The legend that many of today’s large companies, such as Apple and Microsoft, began their journeys in garages gives us an idea of how difficult it can be to get off the ground. Starting a business and making it grow is complex, and there is one main ingredient without which it is hard to go far: financing.
Luckily for startups, the amount of money going into investments continues to grow. According to the ASCRI 2018 Venture Capital & Private Equity in Spain report, at the global level the recorded level of funds raised in 2017 exceeded all historic maximums at 453 billion euros – 9% more than in the previous year.
What does a startup that needs to find funding have to do? Firstly, understand the context in which it operates. “What differentiates a startup from a normal company is the technological aspect. Their potential is far higher than that of a normal company, but the risk is also greater”, explains Raúl Sánchez, Director of Public Sector and Institutions for Opinno, and senior research associate at the Centre of Innovation in Technology for Human Development itdUPM.
Before looking for investors, it is essential to have drawn up a plan in which the business is properly presented. Carry out risk, financial, and market analyses; explain the business model; introduce the team and, above all, translate the idea. “One of the main problems when trying to attract funding, if we’re talking about tech startups, is that your potential investor has to understand the need you are meeting and the technology you are using,” stresses Sánchez.
For this reason, the more specialised the investment fund is in your sector, the easier it will be for them to value your idea. “For example, if you are an insurtech startup, it will be easier to understand the need that you are meeting technologically in a place like insur_space,” says the expert.
Once you have the documentation ready, you need to knock on the money doors. Whether you approach the public or private sector will depend on how developed the idea is.
“If you are in a seed phase, existing for up to one year, it is better to opt for a public profile. In Spain, you can search for investments at the regional level, from autonomous communities and nationally. In Europe, you have European Commission tools and different financing options. At the international level, a company that is in Latin America, for example, can seek out international organisations like the World Bank and Inter-American Development Bank,” states Sánchez.
Later, in the one to three year phase, Sánchez recommends private capital: venture capital funds. “If you have a strong idea, and you are a startup with a product that is more or less tried and tested, it is easier to find funding. A good tool for searching for private capital is Google and the Startupxplore website, where all the information on venture capital funds is summarised,” says Sánchez. The expert reminds us that private capital takes a stake in the startup and has control over a part of it, but at the same time it often incorporates a very positive mentoring aspect to help the business model to be as feasible as possible. At insur_space by MAPFRE, this is what happens with the advanced startups on the adoption programme.
Finally, Sánchez notes that it is important to take context and timing into account: “Sometimes you have a startup with a fantastic solution, but it is too early for the market, as was the case with blockchain”. In any case, as the expert concludes, there is a great deal of interest in innovation and technology. This is a good time for entrepreneurship.