Tech start-ups turning to incubators and crowdfunding for finance – Osborne Clarke

Technology entrepreneurs are tapping into non-traditional sources of finance – such as incubators, accelerators, and crowdfunding – in order to get their fledgling businesses off the ground, according to David Miranda, partner at Osborne Clarke in Madrid.

“Start-ups need money to develop their ideas but banks do not provide financing without a solid balance sheet,” he explains. “Traditionally, there have been three sources of financing for early stage companies –  the ‘triple F’ of friends, family and fools, as well as ‘angel investors’ and venture capital firms, but, as of late, we have seen an increasing number of ‘incubators and accelerators’, particularly in Madrid and Barcelona, which provide training, mentorship and resources in exchange for a stake in the capital of the start-up.”
Miranda cites recent research by Venture Watch, which states that venture capital funds and business angels account for more than three quarters of start-up funding. Public finance, meanwhile, contributes around six to seven per cent. Miranda says that, during the last year, crowdfunding has become increasingly popular, partly thanks to the new crowdfunding regulation approved by the Parliament last April.
“There were already a number of platforms operating in Spain but the new legal framework will probably boost this sector, which just accounted for a residual three to four per cent of the whole start-ups finance market in the past few months,” Miranda says.
Financial considerations are not the only concern for start-ups, which also have to pay close attention to “building the right team”, Miranda claims. Investors set their sight on the founders, especially their relationships, their past entrepreneurial experience and their mentality. Building up businesses also requires astute legal advice, he adds.