StartCaps Ventures is the San Francisco-based Spanish venture capital firm that focuses in Micro-VC Seed and Early-stage investments. While focused on investments in the United States, StartCaps Ventures also analyzes opportunities in Europe and Latin America. KITE Invest asked Founder & Managing Partner of StartCaps Ventures, Ignacio Vilela, address why the firm’s focus is the way it is.
KITE Invest: In 2011, you founded StartCaps. Why did you focus on Silicon Valley rather than your home country of Spain?
Ignacio Vilela: Actually we initially started investing in Spain and it was due to the experience of the first investments and what we learnt about the early stage market in the Spain which made us to change our target abroad, particularly in Silicon Valley.
Basically the reason is based on how technology Venture Capital really works. All the profitability of your fund comes from one or two investments among 20 or 30, in which you get very high returns that will provide profitability across the portfolio, with the multiples ratios above 10 times. In Spain, and as generally in Europe, finding such high growth potential companies is not easy; therefore, we decided to focus on the US market where every week several acquisitions or IPOs are executed over 10 times, even 50 times or higher multiples.
KITE: In a recent article you stated that ‘the main difference between Spanish and American entrepreneurship is cultural’. Could you elaborate further on this point?
IV: Sure, in that article I was noting that considering it a failure when someone who starts a company fails is a huge mistake. Many famous entrepreneurs failed in their first venture but learning from their mistakes let them be become successful with their second company.
That’s what I meant about culture, failing in the US means that you had the opportunity to learn from that experience and don’t repeat the same mistakes; failing in Spain means that you are a loser and we shouldn’t allow that, a country needs people who build companies and create wealth. Let’s support them!
KITE: To this point, what has your experience been like as a Spanish investor in the American landscape? Challenges? Surprises?
IV: It was obviously a challenge since the first day, when you move to Silicon Valley without any network or contacts you have to find out quickly how you will be able to add value in such a competitive ecosystem otherwise you will never have access to the good deals. Besides that, many more challenges came with trying to start investing without a track record or simply not being a part of the ecosystem.
The best surprise was how fairly easy is to get a meeting with most of the people if you have an interesting business proposition.
KITE: What are the future goals of StartCaps? Does the firm intend to have a portfolio represented by companies outside the US?
IV: Being open to analyze opportunities in Europe and LATAM, the truth is that our last 10 investments have been based in the US. In my opinion there is just an opportunity cost motivation, if you can invest in Airbnb or the European competitor, and the valuation of the US company is just 2 or 3 times more, it makes sense to invest in the US company because potential is maybe 10 times higher. That’s produced by many reasons but especially one; a unique and strong market such as the US with 300 million people speaking the same language and with higher consumption rates on average than Europe.
I think that our next fund will be fully US-focused.
KITE: StartCaps’ focus areas are: Mobile, healthcare, gaming, BigData, and education. What constitutes an extraordinary product? Could you highlight any investment or divestment in particular?
IV: The best way to prove that a product is extraordinary is being already a user or a current customer. This week it has been announced the acquisition of one of our portfolio companies, Authy, by Twilio, (http://techcrunch.com/2015/02/24/twilio-acquires-two-factor-authentication-service-authy/) and long story short, the origin of this investment was that I knew Authy’s product as a user and I loved it. I contacted the founder and as it also complied with the rest of our investment criteria we ended up investing in the company.
KITE: The firm seeks first and foremost partnering with exceptional founders. Many firms talk about the importance of the team behind the company and product, why does StartCaps focus primarily on the founder?
IV: A founder is everything in a company but even more when we talk about early stage tech companies. Ideas are nothing without vision and execution and that’s why the founder is one of our main criteria but not the only one. We look for a team, not just a founder, people who know each other and know how to work together and with different skill sets, the team has to be balanced. Moreover we just invest in companies working in huge markets, with scalable technologies, having a clear competitive advantage and some traction in terms of revenue and customers, it’s important to know the clients feedback before making an investment decision.
KITE: What advice would you give to a founder seeking investment?
IV: I would recommend he look for the right investor depending on the company’s stage. It makes no sense to try to get Venture Capital investment when you don’t have a product or you are not selling. In my opinion the founder should start with his own resources, get Angel investors from previous entrepreneurs or market specialist who could add value when he reaches the MVP and just contact VCs with revenue and customers.