Life on Mars - A podcast from MarsBased
Life on Mars - A podcast from MarsBased
082 - Road to profitability and AI, with Mercè Tell (Co-founder @ Encomenda Capital Partners)
Unlock the secrets of navigating the turbulent waters of venture capital with our latest episode featuring the ever-insightful Mercè Tell, (GP & co-founder of Encomenda Capital Partners). This is a recording of one of our latest Startup Grind BCN events, recorded in early 2024.
Ever wondered how down rounds, declining M&A transactions, and slumping tech stock valuations are reshaping the investment landscape? Mercè sheds light on these pressing issues, providing a straightforward and transparent outlook that both VCs and startups will find invaluable. She also forecasts the trends for 2024, separating the hype from the reality in AI, and discusses the significant impact of reduced funding on the market.
In our deep dive into the world of startup investments, Mercè helps us unravel the complexities of early-stage versus late-stage ventures. Discover why seed stage investments can offer better returns and more founder-friendly terms, along with the unique conditions and legalities that each stage presents. We also examine the lifecycle of startups, the varied exit strategies, and the potential resurgence of M&A activity that could breathe new life into the VC ecosystem.
Finally, don't miss our conversation on emerging trends that are catching the eyes of investors, from sustainability and green tech to AI. Learn the crucial factors that VCs consider when evaluating AI companies, including the importance of practical, problem-solving solutions. Mercè also shares her journey from managing inherited funds to co-founding Encomenda, along with strategies for market validation, effective fundraising in a bear market, and convincing successful entrepreneurs to venture into VC. Packed with real-world insights and expert advice, this episode is a must-listen for anyone invested in the future of venture capital.
🎬 You can watch the video of this episode on the Life on Mars podcast website: https://podcast.marsbased.com/
Hello everyone, I'm Alex, ceo and founder of M, and welcome to Life on Mars. This episode we bring you Mercedes del GP and co-founder of Franco Menda Capital Partners, one VC from Barcelona that we had hosted at Startup Grind four years ago, and we revisited their ideas, their mandate, their investment thesis and how they are performing in the market in one of our latest Startup Grind events. In this fireside chat that we conducted with Marce, we discussed the headwinds that the investment market is now facing the down rounds, the severe decrease in the number of M&A transactions that have been affecting the market, the drop in valuations, the descent also in value of these stocks in technology companies and whatnot. She is one of my favorite VCs, which is a lot to say, because she's utterly transparent and she explains things very clearly, with barely no filters, which is something that I'm not used to, especially when interviewing VCs. Usually they're very conservative, they're very protective, they want to avoid any kind of legal issue or affecting any of their portfolio companies. Marseille is very straightforward and she tells things pretty clearly and without any kind of filters, so that's why I love the way she explains things, which are very, very clear, and provides for always good conversation and a lot of food for thought. I'm pretty sure that you will learn a lot from this conversation.
Àlex Rodríguez Bacardit:I hope that, as much as I did during the event, I we give you the full conversation here, also q a, because I think there's a couple of questions that are very, very interesting. A lot of questions are very good and insightful, so bear with me. It's going to be a long episode, but towards the very end, I think you will also find very interesting questions from the audience. So the question of the day for this episode is what did you want to know before going into BC that you wish you had asked? And, without further ado, let's go with Merce On your feet. Everybody, this is Merc, all right, all right, yeah, that's great. Um, welcome, I guess we can stop that. There'll be youtube copyright infringement, uh, thanks. Uh, when I publish the video, always happens.
Àlex Rodríguez Bacardit:Welcome to start, ryan again thank you so much for inviting again I was gonna ask how many times have you been welcome on state on stages of rockstar? But I think I did that already one year ago, but I don't remember the answer. So how many times have you been welcome on stages?
Mercè Tell:it was once when we were, uh, on the lockdown, yeah, and after on the panel when you did the university.
Àlex Rodríguez Bacardit:So only at grind grind we consider you a rock star. What happens outside of Startup Grind?
Mercè Tell:Outside. I've been on stage many times.
Àlex Rodríguez Bacardit:All right, because we didn't have time to prepare for this. Usually this is organic, casual conversation. I'm going to suggest a few topics we could be speaking about. Right, we haven't prepared these, so this is first news for her. So my ideas right, we could be talking about trends and forecasts in VC for 2024, which I guess it's the easy thing to do. But we can spice it up.
