UC3M MADI Talks | Entrepreneurship Series: a tech startup

Financing a tech startup is one of the main challenges that entrepreneurs face when deciding to kick their own business. In this article we will share 5 points to consider when looking for funds for your new digital business project in Spain. 

Guest Speakers of the Financing Tech Startup

Initiating a new business can be a very rewarding experience while can bring many challenges to entrepreneurs at the same time. Finding the right source of funds is one of the main concerns when implementing a new tech project considering that traditional financial loans and institutions like banks, have a large and exhaustive list of requirements that normally, for a new tech company are difficult to meet.

As part of the Master in International Business Management (MADI), Universidad Carlos III de Madrid brought an exclusive webinar for its students about Financing Tech Startup, delivered by Alfredo Sainz from CDTI (Centro de Desarrollo Tecnológico Industrial) and Mercedes Storch  from Axis, a capital investment company that belongs to Instituto de Crédito Oficial. These institutions are important investors in the innovation field in Spain.

Here are the main highlights about how to get funding or capital in innovative tech business, covered in the above mentioned seminar.

What is an Startup 

A Startup is a technology-based firm, which usually is introducing an innovative service or product to the market that aims to have a fast growth.

Its main characteristics are:

●       Create an innovative business model, good examples are; Amazon, Uber & Netflix.

●       Their goal is to grow on a global market unlike traditional companies; that focus their operations on the local environment since the beginning, delaying internationalization to more mature stages.

●       Since it is an untraditional business model, these companies present high financial risk. For example: forecast, cashflows and sales are hard to predict.

●       Founders are entrepreneurs, considered genius for their innovative ideas; are the most valuable piece in a startup.

Identify development stages in a startup

Considering the lifecycle of a tech startup is important to make proper and on time decisions regarding your business plan and of course to make accurate funding moves as well as other important aspects. Here are the lifecycle stages that a new business go through and helps choosing the best way to get capital:

●       Seed

The seed phase is the first. The goal at this stage is to develop the idea.

●       Early

This stage involves having a product on the market and generates the first metrics.

●       Growth

The focus on this phase is achieving sustainable scaling.

●       Expansion

This is the stage where entering new potential markets is considered.      

                           ●       Exit

The sale stage can be by acquisition from another company or make an Initial Public Offer (IPO).

Know your potential sources of financing as startup

At first stages, funding tends to come from the close environment of the entrepreneur which is call finance FFF (Family, Friends and Fools) since is the people who trust in the person’s idea that puts its money to support the project, the profitability at this phase has a tendency to be zero or even go to negative values.

As the new business grows it then can appear a Business Angel, which is a wealthy person with experience or interest in the sector of the tech startup project that is willing to add experience to coach or mentorship the company as well as inject its funds.

As the business becomes more robust,  Venture Capital can become available. Venture Capital is when a company finances another one at the exchange of  capital, shares or an important participation in the business decision making.  This type of funding normally appears when the profit starts to grow.

At latest and more mature stages of the startup the banks and other formal institutions in the financial system are willing to finance them, ensuring there is very low risk and that the business is appealing to more formal institutions since it now has the assets to support the debt.

Finally, Crowdfunding is when individuals or startups use an online platform to get funding for a project. The reason for these individuals to contribute to the company could be in order to get a reward, that can be receiving products sold by the company or interests for the funds deposited. It can appear from middle to maturity stages. Examples of crowdfunding platforms are Fundedhere, CrowDO Angelist and Friendfund.

Meet CDTI, a potential ally for your tech startup project in Spain

Centro de Desarrollo Tecnológico Industrial (CDTI) is a public administrative office in Spain founded in 1977, depending on the Ministerio de Ciencia e Innovation. It has helped increase competitiveness of Spanish companies by raising their technological level with a model based on business demand and criteria of technological excellence.

CDTI’s goal is to ensure that Spanish business fabrics, generates and transforms scientific- technical knowledge into sustainable and growing competitive advantage. The institution receives funds from the Spanish government and the European Union.

CDTI has been 40 years supporting businesses based on RTDI (Research, Technology, Development and Innovation) with 25.200 million euros designated to innovative Spanish companies and research institutions. 15.5 million euros on direct funding and 9.700 million euros on international programs with more than 13,000 beneficiary companies.

Neotec is one of its most successful funding lines, and one of its main objectives is backing firms that base their business strategy in tech development. Potential beneficiaries of this subvention must comply with the following requirements:

• Recent constitution (3 years maximum)
• Small firms (<50 employees < 10 M € balances/sales)
• Independent
• Minimum capital 20K € before submitting to the program
• Innovative (>10% devoted to R&D)
• Business Plan
• Informative video.

Only 10% percent of investments in startups are successful but this proportion is enough to cover the loses of the remaining percentage spent on failed projects.

For more information about CDTI click here.

Axis, a capital management company that support Spanish investors

Axis is dedicated to direct investment in companies and co-investment with Business Angels to promote digitalization process and scale up digital and artificial intelligence companies. It belongs to ICO ( Instituto de Credito Oficial) and was founded in 1986.

Fond ICO Next Tech is a program available in Axis that promotes innovative high impact technology based projects through public finance instruments, international funds attraction and venture capital development.

This program aims to mobilize €4 billion together with the private sector in the next four years, depending on the sector capacity. It invest in all sectors (excluding Real Estate and Finance) which aim the development mainly in the following online sectors and Artificial Intelligence (AI):

• Internet of things
• Massive data processing
• Medical device
• Cloud computing
• Block Chain
• 3D printing and additive manufacturing
• Nanotechnology
• Food tech
• Robotic among others.

With complementary criteria: sustainability, gender, environmental, climate change, technological development for efficient use of energy.

For more details on Axis initiatives please click here.

Bonus: Horizons Europe

A funding program that belongs to the European Union for research and innovation, will be implemented from 2021-2027 with a budget of  100 billion euros. It aims to create 320,000 new highly skilled jobs by 2040, strengthen links between EU member states and beyond. Expect to help bring new alternatives for problems in agriculture, cities, digital, oceans and energy. Supporting excellence in science, fostering breakthrough innovation.

• The project goals and vision scopes:
• Tackles climate change
• Helps to achieve the UN’s Sustainable Development Goals
• Boosts the EU’s competitiveness and growth
• Facilitates collaboration and strengthens the impact of research and innovation in developing, supporting and implementing EU policies while tackling global challenges
• Supports the creation and better diffusion of excellent knowledge and technologies
• Creates jobs, fully engages the EU’s talent pool, boosts economic growth, promotes industrial competitiveness and optimizes investment impact within a strengthened European Research Area.

If you want to know more about Horizons Europe click here to watch a video.

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