After the first answer, both Mr Cabiedes and I started laughing loud. He told me: “Ermanno, I’m a teacher in a business school“. I replied: “I know, and thank you for this stunning lesson“!
Luis Martin Cabiedes is a well-known investor, a leader in the Spanish startup scene with investments in Habitissimo, Rockola, Offerum, Uvinum, ivoox, Parabebes, Bankimia, and Zyncro among many others, and a teacher of Entrepreneurship at IESE, a Barcelona-based business school.
I often asked myself what’s was in the mind of a startup investor. In this interview, Mr Cabiedes shared a part of his knowledge and unveiled some pratical tips.
FinSMEs: Hi Luis, please can you tell me a bit more about you?
Luis Martin: “Hi Ermanno, I’ve been an angel investor since 1999. In 2009, I started managing a fund in Spain (Cabiedes & Partners)“.
FinSMEs: Which is your investment strategy?
Luis Martin: “We invest in Internet early stage startups having an International approach but founded and located initially in Spain. We invest approximately from €150k to €200k per deal in 10 companies a year, also trying to diversify a lot.
One year later, 80% of these companies won’t grow at scale and won’t deliver our money back. I basically stop investing in them. We ‘ll have two “winners” and we continue to invest from €1m to €2m.
“We follow a mix model, with a half of the fund made of a business angel fund (part of the money is mine), while the other half of the fund is made by resources from other people and I try to stay much longer than normal angel investors.
“We currently have a portfolio of 27 companies“.
FinSMEs: What do you look for in a founder when you invest? What do you like to see?
Luis Martin: “We follow a systematical and rational approach to evaluate opportunities, a model developed by Rob Johnson, a colleague of mine at IESE.
In particular, I use three criteria and six key variables.
The first one is Market, which has to be very clear and identifiable. We ask the entrepreneur for the first 10 invoices. We want to see how they look like, who will be charged (clients), for how much, for which service. It results to be a test to see if there is a real known market the entrepreneur has already identified. It’s not about having a need, or a demand, or a nice in the market, whatever, they have to give us their first clients!
The second is the Competitive Advantage. without it, there’s no way you are going to survive in highly competitive markets.
Having a market and a competitive advantage make this company Viable, which is the first of the three criteria.
The second criteria we consider is Feasibility, which means the project have to be feasible by the team, and has to be feasible now. So, it’s a matter of Team (variable n. 3) and Timing (variable n. 4).
The third criteria is Investibility, which means the company has to be highly scalable. As I said above, only 20% out of the total companies I invest in go ahead and grant a successful exit. Scalability (variable n. 5) and Exit (variable n. 6) make the company investable.
That’s our overall strategy on a period of 5 years“.
FinSMEs: I know that startup failure – and the culture around it – is a very discussed subject. What do you think about it?
Luis Martin: “Everybody can fail! That’s part of our life!
Anyways, from my point of view, a failure is a problem for investors, who will not have their money back.
Then, we can start speaking the different situations we come across. For example, on one hand, there are companies which are viable, which reach the breakeven point and stay in business but don’t grow enough to repay my investment. In these cases, I’m used to providing entrepreneurs with some advices (for free) and my relationships with them remain friendly. On the other hand, there are very different ways to fail. You can fail well or you can fail badly. There are entrepreneurs who try hard to do their best until the end of a company, honestly, looking for the right solution for themselves and for people who work with them. In this case no problem, It’s a part of the game, we live in an uncertain environment, there are events we cannot plan and even the best entrepreneurs, with the best ideas, with the best opportunities can fail. That’s can turn to be a bad experience and I don’t want deny it but it is not a failure in the sense of something who fails. It can happen!
Then, there are entrepreneurs who abandon the boat under the storm, who are not the last ones to go out (I’m a sailor!), who don’t handle critical situations, who behave unfairly. I repeat, it is not a problem of fail, it is a problem of how to fail!”
FinSMEs
20/01/2013