Àlex Rodríguez Bacardit:And I've got other suggestions. Like we could hype AI so that we can forget that we hyped other stupid technologies a few years back. Like every VC we could talk about oh, there's no more funding nowadays, so what happens with startups Also? Or the music stop what happens with VCs, because eventually, vcs will not return the funds and also there'll be like where are we we doing now? Or we could be talking about the music stop everybody, go back to fucking deloitte. Um, it makes the light. They're not going to sponsor this, luckily. Um, why would anybody work for him in 2024? That's something that we can also ask. Or everybody says it's the best time to invest, but they're just playing with somebody else's money. I don't know. A few suggestions what do you want to start with?
Mercè Tell:So you want me to try to decide which one? I'm just kidding. Let's go for trends and forecasts.
Àlex Rodríguez Bacardit:I'm just kidding, I always do that kind of like an icebreaker. But yeah, let's give a little bit of recap. I know you Most people know you, because otherwise they wouldn't have paid the ticket, but we don't know the story behind you joining Encomenda. You used to be at Neko, a fund that used to manage other funds. What's the story behind that?
Mercè Tell:And what is even a company that manages other people's funds? So the story started with Neko. That's eight years ago. I created the company to inherit the funds of the managing company that I was working for that the partners decided to retire and there was someone that had to inherit those funds. So that was what made me decide to become an entrepreneur in my sector. So, starting to create my own VC, I looked for financing for someone to help me, because it's pretty expensive to create a venture capital managing company. That was the first lesson, and after that I inherited those funds. So I started divesting, which is one of the toughest parts, I would say, on VC.
Mercè Tell:After that I came back on deciding okay, now let's raise a fund that's the second hardest thing, I would say and we did pretty good. I had two partners that joined me at that moment and we raised 40 million euros fund, which was great, but we'd never considered some legal things that happened afterwards and we were unable to create that fund. That's where Encomenda comes on board. With that, we ended up having two small funds which weren't paying for the party. So that's why we decided to join forces with the Encomenda team previous team Mario which was a startup some days ago, I guess, and Carlos, and decided to create with them the second fund, the Encomenda tool. That's why we changed the name of the company and they joined on our shareholding.
Àlex Rodríguez Bacardit:How do you sell this kind of company? What kind of assets is it valued by? Is it just I get the portfolio? What?
Mercè Tell:is the valued by? Is it just I get the portfolio or what is the transaction like At the end? We consider the license being able to commercialize funds. That's one thing, and it was up and running with all the regular and the compliance thing. That it's kind of, we'll say, very tough to have everything up and running. And we had two funds in portfolio, two funds that were managed with the portfolio of companies. So that brings you some fees and that means having some to have everything up and running. And we had two funds in portfolio, two funds that were managed with the portfolio of companies, so that brings you some fees and that means having some LPs which you can tackle for the next funds.
Àlex Rodríguez Bacardit:So you have these two funds under management and this third fund that you are actually have to complete the reports by tonight. So after this event she has to go back home and work on filing reports and shit and do some serious stuff.
Mercè Tell:As I said, the two first funds. They gave so much fees to have a great team. My team has joined in January. They've been struggling with the reporting but at the end I have to check it tonight.
Àlex Rodríguez Bacardit:Let's talk about each one of the funds so that we can give context to the audience, so they know for which fund they can pitch you afterwards in the networking right.
Mercè Tell:So I have a fund that is kind of a corporate VC. We run the investments for Palladium Group. It's a travel hotel line in Spain. They have only two hotels, palladium for sure, so many brands and also the discotheques in Ibiza. So they have Ushuaia Harrah Hotel. So it's great and we look for them. Seed stage companies mainly working on travel, tech and leisure, anything that they can be working with the group. Then we have a second fund that invests in everything that comes out from a venture builder that is called Nucleo. So actually in that case you cannot apply except that you go through Nucleo If you are interested in joining a venture builder. They also are now adopting companies coming from abroad on kind of a co-led co-founder. And then we have Encomenda. Encomenda mainly invests on pre-seed and seed. Our initial ticket goes up to half a million and we are agnostic in terms of verticals, more focused probably on B2B than on B2BC. But we do less deep tech or less hardware things, more digital focused probably.
Àlex Rodríguez Bacardit:What is the so in terms of you know this new fund that you're opening. So the Encomenda one. Let's focus for a minute on this one. You mentioned a couple of the hard. No's right so deep tech, or you didn't mention biotech, I think, but like, probably biotech is another. What is the hard? No's, not only in sector, but also in types of businesses Like what is something that you say like this is absolutely a no, like solo founder or you know it's not actually.
