05
de Maig
de
2017
Act.
05
de Maig
de
2017
Two stools sit in the centre of a darkly-lit room. Although it is a Champions League evening, dozens of people fill the welcoming space in the Fàbrica Moritz, keen to hear the conversation between Carlos Blanco and Luis Martín Cabiedes as part of the latest First Tuesday. It is a promising line-up, with two of the most straight-talking players in the entrepreneurial ecosystem. "Those who want to watch the football need not worry, we will be finished early," warns Blanco. With 15 minutes to kick off, no one has yet left.
Defining success
With almost a hundred investments behind him, Cabiedes finds it hard to choose the three best. "Olé because it was the first, Blablacar the last, and between them there have been a few, such as Trovit, Privalia, MyAlert or Habitissimo," he says. As they have not all been equally profitable, he stresses that "the investment strategy is not to find one Blablacar but rather lots of Trovits or Habitissimos. Waiting for a new Blablacar to appear is like having a strategy of waiting to find a lottery ticket on the ground."
But the life of an investor is not all sweetness and light. Cabiedes insists that the percentage of success is 20%. Not that the remaining 80% of the investments end up with the companies failing, but rather that "there are investments that are a success for the entrepreneur and a failure for the investor, the zombies." To smiles from the public, he points out that it is about companies that are viable without a lot of growth. "It is the what about my stuff? stage for the investor. As they do not return your investment, they are a failure, but they have employees, they are viable and pay the salaries."
In short, they are companies that do not find a buyer that offers the return expected by the initial investors. "You earn the real money when you get out. A lot of importance is given to valuation, but if there is no cash out it is irrelevant," he insists while trying to mitigate Blanco's euphoria about his latest investments. "They look like they are worth something but in the end they are not worth anything. There is nothing doing until you get paid."
And how does an investor live with these zombie companies? "You are married to an entrepreneur, in other words, you're stuffed. You can't do anything. You end up becoming friends just so you don't argue," he says to general laughter. "Maybe entrepreneurs should also have the objective of thinking about the investors," Blanco proposes with the agreement of Cabiedes.
The risk of venture capital
"For investors it is a relay race, we have to learn when to get out. I am first in, first out," insists Cabiedes, whenever he can. This is where he becomes especially critical of venture capital. "Later investors have to learn to respect those at the beginning," he says, while suggesting that for entrepreneurs "it is important to have initial investment that acts as a Primo de Zumosol (a big brother), who can sit with later investors."
It is a moment when "entrepreneurs get scared because they are used to playing soccer and they do not understand that the new investors are playing American football." The metaphor continues: "The entrepreneur does not understand why the new investors arrive in helmets and that is the moment when you have to tell them: Kid, take it easy. All you need to know is that the rules have changed, it's not a problem."
All of this leads Cabiedes to a confession. "I am now very anti-venture capital." Blanco is surprised: "But you have a venture capital fund!" "No! I am half venture capital, but embarrassed about it!" The investor points out that he is more like a business angel in that he is involved at the beginning and that the money is his own. But that he also has something of an Angel Fund, in that he also invests at later stages with money that is not his own.
"More than half of Spanish VCs get less than 20% back of what they invested. That is enough for me to take issue with them," argues Cabiedes. "I find it funny that an industry like this, which loses money, devotes itself to teaching entrepreneurs lessons. Someone who loses 80% of the money! That is why I am embarrassed to say I am half VC, they are dummies," he adds.
Blanco tries to needle him by insisting that he knows people who say they have lost money investing with Cabiedes, but he stops him in his tracks. "False! Let it be clear that no-one has ever lost money with the Cabiedes fund. We investors also have a heart… and that offends me."
But after the stick comes the carrot. "Is it an accident that the funds with the best results in Spain, Bonsai and Cabiedes, have the majority of family capital?" asks Carlos Blanco. "No investor risks more than 10% of what my brother, my family and I risk. Most of the best funds in the world have a large amount of money from their managers," insists Cabiedes.
The 'Cabiedes Pact'
"For years we have heard about the tough 'Cabiedes Pact', has anything changed?" asks Blanco. "Only one thing has changed," responds the veteran investor. "The only thing it means is that the company is run by the entrepreneurs, nothing is held back in the board meetings," he continues.
And then there are "the Cabiedes vetos: protecting the economic and political rights of my interests." According to the investor, "I have to protect myself from the investors who follow me. It is the anti-VC clause, to make it clear that all actions have the same rights and opportunities."
This is a good moment for him to show his indignation with liquidation preference clauses which are often imposed by venture capital. "It is armed robbery," is how Cabiedes defines it. The guarantee of being the first to get paid in the case of a sale, he insists, has produced cases like that "of an entrepreneur who sold a company for 70 million euros and made 600,000."
The best companies
"Viable companies make their money from clients, not investors," says Cabiedes with an air of melancholy. "For years you have been saying that this is not business, and yet you continue investing," says Blanco provocatively. "For the past four years I have made more money than I have put in and I invest more outside the Internet than in it," points out the investor.
Now, he insists, "I invest in companies that make money, I love ebitda!" He gives the example of one of his most recent investments in a company that distributes plastic containers. "The companies that I like are the ones that make money," responds Cabiedes.
Athletics v Formula 1
The truth is that he has gone from investing in practically all the new business models that appear on the Internet, to distancing himself from them. The reason? "Competition among startups has always existed, but not all of them carried off 20 million euros," he insists, using as an example the competition between Job Today, Corner Job and Job and Talent. "It is a market for a natural leader, two of them are throwing money away."
