Spain’s city of angel investors
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After the bonding experience of studying together, it is not uncommon for a group of business school classmates to engineer some scheme to remain in contact after graduation. The class of 2015 on the advanced management programme at Barcelona’s IESE Business School went further than most by setting themselves up as a business angel network.
The decision to form PDG Invest, named after the Spanish initials for the IESE management course, is all the more remarkable because none of the 40 members had any significant experience as angel investors.
Ramón Faus, who came to study at IESE after working for several years as a senior corporate lawyer, exudes excitement about being part of a link to Barcelona’s fast growing start-up community.
“When I was a lawyer in the Spanish division of Procter & Gamble I was an employee,” he says. “When you are launching a project like this, you feel it is yours.”
A fundamental question was whether another angel network was needed in a city like Barcelona, whose success as an entrepreneurial hotspot is, in large part, thanks to a plentiful supply of rich individuals looking to back local early stage ventures.
Faus argues that the city does and stresses that PDG Invest distinguishes itself from its peers in that its members have years of experience from the senior executive level. “Our way to compete is the know-how of the 40,” he says.
PDG Invest has a €1m investment fund to put into new ventures in Barcelona, created by each of its members committing to put in €8,000 per annum over 10 years. This makes the investment for each individual affordable, according to Faus. The goal is to invest in 10 early stage start-ups with the potential, not yet realised, of achieving a period of rapid growth that could provide substantial returns for the investors’ original stake.
Not all 40 PDG Invest members have to commit their money to every investment. Only 13 agreed to back PDG Invest’s first two companies, a cosmetics business called Cocunat and a smartphone app for classified advertisements called 500 Markets, both of which received €100,000.
The risk of encouraging management students with little or no experience of investing to become business angels is reduced by the shared experience of individual PDG Invest members, according to Faus. The size of the group means that there is usually at least one person who understands the sector an investment opportunity operates in, he notes. “We have no hurry,” he says, adding that PDG Invest received 50 funding proposals in its first three months of operation, thanks partly to entrepreneurs attending IESE’s start-up events.
“There are many projects, but not many good ones and you have to choose well,” Faus notes. “We know that out of 10 investments, five or six will go wrong. For us it is going to be a great learning experience.”
Another PDG Invest member is Agustín Andujar, who before coming to study at IESE was a manager at Dow Chemical Spain. “In my opinion we are going a little bit fast,” he says about the speed with which former classmates have signed up to the first two investments. “But hopefully in a good way.”
Trust in his fellow students’ judgment is critical, according to Andujar. Although PDG Invest has a process for assessing funding bids, the final call tends to come down to each member’s instinct, Andujar admits. “It is the stomach,” he says. “What is the impression we are getting of these companies from our stomach.”
Whether the group can make any money from its chosen investments is uncertain. But according to Andujar this is not critical. The biggest selling point for him, apart from remaining in regular contact with his former classmates, is the feeling that he is helping hard-working people develop their businesses.
Barcelona has gained a reputation as an entrepreneur-friendly city in recent years, helped by the high quality of life, low cost of living and positive global image the city has fostered in recent decades. “We are helping with this entrepreneurial society,” Andujar says. “We are the good guys.”
This is echoed by Luisa García-Valdecasas, another PDG Invest member, who also works in the fundraising team at IESE. She stresses that it is critical to support job creation among young people in a country where their employment prospects are limited. “It is very important to have these people adding value to the economy,” she says.
A short walk from the IESE campus, at Barcelona’s other business school, Esade, there is another, more established, angel investor programme for former students.
Esade Business Angel Network (Ban), which recently won the award for Europe’s best private network of business angels, comprises more than 200 private investors.
Out of the 600 projects it analyses a year, it has invested a total of more than €15m in 94 companies over the past four years. Channelling more than €4m into 43 entrepreneurial projects last year. The team hopes to invest a similar amount in 2016.
The catalyst for forming Esade Ban in 2008 was the school’s 17,000-strong alumni organisation of former students, according to Fernando Zallo, Esade Ban’s director.
One of the main goals of Esade Ban is to add discipline to those looking to become angel investors.
“We want to professionalise the network,” he says.
Esade Ban operates alongside other initiatives created by the school to boost new businesses, Zallo notes, including EGarage and EWorks, incubator programmes designed respectively to advance start-ups.
“We as a business school thought it would be good to give a service to local entrepreneurs, but on the other side alumni were keen to invest,” he says.
Business schools are good breeding grounds for angel networks because they can pool a critical mass of people with the brains and resources to invest, reducing the risks for any one individual taking part, according to Zallo.
“We have created a school for business angels,” he says. “We try to teach students that this is a very risky investment class so you need to invest with others.”