Earlier this month, Spanish early-stage venture capital firm K Fund officially launched its second fund, which sits at €70 million, up from €50 million the first time around.
Targeting Spanish startups with an international outlook, the seed-stage firm plans to invest from €200,000 to €2 million, writing first checks in 25-30 companies. Meanwhile, a portion of the fund will also be set aside for follow-on funding for the most promising of its portfolio.
Described as business model- and sector-agnostic, K Fund currently has a mix of B2B and B2C companies in its portfolio across a wide variety of sectors, such as travel, fintech, insurtech and others. They include online travel agency Exoticca, HR software Factorial, insurtech startup Bdeo and Hubtype, a conversational messaging tech provider.
I caught up with K Fund’s Jaime Novoa to delve deeper into the firm’s investment remit, how the Spanish startup and tech ecosystem has developed over the last few years and to learn more about “K Founders,” the VC’s new pre-seed funding program.
TechCrunch: K Fund’s first fund was announced in late 2016 to back startups in Spain with an international outlook at seed and Series A. At €70 million, this second fund is €20 million larger but I gather the remit remains broadly the same. Can you be more specific with regards to cheque size, geography, sector and the types of startups you look for?
Jaime Novoa: We’re both agnostic in terms of business models and industries. Since our focus is, for the most part, Spain, we do not believe that the Spanish market is big enough to build a vertically focused fund, either in terms of business model or sector.
With our first fund we invested in 28 companies, with a slightly larger number of B2B SaaS companies than B2C ones, and across a wide variety of sectors. We do have a bit of exposure to travel and fintech/insurtech, but that’s because we’ve found several interesting companies in those spaces, not because we proactively said, “let’s invest in fintech/travel.”
In terms of check sizes, the core of the fund will be to make the same type of investments as in our first fund: first cheques from €200k to €2m and then sufficient capital for follow-on rounds. We’ll probably do a similar number of deals compared to the previous fund, but we want to have additional capital for follow-on purposes.
The main difference compared to K Fund I will be K Founders, which we’ll take a little later in the interview. But the main idea of this new initiative is, for certain periods during the year, to make several pre-seed investments of up to €100,000 in teams we rather like and products that we believe make sense. It’s a way of helping more people (startup employees, former founders, etc.) take the leap and help them build a new company and pursue their ideas.
Geographically we’ll continue to focus on Spanish companies, but we’ll probably also make a few deals outside of the country, and we’ve been quite active in Portugal in recent times but we have yet to make an investment there.
Since fund one, you have grown the team in an effort to help portfolio companies in areas such as product, data science or technology. How big is the K Fund team now and perhaps you can give us a sense of how it breaks down in terms of partners and investment team versus this additional operational support?
We have a different kind of structure as a fund and we don’t like to talk about partners and nonpartners. In fact, carry is shared with the majority of the team as well as the responsibility and freedom of finding and making deals, and managing companies internally.
At the moment we’re a team of nine people, taking into account the investment team and back office. We do believe we have a very diverse team with different backgrounds and skills that fit very well together, which are useful not only to generate dealflow, but also to provide operational support to our companies across a wide variety of fields.
Iñaki Arrola started coches.com and sold it to Santander. Carina Szpilka was CEO of ING Direct and managed hundreds of employees for several years. Pablo Ventura was previously the investment director of another Spanish VC (JME) where he helped build a great portfolio. Ignacio Larrú is our CFO but also one of the best technical minds we’ve come across in Spain (and why we have several deep tech investments in the portfolio). Myriam Barnés recently joined us as data scientist to help our portfolio companies with data challenges. I come from a journalism background. Marc Clemente knows the VC business inside-out and is a great manager. And we also have Cristina, our in-house lawyer.
We’re always looking to add complementary skills to our team and we’ll continue to do so in the future, as long as those skills help not just us as a team, but also our portfolio companies.
More broadly, you say that seed funds can have a bigger impact by adopting more of an operational role by “becoming a talent hub that companies can leverage during the different phases of company building and the skills needed at each point in time.” Isn’t this difficult for a small seed firm to provide financially, given that management fees probably won’t cover the additional staff costs alone?