He arrives at a final reflection. "Before it was athletics, the investor paid for the entrepreneur's running shoes and the best one won." However, now, it is Formula 1. "Investing in running shoes to see who runs the fastest is different to investing in Formula 1 cars. Apart from a good driver, you have to hope you also have a good car. There are many investors who are exchanging a company for a lottery ticket."
Defining success
With almost a hundred investments behind him, Cabiedes finds it hard to choose the three best. "Olé because it was the first, Blablacar the last, and between them there have been a few, such as Trovit, Privalia, MyAlert or Habitissimo," he says. As they have not all been equally profitable, he stresses that "the investment strategy is not to find one Blablacar but rather lots of Trovits or Habitissimos. Waiting for a new Blablacar to appear is like having a strategy of waiting to find a lottery ticket on the ground."
But the life of an investor is not all sweetness and light. Cabiedes insists that the percentage of success is 20%. Not that the remaining 80% of the investments end up with the companies failing, but rather that "there are investments that are a success for the entrepreneur and a failure for the investor, the zombies." To smiles from the public, he points out that it is about companies that are viable without a lot of growth. "It is the what about my stuff? stage for the investor. As they do not return your investment, they are a failure, but they have employees, they are viable and pay the salaries."
In short, they are companies that do not find a buyer that offers the return expected by the initial investors. "You earn the real money when you get out. A lot of importance is given to valuation, but if there is no cash out it is irrelevant," he insists while trying to mitigate Blanco's euphoria about his latest investments. "They look like they are worth something but in the end they are not worth anything. There is nothing doing until you get paid."
And how does an investor live with these zombie companies? "You are married to an entrepreneur, in other words, you're stuffed. You can't do anything. You end up becoming friends just so you don't argue," he says to general laughter. "Maybe entrepreneurs should also have the objective of thinking about the investors," Blanco proposes with the agreement of Cabiedes.
The risk of venture capital
"For investors it is a relay race, we have to learn when to get out. I am first in, first out," insists Cabiedes, whenever he can. This is where he becomes especially critical of venture capital. "Later investors have to learn to respect those at the beginning," he says, while suggesting that for entrepreneurs "it is important to have initial investment that acts as a Primo de Zumosol (a big brother), who can sit with later investors."
It is a moment when "entrepreneurs get scared because they are used to playing soccer and they do not understand that the new investors are playing American football." The metaphor continues: "The entrepreneur does not understand why the new investors arrive in helmets and that is the moment when you have to tell them: Kid, take it easy. All you need to know is that the rules have changed, it's not a problem."
All of this leads Cabiedes to a confession. "I am now very anti-venture capital." Blanco is surprised: "But you have a venture capital fund!" "No! I am half venture capital, but embarrassed about it!" The investor points out that he is more like a business angel in that he is involved at the beginning and that the money is his own. But that he also has something of an Angel Fund, in that he also invests at later stages with money that is not his own.
"More than half of Spanish VCs get less than 20% back of what they invested. That is enough for me to take issue with them," argues Cabiedes. "I find it funny that an industry like this, which loses money, devotes itself to teaching entrepreneurs lessons. Someone who loses 80% of the money! That is why I am embarrassed to say I am half VC, they are dummies," he adds.
Blanco tries to needle him by insisting that he knows people who say they have lost money investing with Cabiedes, but he stops him in his tracks. "False! Let it be clear that no-one has ever lost money with the Cabiedes fund. We investors also have a heart… and that offends me."
But after the stick comes the carrot. "Is it an accident that the funds with the best results in Spain, Bonsai and Cabiedes, have the majority of family capital?" asks Carlos Blanco. "No investor risks more than 10% of what my brother, my family and I risk. Most of the best funds in the world have a large amount of money from their managers," insists Cabiedes.
The 'Cabiedes Pact'
"For years we have heard about the tough 'Cabiedes Pact', has anything changed?" asks Blanco. "Only one thing has changed," responds the veteran investor. "The only thing it means is that the company is run by the entrepreneurs, nothing is held back in the board meetings," he continues.
And then there are "the Cabiedes vetos: protecting the economic and political rights of my interests." According to the investor, "I have to protect myself from the investors who follow me. It is the anti-VC clause, to make it clear that all actions have the same rights and opportunities."
This is a good moment for him to show his indignation with liquidation preference clauses which are often imposed by venture capital. "It is armed robbery," is how Cabiedes defines it. The guarantee of being the first to get paid in the case of a sale, he insists, has produced cases like that "of an entrepreneur who sold a company for 70 million euros and made 600,000."
The best companies
"Viable companies make their money from clients, not investors," says Cabiedes with an air of melancholy. "For years you have been saying that this is not business, and yet you continue investing," says Blanco provocatively. "For the past four years I have made more money than I have put in and I invest more outside the Internet than in it," points out the investor.
Now, he insists, "I invest in companies that make money, I love ebitda!" He gives the example of one of his most recent investments in a company that distributes plastic containers. "The companies that I like are the ones that make money," responds Cabiedes.
Athletics v Formula 1
The truth is that he has gone from investing in practically all the new business models that appear on the Internet, to distancing himself from them. The reason? "Competition among startups has always existed, but not all of them carried off 20 million euros," he insists, using as an example the competition between Job Today, Corner Job and Job and Talent. "It is a market for a natural leader, two of them are throwing money away."
He arrives at a final reflection. "Before it was athletics, the investor paid for the entrepreneur's running shoes and the best one won." However, now, it is Formula 1. "Investing in running shoes to see who runs the fastest is different to investing in Formula 1 cars. Apart from a good driver, you have to hope you also have a good car. There are many investors who are exchanging a company for a lottery ticket."