Entrepreneur Javier Megias founded Startupxplore with business partner Nacho Ormeño when he identified a need for greater transparency in Spain’s entrepreneurial ecosystem. Startupxplore aims to improve sector communications and make it easier for investors lacking experience in funding startups to participate and invest side by side with some of Spain’s most revered and experienced investors.
The platform is the largest community of startups and investors online in Spain, and is one of the fastest growing in Europe. In September 2015, the founders secured a €210,000 investment enabling them to launch a joint venture model for startups, which subsequently established Startupxplore as a syndicate investment platform at the heart of Fintech, one of the most desirable sectors considered to have a very bright future on a global scale.
Besides being an entrepreneur, Javier is also a business angel investor. He began his career by setting up his own business but later became an investor himself as well as financial advisor. He is currently on the Board of Directors of Big Ban Angels, the largest independent network of business angel investors in Spain.
In the following interview, we spoke to Javier as both an entrepreneur and investor to learn more about Spain’s entrepreneurial scene and the Fintech sector in particular.
This interview is also available in Spanish.
1.Signaturit: Your experience as an entrepreneur dates back to 1999, at the time of the dot.com boom. It feels as if there has been a sudden boom in startups in Spain recently. A couple of years ago no one was talking about entrepreneurs but now it’s almost fashionable to say that you’ve started your own business. Having already lived through a bubble (and a burst), do you think we are currently facing a new kind of bubble? Can you foresee another collapse?
Javier Megias: I think they’re two very different situations. People investing in dot.com companies often did so without adequate knowledge of how these businesses worked and were spurred on by the feeling that if they didn’t invest they were missing out on the opportunity of a lifetime. This made them decidedly uncritical about what they were doing, which of course led to a lot of money being invested in companies without a valid business model or that didn’t need much money, which was obviously a bad sign. And naturally we’re talking about businesses in markets far smaller than the ones that exist today. To give an obvious example, the number of consumers buying and doing business online today is far superior to what it was say, 16 years ago.
On the whole, investors nowadays are much more informed, have more knowledge at their fingertips, are much more cautious about where they place their investments, require more analytical evidence and invest lower amounts ... that said, the number of people who have been encouraged to try out this style of investment has significantly increased, which has had a positive impact on the market.
Yes, I do think that there is a “media-fed bubble” that has idealized this sector and is giving it much more attention that perhaps best fits its size or influence.
2. S: Continuing with the comparison, how easy it was to raise investment in the late 90s compared to now?
JM: It wasn’t as easy as is perhaps commonly thought, however the market’s buoyancy at the time made it seem like that a PowerPoint presentation and a .com web address would be enough to guarantee you funding. Today, by comparison, entrepreneurs are being asked to provide well-crafted business models, evidence that their business has real customers who are willing to pay for their product, multidisciplinary teams, etc.
Of course there’s currently more money at stake than a few years ago, but I think now it’s extremely difficult to find funding if there is no clear evidence that the business makes sense on some level.
This fact alone has proved a game changer as investing in startups is now commonly perceived as an asset belonging to a high-risk high-return portfolio ... but if individuals invest in a sensible, diversified and well-managed way, I think startups could prove a valuable asset for them.
3. S: What do you consider to be the current challenges faced by Spanish entrepreneurs who are looking to get funding for their projects?
JM: Although the investor can clearly identify increased liquidity and interest in startups, the number of projects has also multiplied by a significant amount ... which is not ideal for anyone. Furthermore, most investors, even those with public visibility, often do not like to reveal their criteria for making investments, which in turn forces entrepreneurs to spend valuable months of their time trying to identify the right investor for them. What we do at Startupxplore is create a search engine that allows any entrepreneur to search for investors by industry, city or even vertically to quickly and effectively find the right fit for their business.
4. S: Your initial goal was to make Spain’s entrepreneurial ecosystem more transparent and startups, investors, accelerators and other actors more interconnected. Now that Startupxplore has achieved this, what is the next biggest weakness currently affecting the sector?