We think it can be done even for seed firms. We’re not going to hire 20 people apart from our core team to provide support across all fields, but we’ve built a team that already has skills that we believe are key for seed-stage companies, which usually entails helping those companies build the right products, iterate on them and find product market fit.
As in any other company, we think the key is having a diverse team that complement each other. We can all help in different ways based on our experience, and we’ll keep adding more talent in areas that can be beneficial for our portfolio companies, such as product management, strategy or design.
We also think it’s a matter of the time you end up dedicating to your portfolio companies rather than a matter of the number of people you have in-house.
Let’s talk about the Spanish tech startup ecosystem. What are the main tech hubs in Spain and how, for example, does Barcelona and Madrid compare with regards to their respective strengths?
Barcelona and Madrid are by far the larger two startup markets in the country, and that’s where we spend the majority of our time and our portfolio currently reflects that.
Barcelona has always been the most international city of the two, and you can clearly see that in the types of companies and founding teams you can find there. The city has a solid brand, great capacity to attract people from all over the world who want to be close to the beach and the mountains, and many other appealing aspects.
Madrid, on the other hand, houses many of the larger local corporates as well as the HQs of multinationals, which means there’s a big pool of talent that slowly but surely are also moving to the startup world. One interesting aspect about Madrid is that it’s a super welcoming city with people from other parts of the country and the world, thus acting as a magnet for young talent from all over Spain that decide to move to the city for professional and lifestyle reasons.
Having said this, we have also made investments in other Spanish cities such as Valencia, A Coruña, Bilbao, Salamanca or Alicante, and we continue to find good investment opportunities in lesser known markets. Valencia, for example, has grown quite a bit in the past few years and is getting more and more attractive for entrepreneurs (Mediterranean city with lower costs than competitors) and investors.
We also think that the current circumstances are increasing the number of decentralized teams, so geography will eventually become less important to us.
You also note that the Spanish tech landscape has changed significantly and for the better in the past five years. How so?
A few years ago there were very few VCs in the market, which meant that investors were able to set the terms of the deals and choose the companies they wanted to invest in.
That has changed dramatically in the past five years. There’s a lot of investor money in the market but there’s also a ton of startups being built and scaled, which means that terms are much more friendly to founders and VCs need to compete for the best deals, giving more power to the entrepreneurs.
International VCs are also spending more and more time in the country and leading Series A+ rounds, which is good for all of the players in the market. Two of the main reasons for this is that valuations continue to be lower than in other parts of Europe and that the number of scale-ups in Spain has grown steadily.
In general, we’re basically seeing a lot more startups than ever before, a much higher willingness to leave stable and corporate/startup jobs to start companies, and more companies raising money from international VCs in Series A/seed rounds.
With that said, what fundamental weaknesses remain in the Spanish tech startup ecosystem or areas where there is still significant progress to be made?
During the last few years, we’ve started to see the first B2C Spanish unicorns arising, but that’s still not the case with B2B companies. Even though we have more success stories than ever before, we would love to contribute to mature the SaaS, B2B and deep tech part of the ecosystem.
Talent-wise, the Spanish startup ecosystem is being slightly disrupted by international companies coming to or hiring from Spain, offering salaries and conditions that are hard to match by local companies (given the current market and average round size).
Which brings us nicely to “K Founders,” a new investment program from K Fund that is focused on companies less than six months old.
In the next few years we’ll invest up to €100,000 in 10 to 20 startups that have been recently founded and are looking for a partner willing to work with them. We won’t take board seats in these companies and we won’t have preferential rights. We’ll use convertible notes to speed up the process and we have a commitment of taking no more than three weeks from first meeting to money in the bank. Since we also believe in building bridges with other co-investors (funds and business angels), we’ll be super happy to share deals with co-investors to reach the capital needed by the companies.
The goal is to back great entrepreneurs at an even earlier stage, perhaps when the only thing they have is an idea and no revenue or usage metrics, in order to give them the financial capacity and freedom to work full time on their projects. If needed, we’ll also take a more active role in helping these companies build the first versions of their product and look for product/market fit.
Based on the progress of the participating companies, we’ll decide whether to reinvest from our seed fund, in quantities that range from €200,000 to €2 million.
We’ll run K Founders in batches, and we’ll [initially] accept applications until September 15, 2020.
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