Gearing up to tap into Spain's vibrant tech ecosystem, Swanlaab Venture Factory is already planning for a second Spanish-Israeli VC fund now that its first investment fund has reached €40 million since 2017.
Swanlaab plans to have 15 companies in its first portfolio. Each startup to be selected during an investment round of €2–3 million will get funding of €500,000 to €1.5 million. The VC already has stakes in five, including traveltech Trappit, fintech Coowry and Unnax that provides a Banking-as-a-Service payment solution. The fourth investment is a cloud-based CMS Sales Layer that synchronizes product information on e-commerce sites and social media. The fifth startup being funded is Continuum Security, a software and cybersecurity company.
“In Spain, Swanlaab has not yet focused on certain clusters, but its target is B2B technology companies in Series A,” says Verónica Trapa Díaz-Obregón, the MD and co-founder of Swanlaab.
Although it is too early for any exit in Spain, Swanlaab's Israeli backer Giza Venture Capital has already achieved more than 40 successful exits. Ranked amongst the top five funds worldwide, Giza has invested over US$600 million since 1992. The Spanish-Israeli VC will invest in diverse sectors like the Cloud, Big Data, IoT, machine learning, cybersecurity, computer vision, communications, digital health and Very Large Scale Integration (VLSI). At least one board position is requested as part of the funding deal, with the objective of exiting within five or six years.
Diversity and collaborations boost results
Collaborations with other investors are also integral to successful exits. Accelerated growth can be aided by bigger funding rounds to produce profitable exits. It's not just about being the best fund, but about creating a value chain together and filling the equity gap with new actors: from seed rounds, Series A and B to the exits. “Investment funds or VC firms often collaborate with other investment funds in the same projects through syndicated operations. We prefer syndicated operations, with Swanlaab being the lead investor,” Trapa adds.
In reality, funds only compete with one another when they try to raise funds to invest in startups, not when making investments. Since Swanlaab started investing in 2017, it has developed good working relationships with various funds that usually invest in Spanish B2B startups. VCs interested in such mutual relationships include Adara Ventures, Kibo Ventures, Sabadell Venture Capital and Caixa Capital, especially for follow-on investments with the view of greater possibilities to participate in new investment rounds.
For scalability and international growth potential, the startups should demonstrate clear market demand for their products or services. Innovation and experienced teams with strong leadership skills are also vital for success. "The variety and diversity of profiles, backgrounds, and personalities make the teams more difficult to manage, or to achieve consensus when investing; but it enriches the decision-making processes by providing many perspectives,” says Trapa, a graduate from Berkeley University and IESE Business School.
This "enrichment" theory is backed by research published in the Harvard Business Review. A recent study found that the more diverse investment companies produced better financial results, both at the individual company level and for overall portfolio fund returns. Under Trapa's leadership, diversity is an integral part of Swanlaab's DNA, a prized asset in the VC world where only 8% of investors are female and less than 1% are black. On top of a busy work schedule, Trapa is a mother and passionately feels that changes have to start at the most basic level of education. “Educate children, especially girls, in a practical way to include robotics, programming, and tools of the future. For example, my daughter loves to play with robots”.
Quality of startups
Trapa also believes that closer links between universities and startups will promote entrepreneurship. In particular, more internships in startups should be considered because they offer advantages to both parties. On the one hand, they provide resources and talent for startups. On the other, smart interns can learn a lot and get to perform many different activities in this type of company. But in a larger one, it's possible that they'll start by just making photocopies, Trapa adds.
“In the last five years, the quality of the projects has improved. Entrepreneurs are more professional, some are already going for their second or third startup. There's greater maturity, and better coordination and collaboration with investors.
"However, there's still a need among entrepreneurs for a global approach from the first moment, references in different markets and systematic deployment of commercial activity – instead of prioritizing short-term sales or contacts, as is often the case in Spain,” she says. “A company must intend to sell to everyone" and the company's commercial activities should be a combination of art and procedure.
As a board member, Swanlaab will be able to contribute to everything related to commercial deployment and business plan execution, although they may also perform recruiting functions. Trapa says: “As board meetings are usually quarterly, Swanlaab dedicates at least one hour a week to each portfolio startup to see what the needs are and to verify that the execution is on track."
“Although valuations tend to increase, the investment funds or VC themselves ensure that the valuations are reasonable” and are not overvalued. In the future, “as has happened in other parts of the world, after a large increase in players, the ecosystem will be cleaned up. So, startups that don't become professional will have more risk and the ecosystem will mature,” according to Trapa.
Global partners and public sector match-funding
Swanlaab was co-founded in 2013 by Spanish consulting firm IVC that was established in 1970. IVC wanted to launch a VC with a global outlook and selected Giza VC as a partner during its international search. The Israeli VC works with over 150 international partners, both past and present. It manages over 110 investments through six funds, including one in Poland. “Venture Factory” refers to Swanlaab's approach of providing the portfolio companies with all the operational resources, or reinforcing them wherever needed, so that the entrepreneurs can focus on the technology, the market, and the team, according to IVC chairman Mark Kavelaars, who is also a partner, CEO, and co-chairman of the Investment Committee of Swanlaab.
The current Spanish scenario resembles the Israeli reality some years ago, motivating Giza's involvement in Spain through Swanlaab, according to Trapa. “There are very talented engineers at a reasonable cost and even those forced to take positions out of necessity,” she adds. From the institutional point of view, the Spanish investment initiative Fond-ICO Global was inspired by the Yozma program, an Israeli initiative also replicated by Poland and South Korea. "Both are based on match-funding. Therefore, the public sector complements the private sector’s investments to boost development and eliminate risks in the initial phases. In this way, it leaves analyses and audits of the projects to the private sector."
“There are also a number of relevant investment funds with similar strategies”, she continues. “There's a lot of support in R&D and public support to develop technology. The second decade of investments in startups began at EU level in 2005 and has been growing since 2008.” Spain's startup ecosystem is more mature than Portugal's and, from the VC point of view, the market is far bigger. So, Giza felt they could contribute more value in Spain than in other EU countries, with the exception of Poland.
"That’s why international investors are increasingly having a greater focus on Spain. At the moment, I can comment that the companies that are part of the Swanlaab portfolio have had several rounds of follow-on investment and have promising expectations," comments Trapa, an experienced entrepreneur with businesses including Life&Colors and Tu Chef. The former Ernst & Young international consultant also has 15 years of experience in logistics and management. “We plan to have exits in the future. There have already been good exits in Spain and there are several companies with very good prospects. And success begets success.”