Spanish VCs urged to emulate US firms

Susannah Birkwood
15 June 2011

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Susannah Birkwood reports direct from the 25-year anniversary conference held by ASCRI, the Spanish private equity association.

"Spanish venture capitalists have so much to learn from their US counterparts," said Bernardo Hernandez (pictured) this morning in Barcelona. The Spanish business angel, who is also worldwide director of emerging products at Google, was speaking at the 25th anniversary congress of the Spanish private equity association (ASCRI).

According to Hernandez, Spain's venture scene, though 40 years younger than its American counterpart, would benefit from radical improvement on a number of levels. "We certainly need more entrepreneurs, but quality is just as important as quantity," he said. "One reason is that we're lacking in role models for the younger generation." Whereas millions of teenage cinema-goers looked to Facebook founder Mark Zuckerberg in admiration, Hernandez himself represents the closest thing young Spaniards have to a high-profile entrepreneurial icon.

Another factor limiting Spanish venture is the small size of local vehicles, which prevents VCs from making significant investments. Hernandez spoke of the difficulties the social networking site Tuenti encountered in 2008 and 2010, when it raised €9m from US firm Qualitas Equity Partners. "The sad reality is that no local venture capitalists had enough capital to support a round of that magnitude. That is one issue US VCs simply don't have to face." Had a Spanish VC existed with greater resources, it might have achieved the IRR of more than 30%, which Qualitas reaped on Tuenti's sale to Telefonica last autumn.

Show me the money
But what can be done to stimulate LP appetite and thereby increase the volume of Spanish funds? At present Ysios Capital Partners is virtually the only local VC boasting substantial foreign investment into its vehicle (although Europe-wide initiatives such as the European Investment Fund do hold stakes in a number of small-cap firms). Felix Arias of Barcelona-based investor Highgrowth Partners believes the single solution to attracting more local and overseas LPs is to generate higher returns on deals. "Investors need to be shown evidence of success and high profits," he commented. "We need to compete for the money and demonstrate that venture capital returns are as good as those in other asset classes. The only way to do that is through exits such as those we saw with BuyVIP [sold to Amazon by a consortium led by Cipio Partners] and Tuenti."

For Caixa Capital Risc's Carlos Trenchs, meanwhile, the lack of funding issue is merely a question of time. "Most US fund managers are now running their third vehicle, while Spanish venture players tend to only be on their first or second. It's already the case though that Ysios are doing deals with €5m tickets," he points out. "What's more, over the past couple of years, increasing numbers of VCs have launched specialist funds, which will allow them to involve more bespoke experts in their investment boards and will in turn lead to more active portfolio management. As time goes by and these same investors build up a track record and look to raising their third fund, it is then that they'll experience the most interest from LPs."