Breaking the current investment trends
In recent years the European startup investment ecosystem has grown fast and gained a lot of visibility. Despite the pandemic, investment in European startups totalled USD 40 billion last year, just 4% less than in 2019 at USD 41.8 billion.
Whilst the trend points to increasing amounts of capital being invested, these investments are made at more advanced stages of business development, where innovation is already consolidated and there is less risk for the investor.
Spanish investment programme, Backfund, is here to break this trend. Like Bridge, they recognise the need to increase access to funding for early stage entrepreneurs, so that more entrepreneurs have the opportunity to access the resources needed to build resilient and successful businesses.
Backfund is bringing a bold new approach to investing in pre-seed stage startups saying, “We integrate startup founders and investment into a single proposition, with the goal of achieving product-market fit.”
We interviewed Karel Escobar, Co-Founder of BackFund, to find out more about the company and the opportunities presented by investing in early stage startups at at the pre-seed phase.
1. How did Backfund come about and why is it important for you to position yourselves in these early stages of innovation?
BackFund arises from the need to bring value to early stage companies through 2 mechanisms: Capital and Knowledge.
We have detected common needs that right now the market is not knowing how to solve for entrepreneurs who have clear ideas and want to start growing as soon as possible.
For us it is important to position ourselves in this phase because this is where we have been working with startups in the last few years, we have launched our own companies and this allows us to support those who are starting out with better tools.
Our positioning is clear, we want to work with startups that are creating technology, preferably B2B and DeepTech, with entrepreneurs who have experience in the sector and a clear vision of where their project is going.
2. How can organisations in the investment ecosystem enable new entrepreneurs and projects to get on the radar of investors and get their support?
This is key, normally when you invest at such an early stage, you invest primarily because of the team. And what we had seen was that this type of investment was going to profiles that investors already knew about beforehand, greatly reducing the possibilities for new players within the ecosystem.
Our aim is to go to those ecosystems that have yet to grow, research groups, new locations and to find out what type of projects are being created.
3. What barriers prevent us from closing the gap in early-stage investment?
Investors often do not find projects that they feel comfortable investing in, and that often has nothing to do with the entrepreneur. We need to do a better job of understanding each other and knowing how to put ourselves in the other’s shoes.
4. Why aren’t there more projects like Backfund and how has it been to bring this message to our investors and allies?
In the last year, new investor networks have emerged, many of them made up of entrepreneurs from technology companies. Our proposal is quite niche since we bring together the characteristics of 3 different organisations:
- Investment: we have more than 150 hours working together with the invested startups to support them and take them to the next level.
- Accelerator: thanks to our 40 Backers we can invest in projects and also accompany them through a programme in which the entrepreneur chooses who he/she wants to work with.
- Venture Capital: through our co-investment agreement with Inveready, we can accompany the startup in its different stages of development.
The idea has been well received from the beginning, the problem has been to fit the 3 parts mentioned above to make a programme as complete as possible, always with the aim of financing and supporting projects in the early stages.
5. What startups are you looking for and how do you plan to work together?
We are looking for startups that are in the MVP phase, either still to be finalised or already launched in the market with the first metrics.
It is very important that they are projects that are creating new technology and also have the first users or potential customers practically closed.
And lastly, they must be able to demonstrate that they have experience in the sector in which they are going to work. That they have been able to detect a problem within the industry and are willing to solve it.
Working together is where the real value of BackFund lies. Once they are invested we work with the entrepreneurs on a roadmap for the next few months, what areas they want to improve in, what they are going to invest the money in.
In this way Adrian and I can make a personalised programme supported by our 40 Backers who have committed to work with them and help them in different areas: Product, Technology, marketing, sales, financing and strategy. These hours of accompaniment will allow us to help the startup to grow faster.
6.Would you like to share a particular story that reflects Backfund’s mission?
Yes, I’d like to highlight the story of Deborah Li, an entrepreneur and investor from New York who moved to Madrid a few years ago.
We met while co-investing in an early-stage startup, Tot-em, and from then on we started talking very often. I told her about BackFund and the possibilities it had and everything that a profile like his could bring to the table: experience in B2B, expansion to the US.
The project suited her and we saw that the value of the group was multiplied by adding profiles like hers. With international connections and experience in startups abroad, something that we have yet to unlock in local ecosystems, it’s key to take advantage of the international talent that is in our country to build stronger companies.
7.As investors and members of the ecosystem, how can we prepare ourselves to work with projects in the early stages of development?
In my opinion, more of us should lose our fear and dedicate part of our income to investing in startups, thanks to crowdfunding platforms and investment groups such as BackFund, we can aspire to build a good portfolio of investees with little money.
In this way, we are actively participating in the development of promising technology companies. In addition, the vast majority of us can also do our bit, either with knowledge or with contacts in the companies in which we’re a part of.
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