Angel Investors for Entrepreneurial Projects

10th anniversary of IESE’s private investors network

05/06/2013 Madrid

Red de Inversores

Listen to Your Business Angel. Building On 10 Years Of Learning

At the 10th meeting of IESE's private investors network, investors explain why 70% of success depends on the individual entrepreneur's willingness to work with the investor and learn from them and why they expect the entrepreneur to have invested what little money they have in the business. In the end, it's all about people: a first-class idea with a second-class team won't get anywhere.

IESE’s Private Investors Network and Family Offices is 10 years old. It is a platform that brings together private investors and some of the most active entrepreneurs in the country and now boasts more than 130 members. It is open to both IESE alumni and entrepreneurs and investors who are not linked to the school. Private investors, also known as business angels, play an important part in this network. Business angels are well known in countries such as the United States but are less well established in Spain.

As well as capital, investors provide key elements for developing entrepreneurial projects, such as knowledge, business acumen and a wide network of contacts. They usually have the same modus operandi: they provide capital for the companies they are investing in and after five for seven years, when the business is already functioning, collect their profits and end their links with the company. All of these questions were discussed during the meeting “10 Years of the Network” which was held on June 3 on IESE’s Madrid campus.

During these 10 years the platform has participated in 70 investment forums and more than 60 operations, investing more than €15 million to help various entrepreneurial projects. All of this has translated into the creation of 1,900 jobs and sales of €606 million, said IESE Prof. Juan Roure,  the network’s director.

“Entrepreneurship is at the root of what IESE is about,” Roure said, pointing out that during these 10 years the climate has changed considerably, given the economic crisis. The professor advised investors to bear a number of things in mind: look at a lot of projects before making a decision; analyze the quality of the team you are investing in; only invest if you are certain and in sectors where you have previous experience, and have a portfolio of various projects.

The perfect business angel

How can you become a perfect business angel? Various entrepreneurs who took part in the event agreed that investors shouldn’t take up too much of the entrepreneur’s time, should act as a collaborator and bring experience. “The entrepreneur has to be aligned with the investor and has to be clear that the investor wants to get their money back. You have to be honest and look for an exit if necessary,” said Josep Arroyo, vice president of Actuate. In his view, the mutual respect between the entrepreneur and investor is essential. “If you think about the client, things turn out well. If you only think about yourself, it goes badly,” said Hugo Palomar, cofounder of Byhours.

All of the entrepreneurs who took part in the meeting agreed that there is a problem that small and medium-sized businesses lack liquidity and also with late payment on the part of many suppliers. They also agreed on the importance of starting a business with a partner and never alone. “The feeling of having struggled when you haven’t got anything is the best thing you get from this experience,” said Palomar. “It’s difficult to conceal information in a company. You must never lie to the investor,” said Jacquez Giribet of I-DAPT. “I would like to give back to society what I have received,” added Víctor Sánchez of Onbile.

Jacinto Roca, creator of Wuaki TV, delivered a clear message. “You have to take risks to be successful. If you don’t take risks, even if your idea is brilliant, you never win,” he said. “This country lacks people willing to take risks, whether as entrepreneurs or investors.” And he regretted that in Spain there are no risk capital funds of the kind that exist in the United States. He also emphasized “the social aspect” of entrepreneurship. “It’s essential to be able to share the spirit of entrepreneurship if society is to move on from where it is,” he concluded.

Accepting failure

François Derbaix, founder of Top Rural, a company that he sold for €14 million, confirmed that many entrepreneurs and investors have to take on risks. “What is missing is the acceptance of failure.” And he made it clear that very often “being an investor is the opposite of being an entrepreneur.” “The investors should leave the project when he or she sees that their interests are not aligned with those of the entrepreneur. There are often conflicts of interest, this is only natural,” said Luis Martín Cabiedes, investor and partner in Cabiedes & Partners.

Lucas Carné, cofounder of Privalia, said that experience was key, especially in risky projects. He also listed the key factors behind the success of his company, a leader in Internet sales: the execution of the business model, ambitiousness from the outset and the global vision applied to the business plan.

Much was said during the meeting about the role of the public sector in entrepreneurship. “The public sector should light the fuse, stand back and let the private sector get involved in the project as these are the people who will take the reins of the business,” said Joan Tarradellas of ACC1Ó. He said public administration should take the least risks possible and should focus on regularizing the market in which he said there was a “certain amount of chaos” and “an inflation in the networks of business angels and projects.” In spite of everything, support for entrepreneurship is “more necessary than ever,” he concluded. “There is no inflation of networks in Spain,” said Manuel Valle, president of Enisa. “On the contrary, there is much to do.”

Sergio Arzeni of the OECD commented that “we need as many investment initiatives as possible for the future development of Europe. It’s important to encourage business angels through tax incentives.”

Both Arzeni and other speakers agreed that any investor must be clear that they are going to lose 80 percent of the money they invest. “If you’re not clear about this, forget about going into business,” said Arzeni. “You must have a range of well-distributed investments, you can’t put all your eggs in one basket. This has been a common error in recent years,” said Xavier Arquerons, an angel investor. He was clear that in order to be a business angel you must know how to lose money. “Without patience or calm, it’s almost impossible that an investment will turn out well,” he said. In his view, it’s up to the entrepreneur to develop the project. “We help them, we finance them, but the development of the project is the job of the entrepreneur. He or she must be accountable for how well the project is going in the context of the business plan,” he concluded.