What does an investor look for in an entrepreneurial project?
Luís Martín Cabiedes is one of Spain’s most well-known tech start-up investors. He was the co-president of Europress for 12 years. In 1998 he started to invest in fledgling tech companies and he has not stopped since: first as a private investor and, since 2010, as director of his own capital risk company Cabiedes & Partners. He has invested in more than 40 tech and internet-based startups including OLE, Myalert, and, more recently, Privalia, Trovit, Offerum, ByHours and Blablacar. He gave a lecture at UPF Barcelona School of Management to about a hundred students and entrepreneurs, organised by the UPF Business Shuttle Innovation Unit, the UPF Barcelona School of Management and UPF-IDEC.
“The objective of an investor is not investing but disinvesting. That is, being able to get your money back” he explained, proving a helpful example: “We have just sold Trovit to the Japanese company Next for €80 million”. He added, “But do not be mistaken, the aim is not just to sell and get money out of somebody. First you have to work hard and generate profit. This should be your objective”. The Spanish advertising portal Trovit made a profit of €17.5 million in its last financial year and is active in 39 countries (mainly Europe and Latin America). How does this happen? Martín responded: “By working hard, being lucky and generating money”. According to Martín Cabiedes, to attract investors, a project must have three attributes:
- Viability: Martín Cabiedes spoke about the viability of a project from two different perspectives. Firstly, a project must have a well-defined and segmented target market (that is, have the first 10 clients identified, including name and surname). Secondly, it needs a competitive advantage, though competition should not be a worry since any business can be copied and so competition will arise in the long term.
- Feasibility: the project needs a diverse, balanced team who are capable of carrying out the project. A team that can do the job, including a technician, an entrepreneur, a financial officer and a sales person. A team able to explain the timing of the project, why now is the best moment to launch, not before or after.
- Investment-friendly: this is where the investor comes into the equation, assessing the capacity for return on the project. An investor is looking for scalable profitability, usually seeking to multiply their investment by 10 (the average in the sector), and the capacity to generate money (not floating capital but cash profit). All investors analyse and consider the exit strategy that will provide the return on investment.
Even with all these factors, Martín Cabiedes affirms that there is no magic formula, that what an investor does is to seek high profitability in order to compensate for the high failure rate of about 80%.