Mercè Tell:If it's a solo founder and it's got the idea of complementing the team, that's great for us. So nothing to say if it's a great founder. So again, the main thing that we validate and where we spend the most time is to validate the founding team. It may be a solo founder and may complement in the future. I would say big no's are people that are not committed. So if you are not full-time on the project, just forget about pitching to us, because we are not going to be bringing any skill to the board. It's actually we look for a team that is committed to the project.
Àlex Rodríguez Bacardit:Okay. So I really wanted to talk about this one because in the last years where there was an excess of funds, all of them seem to be going from later series to earlier and earlier in the process, and pretty much every other fund went to pre-seed super early, actually before product, before revenue, and all of that which seems illogical. That which seems illogical, right, but maybe now that there will be a scarcity of startups, because it's rougher times, it's headwinds, there's the economic downturn and all of that, what is your prediction? Are funds going to go back to later stages or are you going to stick to these thesis?
Mercè Tell:So those funds that you mean that went down to the early stages, most of them. They are now struggling with their portfolio companies. So it's been tough time for the last two years for those companies that were in cities A and B, so they are coming back to late stage. Basically and there's probably that's what we identified that there's a few funds doing pretty pre-seed and seed stage. At the end you can, it's different dynamics. I think what they realize is different dynamics that run on the early stage. What runs on growth. I'm not able to help companies on later stage. Nothing to do. I'm on a board not knowing how to help the companies. Same things applies from the other background. So companies and VCs that invest in late stage, they are not the partner for early stage companies.
Àlex Rodríguez Bacardit:And how about? Because you know I've been investing right now for about eight years as a business angel, right, and whereas before we wouldn't see any VC in a pre-seed round. And you know, in a round of like I'm raising 300 grand and now there are VCs who are like I'm going to take, I'm going to lead the round 200 in and lead the round. This is kind of funny because you get like all of these business angels and then kind of like the liquidation preference starts too early. And how are you battling this? Because you're also in those trenches.
Mercè Tell:That's what I'm saying that the conditions and even legal terms is quite different when you invest in late stage than early stage. That's the first thing, and most of them, it depends. Every house has its own rules, but actually most of those that have gone down is because they are trying to diversify their portfolio with different type of assets which, at the end, for us, any startup portfolio is an asset and, at the end, trying to diversify with companies that may have bigger returns, because that's true, that seed stage gives the best returns to the investors. That's the reason. Actually, I think it's going to be coming back to everyone getting it specialized on different stages.
Àlex Rodríguez Bacardit:Okay, yeah.
Mercè Tell:At the end, if you get more seed funds investing with the conditions typical conditions of seed funds then it's more funder friendly at the end. So in terms of the legal terms, we never put any liquidation preference or any type of thing like those ones, because we know we are limiting the company on the future fundraising as well. So at the end the founder decides who joins the company and they are going to be moved away.
Àlex Rodríguez Bacardit:I would say but in terms of signaling, for instance, probably I'm getting too specific, too technical, but let me know if it is like that. Like, for instance, if I see a startup that, on pre-seed, manages to complete the round only with business angels, that's a good signal for me. If there's a VC that joins to complete the round in pre-seed, for me it's like these guys couldn't make it only with business angels. For me it's a bad signal. How do you see it from the perspective of VC? Probably good.
Mercè Tell:From my side, probably good, depending on legal terms. I don't know if everyone's familiar on liquidation preference and this type of things, but actually it's something you can explain basics.
Mercè Tell:Yeah, exactly, A campaign of basics is someone that comes after a business deal, for instance, and puts a liquidation preference means that they're on the waterfall. When actually exiting the company they're going to be receiving first and after the other ones. That means that founders and early investors receive money after them. That's something that we never put and that we never accept at that stage or seed stage, Something that has to come when there's a risk or even when there's a down round, but not on these early stages.
Àlex Rodríguez Bacardit:However, a lot of VCs still play the liquidation thing. Okay, and how about like? I guess that that's that's part of the vision. The other is like in reality, a lot of companies, a lot of founders, only make money through secondary that's true In every round, not by the time they're exiting. And also seed funds. Also seed funds. Okay, can you explain that?
Mercè Tell:We have to exit the company in a period of time, so at the end we invest. Time at seed stage is longer, so I've invested in the past in Series A. Then you get out Series B, c, whatever, and it's three, four years time. In our case, seed stage is five to six, seven years to get out of a company and normally it's in a secondary. So actually it's with a discount, with someone is joining the company in a later round.
