The Tyranny Of The Small Spanish “VCs”

Start-ups will do anything for money. And by anything, I mean give up huge percentages of equity, board seats, hey, even some close relatives if they could!  Investors know this and too many to count are taking advantage of it in Spain.

What’s the real issue here? Let’s take a look at the bigger picture. Of course we all have a price; there is a number for everyone out there. Remember Indecent Proposal? You get the idea. Well then, the ISSUE is: How much money does it take for me to give up my idea, my company, and eventually my freedom?

ILLEGITIMI NON CARBORUNDUM -

Having established the main question, there is a huge difference between real VCs who are willing to invest up to $5M in a new venture and those who are putting $100K into two dozen startups like they’re playing roulette.

Ideally, we all want to find that big VC willing to invest and get out of the way, let the founders do their job, but many Spanish startups are accepting tiny investments from small investors who want to know exactly where every penny of their investment is going to end up. Sorry folks, but that’s totally uncontrollable. You know that, and investors should know that.

These small VCs, and we’re talking about those investing between $100K to $300K per venture, make up most of the usual suspects in Barcelona. And here is where the “tyranny” begins. As I mentioned earlier, companies get investments of $100K-200K from random investors who think they can control every move in the company, and who think that just because they put $100K in a $2M pre-money valuation company, they have a say in every aspect of the company. I believe, and we will talk about that in some other post, VCs should “put the money in and disappear until the exit event”, letting the entrepreneurs run the business they created, and the one the VC invested in, the way they want, and wait for revenue to come back to them (We all know that’s what they want…)

Everyday, we run into entrepreneurs who have been imposed shareholders agreements, attached to little investments asking for 20-30% of the company’s equity, from small VCs demanding a seat on the board, with…well, many outrageous caveats not proportionate to the size of the investment.

Do I know the best way to help? Is there one better way than another? Which one is that way? As I mentioned earlier, I believe that entrepreneurs should be left free to fly and make mistakes and learn from them. An over controlling VC won’t do any good since the entrepreneur can’t fully focus on the project at hand and has to be looking over the shoulder constantly to that VC lurking in the shadows. In trying to help the start-ups, I believe that they should work to get it their way. To get a sweetened deal than the one offered from the VC. To fight for their own pride and regain some of that freedom they were willing to give away for a few pennies.

Keep your freedom William Wallaces out there! Do not settle for less than what you are worth! Do not give up your freedom for a few bucks! The real VC will come to Spain (we all hope it does), and when the time arrives, you will see that if you were able to stay strong against the small VC, victory will taste so much sweeter!

Photo credits:

Big human via Shutterstock

Businessman marionette via Shutterstock

Comments

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Comments

  1. TK says

    Remember, he who has the gold writes the rules. I understand your frustration with the economic situation and agree entrepreneurs should not sell themselves short. The key to success is finding the right partnership. The VC that brings more to the table than money is the key. Combining capital with good business skill is the combination most entrepreneurs need and justify giving up 20-30% of your company. The right partner will bring ideas, contacts and experience to help the company grow faster than the entrepreneur can do alone.

    • Willow NovellWillow Novell says

      Hey! I agree with the fact that “he who has the gold…” but in the case of a start-up, where exactly is the gold? We could argue that the business is the gold and the VC just wants part of that gold.
      However, the above being said, I totally second that a perfect combination is key to success. We shall talk about that in a short future.
      Thanks for the comment, really interesting.
      W.

  2. says

    Willow, you’re mentioning a big issue for entrepreneurs in BCN which is receiving funding. Also I do agree that founders are giving up a lot of their business just to get a few euros, from anyone really, to make their startup grow. On the other hand startups ARE a sort of roulette if you look at the numbers: only 2 out of 10 will make it through their first 5 years. Also many startups in BCN (need to) focus on the Spanish market for a start, which is and will remain difficult for the next 2 years at least.

    Having this in mind I kind of understand the Spanish “VCs”. The just play by the rules of the market and economic situation. It’s plain capitalism. This is not Silicon Valley, Berlin or London (even if BCN is a greater place to live in my eyes).

    What can you do about it? Grow your network to reach VCs from outside Spain and more importantly: Have a great startup. (this is the difficult part :)

    Anyway, thanks for the article. It’s cool to read some more controversial stuff on Barcinno.

    Cheers,
    Matt

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