JM: A lack of efficiency. Investors often tell us that they find it difficult to find projects that fit into their investment strategy, while startups argue the opposite ... it almost reminds me of boys and girls at a school disco! So there’s definitely a lack of efficiency – but ample room for improvement. Added to which, there are gaps in high volume financing, as well as difficulties in recruiting specialist professionals in startups.
5. S: What aspect of Spain’s entrepreneurial sector do you consider most noteworthy?
JM: How active it is. So many great companies are being established across the board. And given how reasonable costs are here relative to rates elsewhere, it’s both simple and entirely possible to create a company and find talent.
6. S: With the launch of the joint venture model, Startupxplore has established itself as a platform for investment in startups and part of the Fintech sector. As an entrepreneur, what do you think are the main problems facing this sector in Spain?
JM: The Fintech sector in Spain is still in its early stages, and therefore suffers from a general lack of knowledge about its potential. Customers do not realize that there are viable alternatives to traditional financial management, channelled through banks themselves as well as funds, etc. At a regulatory level we still have a long way to go compared to more mature ecosystems such as the UK. At Startupxplore we are trying to lay a solid foundation for our work by building a relationship with the best investors in Spain and doing our utmost to provide value for customers.
7. S: With regards to investment platforms, what do you think are the main hurdles that such companies face and need to overcome to allow their business to flourish? How are you dealing with these challenges at Startupxplore?
JM: Investment platforms are based on a market model that connects supply (startups seeking investment) with demand (investors who want to invest). The issue is that the quality of the projects on offer and the data provided about them are often very dissimilar. That turns some investors off as proves too difficult to analyze a project’s data and decide whether or not it’s a good investment.
As a consequence of this, we’ve introduced a job role within our business that I think is vital, that of the professional investor. We have a network of such professionals, each with extensive experience in startup investments and a proven track record, who evaluate projects on our behalf. They create new opportunities, which they themselves invest in. In other words, we allow investors who are part of Startupxplore to invest in a project in which say Yago Arbeloa, a well-known investor in Spain, invests his own money. So our top investors can become part of the investment process, adhering to the same conditions as Yago Arbeloa.
8. S: Last January you attended Madrid’s Fintech Unconference, an event that brought together the crème de la crème of Spain’s Fintech ecosystem. As we know, the event publicly acknowledged how little Spanish banks support Fintech companies at a local level, implying that businesses are lucky enough to receive support will flourish while those that aren’t will disappear. What is your personal prediction regarding the relationship between banking and Fintech in Spain in the mid and long-term?
JM: It’s almost impossible to know what the future holds, but my hunch is that Fintech and banks are two sectors that are destined to cooperate... that being said, if local industry doesn’t get itself into gear, entities from other countries will eventually dominate the scene, obviously to the banks’ detriment. Because even if the two are natural competitors, it is far more advantageous that they eventually work together. Startupxplore is a natural response to the demands of many investors to stop investing in traditional assets and diversify a portion of their portfolio to include investments in startups.
9. S: Have you identified any trends and/or investor preferences with regards to co-investments through Startupxplore?
JM: To be honest, we’ve been taken aback by the overwhelmingly positive reception of our joint venture model. In the last 5 months almost €700,000 have been invested through Startupxplore, and every day more and more individuals are joining our network of 1,600 investors (of which approximately 50% are accredited), each investing an average of €4,000 per project.
10. S: It is clear then that any individual, whether accredited or not, can make a safe investment through Startupxplore given that all opportunities are vetted by a network of experts. Even so, what advice would you give someone with no experience wishing to invest through Startupxplore?
JM: I would definitely reccommend to be prudent. Investing in startups has a high-risk, high-return potential, therefore my advice would be to split the investment into two parts. The first part I’d recommend investing in at least 10 projects, while the second part of the investment should be in supporting subsequent projects run by the very same startups once you have seen that they are successful.
In Startupxplore you can invest any amount starting from €1,000, ensuring that a good investment portfolio is within everyone’s reach.
This interview is also available in Spanish.