Looking for adventure

Despite some uncertainty in the Iberian market, venture capital funds view Spain and Portugal as investment hotspots – but complex regulatory frameworks mean lawyers are in great demand among investors

Despite the fact that venture capital funds are finding it increasingly difficult to identify investment opportunities in the Iberian market, the desire to invest is stronger than ever. This is the view of Ignacio Larrú (pictured), CFO of Madrid-based venture capital fund K Fund. Why is it difficult to find potential investments? Larrú highlights the “fragmented and opaque” nature of the venture capital scene as one of the key reasons, but don’t be fooled, venture capital funds are currently vying for the best opportunities in Spain and Portugal. Venture capital funds are always looking for the same thing. Larrú defines it as: “A good team in an attractive market with the potential for internationalisation.” However, it’s important to note that each investor is different. Larrú says that an investor looking at becoming involved in the early stages of a project is mainly looking for a good team in an attractive market, while an investor coming in at the later stages is looking for already established business models that are demonstrating growth and the prospect of profitability.


The attractiveness of different assets depends on the nature of the investor, according to Larrú. He says: “Some assets promise high profitability, but also have a high risk profile, while others have less risk, but also a lower margin of profitability.” K Fund invests in start-ups at the very early stages (pre-commercialisation), but also growing companies (in the pre-internationalisation) phase. “For us the most interesting assets are innovative models in growing markets,” Larrú says.
With regard to the types of investment that are taking place, Larrú says one of the main trends is a significant increase in early stage investments using a SAFE (simple agreement for future equity), whereas, previously, convertible loans were more common. A convertible loan is a loan with a warrant attached that gives the debt holder the option to exchange all or a portion of the loan principal for an equity position in the company at a predetermined rate of conversion within a specified period of time. Meanwhile, a SAFE is a future option to purchase an indeterminate number of shares. Unlike the convertible loan, it is not a debt instrument and it does not accumulate interest, something that benefits start-ups. When investing in the Iberian market, investors can benefit greatly from the help of legal advisers. “All help is welcome,” says Larrú. “The Spanish regulatory framework is complex and investors need help in understanding the risks associated with investments, especially in relation to labour or tax matters.” (j.f.)

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Juan fernandez