Àlex Rodríguez Bacardit:And how about the lifecycle of companies, right? One thing I noticed comparing between Silicon Valley and here is that companies tend to languish longer. Here they die a longer death right, because probably in Silicon Valley they're like two years. This doesn't work. Fuck it. Shut down the company. Fire everyone If you still have got somebody.
Mercè Tell:And plenty of zombies out there.
Àlex Rodríguez Bacardit:Yeah, exactly In Spain I see more like companies are like yeah, you're 10. Still, we maybe break even. We fired everybody. It's no wonder we make break even if it's only you, but they're like yeah, I found another grand, another, and people are voting.
Mercè Tell:People are voting and exploding.
Àlex Rodríguez Bacardit:How do you see, like, what's your prediction for the next two years, Like how long this downturn is going to affect the company life cycle?
Mercè Tell:It's been tough. Actually, I think the lower M&A activity is not helping as well.
Àlex Rodríguez Bacardit:Okay, yeah we're going to go into that.
Mercè Tell:That's something that really affects on companies because at the end exits come also because of getting booked by someone. So that's one thing and at the end it's difficult to estimate for us if there's no activity in M&A. That's difficult to estimate how to invest and which is the value or the multiple that we're going to get on companies. We expect that to come back to a bit more activity in terms of actually in M&A, which at the end triggers the rest of investment, triggers the guys on later stage and also triggers the early stage.
Àlex Rodríguez Bacardit:Good, it's good that you mentioned M&A, because I was going to go into that, so traditionally. So, first off, in terms of statistics and this is something that you can provide with the intelligent numbers and insights I'm just asking the dumb questions here, but I know for a fact that last year was very low.
Mercè Tell:It was like a minimum record of VC investment, vc money being deployed in the market Scarcity at all Was that there was a scarcity in terms of investment, correct?
Àlex Rodríguez Bacardit:But also in terms of M&A, which is a sector I might know a little bit more of. I know that there have been a lot of operations in the private equity market, not so much in like strategic acquisitions and whatnot. That means corporates are not buying fucking startups for whatever reason. From the VC perspective, what have you seen in your portfolios? There's been more like PE or corporates or bigger startups.
Mercè Tell:In our case there's been strategic acquisitions, but in exchange of shares, so in paper.
Àlex Rodríguez Bacardit:Like Global Delivery Hero and stuff like that, like that yeah.
Mercè Tell:So companies getting in exchange shares of the bigger company acquiring and let's see what happens with earn out in the future. So I'm going to be paying depending on the synergies that we see. Because that's basically because it's difficult to predict which is the synergy that I'm getting from this acquisition. So if in normal market conditions, you know if you buy a company, then you'll know how much you're going to be generating and which is the time that you're going to be recovering the amount that you've paid for that. Now last year, for sure, it was pretty difficult to make predictions in that sense. So that's why companies try to postpone the payment. So try to give an error now, depending on which are the synergies that I'm getting with this acquisition.
Àlex Rodríguez Bacardit:But from your perspective, from a VC, you want to make an exit right. You want to make an exit right. You want to make a multiplier on your investment. Say, you invested in global, which is not the case, I think but like if you had an acquisition whereby you get the shares of the acquiring company. What is your role there? Can you veto that, can you not? How can you it?
Mercè Tell:depends on which type of shares they've quoted. Probably we can do something and we can even liquidate the fund, because it's something that happens at the end. You have a queue of the fund with some portfolio companies with some expected earnouts or some payments in the future, something that you may be liquidating in two years, and at the end you distribute that to your LPs and you finish with the fund.
Àlex Rodríguez Bacardit:I don't know if we're getting too technical we're going to go back to predictions but I'm really interested in this because normally I use these events to learn stuff, right, I'm that kind of lazy person. I just invite people here so that I can ask questions to them. No, just kidding, but like so, from your perspective as a VC, trends that we should be aware of One year ago we would have said AI. Of course, we all know that. What have you seen? Because VCs traditionally see stuff like not so early as VAs, right. So what have you seen in the last, say, three months?
Mercè Tell:Lots of sustainability, I would say everything is becoming greener, so that's probably things with more impact. That's pretty much the trend. Ai for sure as well, and probably more B2B, because there's this scarcity in terms of anything going to B2C. You need a lot of money to invest in marketing and probably there's not so much companies starting At least we're not seeing so much.
