It’s no secret that we are in the midst of a downturn in spending from VCs and investors alike around the world. Yet, the European funding ecosystem shows a beam of hope with the region’s startups totaling $58.6B in the first half of 2022, the second-highest half-year for VC
investment after H1 2021, according to Dealroom. Spain secures sixth place amongst the top European countries’ investment activity, with $2 billion reported in the first half of the current year.
At the same time, the global provider of data and intelligence reported that this August saw a dry month in VC spending for early-stage startups, with only $341 million worth of deals reported in Europe, a significant cut when compared to the $595 million reported in June 2022. Can we expect to see a similar pattern during what’s left of 2022, or will the effects of an upcoming recession, Ukrainian war, and post-pandemic instability be more present in the coming months? We’ll have to pay close attention!
These insights led Novobrief on an expedition to identify the factors that led Spanish startups to raise funding in the first half of 2022 and ask their expert opinion on what can be expected for startups raising funding during the following months.
“Raising money is becoming increasingly complicated, given the macroeconomic environment in which we are immersed. The humanitarian crisis in Ukraine and the Covid crisis, among others, have triggered a series of events that are having a very negative impact on the economy. Therefore, I would say that in the investment rounds closed before the consequences of all this erupted, the timing was crucial. Closing a similar round from now on is going to be much more complex” reflected Fran Villalba, CEO and founder of Internxt, who was valued at $40 million in April 2022 and is en route to becoming the safest Spanish Cloud Storage Service.
To the same extent, Francisco Sierra, General Director of Casavo in Spain and Portugal, expressed that “building a relationship of trust over the years with existing and potential investors, keeping them informed about the evolution of the business, the strategy and the changes made to adapt to market movements” was a key factor in guaranteeing funding for the real-estate company ahead of such troublesome times, an idea that they won’t likely be changing ahead of next funding rounds.
Raising funding doesn’t come easy, especially in times like this. When we asked Capchase’s CEO and Co-Founder Miguel Fernández, what helped the startup raise $80 million on a Series B back in March, and $400 million in debt financing in July, the entrepreneur shared that “preparing good materials – presentations, models, and financial reporting- was a defining factor”. Hernández added that, ahead of pitching to receive funding, “we needed to clearly understand the thesis of the VCs we were approaching in order to assess if it’s a fit with our company’s mission.”
“Things are every different from last year”
So what tangible advice would these entrepreneurs give to startups trying to raise capital in the remaining days of 2022?
Internxt’s CEO shares that “funds are now investing much more selectively and intelligently, especially in options that are more consolidated”. “If you’re a startup who wants to raise money now, forget about all the rounds that have been raised over the last 10 years, and focus on managing your company profitably, smartly and demonstrate that your company is capable of generating money quickly and sustainably,” added Villalba.
Moreso, all entrepreneurs agree that, above all, the key to facing the upcoming times will be patience. “My recommendation to entrepreneurs today is to be very patient and conservative with their expectations; there’s been a change in sentiment in the industry and things are very different from last year. So if you can’t raise at a higher valuation than in the previous round(s), prepare to communicate that very well to your investors from previous rounds and to your team” said Capchase’s Miguel Fernández.
It is also a moment of opportunity, where startups with significant differentiators will also grasp the attention and support of investors. “Good ‘timing’ and showing that you have a competitive advantage when it comes to the team, market opportunity and capability to executive will demonstrate that the startup is in the right place at the right time” expressed Sierra from Casavo.
When questioned if that was the key to their successful 410 million Series D funding round announced earlier this year, he added that Casavo “proposed an ambitious but realistic growth plan focused on generating business and profitability, rather than gaining market share or growing too fast, while demonstrating that the management team is capable and committed to meeting the challenges of the coming months”. A page to take from their book for other startups seeking to follow in the startup’s successful journey.
We are keen on seeing how funding from VC companies continues to evolve in the upcoming months and which trends and technologies will evolve faster as the markets change come 2023.