the amount of time you have to dedicate to the venture is very complex, you must be well advised. That is why it is very important to build the relationship with investors, take advantage of their advice and define the type of relationship you want to create.”
As Jaime Medina summarizes, “each source of financing fulfills a function that has to be appropriate to the objective being pursued,” and he emphasizes that “financing is not an objective in itself, the startup has to eliminate uncertainty and multiply its growth. You will always need a certain amount of money, and no more, and from a specific source.” And since a startup has a lot at stake in the financial area and entrepreneurs are not always experts in this area, Medina advises “having the help of a professional to know how much you need and from what specific source, since they are very complex processes.” .
