Venture Capital Market in Spain
A venture capitalist does not just throw money at a business in hopes that it will do well. The ultimate goal for any venture capitalist company is to have a company exit at some point. Efraim Landa is an entrepreneur and a venture capitalist who understands how both work. His VC company, Effi Enterprises provides venture funding to businesses which have a good chance of succeeding. Investment funding may occur at any stage of a company’s growth including early stage or late stage. Sometimes a company has a great innovative idea to work with but lacks the funds to try it out. VC firms can provide the funding which will be recaptured once the business goes public or is sold. Venture capitalists are very careful with their funding and are very selective about the companies that they work with as they want to help the company succeed to the point that it is profitable and can stand on its own.
History of VC in Spain
The Spanish government was behind the VC industry in Spain as they launched the industry in the early ‘70s. The basic idea behind it was to develop entities from the region which would be able to develop and finance industrial activities. In 1986, the first venture capital firm was established in Spain. In the next few years the industry saw 13 new entrances and exits each year on average at that time even though the market only had an average of 30 VC firms. The Spanish venture capital market became somewhat stable and developed trustworthiness mostly because Spain had plenty of access to the European Union. Between ’97 and 2002 the Spanish VC industry experienced unprecedented growth rates that ranged from about 30 to 40 percent every year. There were two things that fueled the massive growth: the Spanish government trying to create an industry which had some type of legal framework and the same low interest rates which Spain enjoyed after they entered the European Union. In about 2005 the government developed four actions which were designed to attract new VC firms as well as help the existing ones be even more successful. The legal and tributary restrictions that had been imposed on companies which invested VC funding were loosened. The government also launched a fund which could exclusively finance technological and scientific start-ups that came from college incubators. And they created a state company which could manage public funding which in turn was used for further VC public funding in various sectors such as the industrial and the tourism sectors.
How is the Spanish VC Market Different?
There are several differences that distinguish the Spanish market from the rest of the world. For one thing, much of the investments are for the consumer goods industry. This counts both transactions and amounts. Originally start-ups could expect to have 10 years of very rapid growth. But in the about 2004 there was a shortage in liquidity and this reduced the amount of money available for VC transactions. There were two main exit options: sale to shareholders, or to sale inside the industry. Even though the stock market was functional in Spain it was not even a marginal option during this period of time. It’s been a long standing tradition in Spain to avoid putting VC funds into technological and developmental sectors. They have chosen to focus their investing on consumer goods and basic goods instead. However, this trend has begun to shift toward the more traditional sectors and it is supposed that the VC investments in the next couple of years will begin to develop and remain at higher rates than most of the 2008 highs. The greatest challenge presently facing the VC firm in Spain is poor profits and the lack of willingness to re-invest on the part of VC firms.
Posted on August 4, 2013, in History of Venture Capital, VC investments, Venture Capital, Venture Capital Markets and tagged Efraim Landa, History of VC, VC Market, venture capital market, venture capitalist. Bookmark the permalink. Leave a comment.