Luis Martín Cabiedes talks about technological entrepreneurship in the Canary Islands

Luis Martín Cabiedes, partner of CABIEDES PARTNERS SCR, defines himself as the dean of Internet investors. He is committed to investing in more advanced phases and he believes that university education along with work experience are the key to success when creating a startup.

Question: As an introduction, what would you highlight the most from your profile?

A: Perhaps most notable is that I am the doyen of Internet startup investors. I've been doing this thing of investing in Internet startups since the last century.

An investor should be proud of their successful companies. And the successful companies are, for example, Blablacar, Privalia, CredyMarket... Last year we sold Deporvillage and delivered alive, some like Indexa. Basically after 150 investments, anyone gets ten good.

Q: Have you had any experience in the field of university incubation?

A: No, never. Let's say that the average age of my people is a little older than college. The type of investment that I do or the one that most venture capitals do is people with some professional experience and often with a degree, or even postgraduate courses.

Q: Is the university environment or the professional training environment conducive when creating a startup?

A: It is very important that students know that there is a professional alternative to setting up a company and that they know that it is not an impossible thing, neither for special people, nor for great heroes. It is a professional option like any other.

However, I think it's a good thing that the time when a person launches a startup should maybe be a bit of a post-college step. Why? Well, because as you gain more experience in a sector, the chances of success increase. It seems to me that it is very important that part of the training is for younger people to become familiar with what it is like to launch a startup, but it is important that they do not rush into launching a startup either, since the chances of success are greater as one has more experience and more knowledge of a sector, even more training.

Q: What advice would you give a person just out of college before starting a startup?

A: Clearly that it continues to be formed. Don't think that you leave university sufficiently educated. I defend university education and it seems very important to me, but it is one more step. Training must be continuous, they must continue with the attitude of learning for a while. That means learning by doing, of course. If you have a sector that you like, try to work in that sector and within them in good companies: if you like fashion, try to work at Inditex, if you like distribution, try to work at Mercadona and if what you really like it's banking, try to work at Santander, BBVA or Caixa.

What I mean is that you should try to get to know the industry and try to get to know a business because that greatly increases the qualities of success. Then, even once you know the sector, it is a good time to go back to university to do a postgraduate degree or some type of additional training. Which brings us to seven or eight years after finishing college, which is the sweet spot for a startup; you already have the experience of a sector, you already know what it is to work and you have even had additional training.

Q: Do you think it is a mistake to undertake out of necessity?

A: No, if it's out of necessity, it's not a mistake, it's a necessity. With the level of unemployment in Spain, entrepreneurship is a way out. That said, it's not a solution.

First, the chances of success in entrepreneurship are very low, even with the right training. And second, entrepreneurship cannot create jobs at the rate at which we need them.

Unemployment is a very serious problem in the Spanish economy for a lifetime and startups cannot fix it. Entrepreneurship is not an alternative to work. As a society we cannot think that the solution to the unemployment problem can be the creation of startups.

A large company can have 200,000 jobs and we cannot have 200,000 entrepreneurs a year. Every time a large company goes down or catches a cold, more jobs are destroyed than the entrepreneurial world can generate.

I dedicate myself to a very special type of entrepreneurship, technological entrepreneurship. This enterprise is characterized by not being a great job creator. In general, the number of workers on Facebook or Google is very low. In Amazon no, because it has an important distribution part. The companies that we believe are more technological create a lot of wealth, but not enough employment. Companies dedicated to the world of technology may be able to solve the problem of economic growth and wealth creation, but not that of job creation.

There are many times when entrepreneurship has been sought as the solution to the unemployment problem and I believe that this is not possible.

Q: Before setting up a startup/company, do you do any prior validation? Do you have some kind of “checklist” to assess whether an idea is worth it?

A: Without a doubt, of course. Investing is not betting blind. An entrepreneur should do exactly the same as an investor. In fact, I am a professor at IESE and there I explain the criteria for evaluating opportunities, even before launching, because once it is done it is a little different.

Before launching a startup, of course, there is a checklist. According to Professor Rob Johnson, who was first an entrepreneur, then an investor, and finally a teacher, six criteria should be taken into account when evaluating an opportunity before jumping into it.

The criteria are basically: market, competitive advantage, team, timing, scalability and output. We can group them two by two, obtaining a total of three: a company must be viable, feasible and investable.

That it is investable is important for the investor, but not for the entrepreneur. For that, it must have scalability and exit, that is, it must have a very notable growth potential and the possibility of getting out of the investment.

Q: What do you think of international mixed teams of entrepreneurs?

A: I think it's great and I even see it as a training exercise. Many times in my classes I have to remember that we are not creating companies here, we are learning how companies are created. The important thing is not the final product, it is what you have learned along the way.

These types of collaborative projects are extraordinary because you learn that there are very different international markets. Now, that does not mean that it is easy or that these projects arise when you put two people, since an entrepreneur, by definition, does not have many resources and they have to focus on a market and it is always better to focus on the market that they already know. .

It seems to me a perfect exercise to learn to undertake, but we cannot expect many viable or feasible projects to come out of it.

Q: What experience have you had with startups in Latin America, or with Spanish startups in Latin American markets?

A: Now, for example, we have GoTrendier in Mexico. In addition, we have quite a few Latin American entrepreneurs here in Spain. In the first steps, a startup has to focus on the market that it knows initially.

Q: Have you ever had experience with startups in the Canary Islands? What potential do you see in these islands?

A: Your greatest potential is something that has already happened. Twelve months ago, five or six of the best entrepreneurs I know went to the Canary Islands to work remotely. I remember, for example, that Jesús Monleón is there and he is delighted. As a destination for these digital nomads who are implanted for months, it seems to me that it is ideal and I think that all of this is here to stay.

Q: Do you think there is a tendency to invest in increasingly early stages?

A: I think now there is much more investment in all stages, in the pre-launch stages and in the post-launch stages.

I do not invest in the pre-launch stage. My stage is once you've launched the product and you want, well, I don't know, 6 months, 12 months of market response, that's where I see myself as stronger evaluating, even if they are small figures.

But hey, each investor deals with one stage, there are investors who specialize in much later stages and others who say “no, I invest in the concept phase”. Not me, Cabiedes only invests in the post-launch phase and with six months to a year of activity in the market.

Q: What should a startup have achieved before starting to look for investment?

A: I think that in the ideation phase it should not yet look for investment. You need to find a clever way to show that your project makes sense and resolve fundamental uncertainties.

It is about showing that the market accepts your proposal, therefore, you have to make an MBP, which is nothing more than a way to test if the market thinks it is a good idea, then it is worth it.

Q: What experiences or perspectives do you have on the tokenization of startups as a means of financing?

A: It is a much more intelligent way of doing security or participation because we can embed or include in a smart contract many things that are currently on the shelves, when it would be much more logical for them to be linked. You now have a share and the rights or agreements are on the notary's shelves. It would be much better to have a smart contract.

The speed at which this is going to happen will depend strictly on the regulation, but it will happen, without a doubt.

Q: What advice would you give to a person who wants to start investing in startups in very early stages?

A: Two things are very important: first, you must diversify a lot, even those of us who have been in this for twenty-some years have 80% of investments going wrong. This frustrates you a bit at first, but then you learn that this is normal. All investors, and even the best ones, have a success rate of around 20%.

Second, if the percentage of companies that are going to go wrong is 80%, you must save money for the good ones. Suppose you have ten euros to invest, because five you keep for good and the other five you divide by ten. You have five euros to put them in within 18 or 24 months, when the company has already shown you enough and you already know the entrepreneur, the market and you have better information to make the decision.

So, you can make a much more concentrated investment in the second stage and much more dispersed and diversified in the first. I think this is the key to investors who have done well.