Àlex Rodríguez Bacardit:Okay, so two things. So sustainability, so green tech're not seeing so much. Okay, so two things. So sustainability, so green tech impact on all of that. That's something that traditionally VCs were like fuck that shit, we don't believe in this. This doesn't make money, and we've seen in the last 10 years that actually made significant, significantly better returns than other types of money. Right, and so everybody jumped on the bandwagon or the cool wagon of saying like, oh yeah, cleantech, we always invested in that. But AI, I'm really interested in that, not because it's AI, it's cool, but because there's a lot of companies that are just a lot of fluff. Right, launch get a lot of users, lots of spend in B2C, but the churn is enormous. They don't make it past their second week as a company. Now that you've been probably investing a year in the sector of AI, how do you see this kind of companies and how do you separate the grain from the chaff?
Mercè Tell:We separate it by being really something applied and solving a real pain or not. So that's basically what makes the difference. So we see a lot of them trying to find a. So I believe for many things, but actually that it's applied and it's useful for someone and someone is willing to pay for that, that's probably what we see less.
Àlex Rodríguez Bacardit:Is there any example of company you have invested in that you can share?
Mercè Tell:We've invested in AI. I actually applied to robotics, for instance, so software that helps on adapting hardware, robots actually for picking in warehouses. So that's one of the applications we validated. Actually, at the moment that we received the company, they had no customers, they had just an mvp, an idea of what they were doing. We contacted the main um e-commerce in spain and validated with them if there was a need for that. Actually, the founder of this big e-commerce co-invested with us, so actually there's a need on on for that project okay, so america don't.
Mercè Tell:I invested in them yeah, you know the name. I didn't, but it's easy to guess.
Àlex Rodríguez Bacardit:Um no, no, actually that that's really interesting because, um so how many people here are raising funds right now? Raise your hand. If you're not, so many, like I would say, like two years ago we'd have like 50 people uh, raising, raising funds. Probably it's because it takes more guts now to create a company with this economic downturn and everything. But okay, so what would be your advice? To raise funds now, not specifically with you, we're going to go into that later but with any VC now in this down market, in this bear market.
Mercè Tell:For the last semester, I would say that everyone was looking for efficiency. So being pretty efficient and justifying everything what you're going to be getting and being really strict on what you're going to be spending, which is the milestones that you want to achieve. I think actually it continues a bit the same. That cleans a bit people that has no idea has not validated a lot what they are expecting and validated on the market, their go-to-market strategy, their fit with the market and with customer. So that's probably looking for efficiency, being clear on on the amount that you raise and what that you're going to be using that for yeah, I've seen something in the last 12 to 18 months more slides of road to profitability.
Àlex Rodríguez Bacardit:Yeah, that I had never seen before, because everybody was like reinvest everything in growth and then you know you have like buddy and stuff like that right shit going out in smoke. But and then, specifically for you to raise funds from your, your company, from your firm, what do we have to take into account, like who to contact? I guess you, but any of us in fact.
Mercè Tell:In fact, myself, I'm the worst person right now in terms because I'm still raising the fund. So if it's difficult to raise for startups, it's also difficult for us to raise funds. I started six months ago. We've just reached our first closing. That means that we really start to invest with the fund and then it's going to be open for a year and a year and a half, going to be open for a year and a year and a half.
Mercè Tell:So I'm still combinating pitching to investors with finding and scouting opportunities, which does my team. So actually, our emails are actually our namelastname at Encomenda for everyone in the team. Look for someone that works on the deal flow side. So investment director analyst and we validated all the companies we received. We tried to check all projects that we received, even from our site, even from LinkedIn called Outreach, called from LinkedIn. We tried to give an answer to everyone, because we find it ourselves when pitching to investors that it's pretty cool when you get an answer, even if it's a no, with a reasoning of why not. And then after that we have Monday meetings. Every Monday we receive the previous week and it goes to partners, so I receive it afterwards, those ones that are kind of screened by my team.
Àlex Rodríguez Bacardit:And how about? Is there like? Sometimes people coming to Sarprent they approach me to ask for advice for what slides, what kind of deck can I use to approach VCs? What structure? You know it used to be the YC. There's the YC template out there, but is there any specific pattern or structure to the pitch deck that you want to see, like some slides that if they are not there, you're like I'm not going to invest?
Mercè Tell:There are kind of basic slides like what's the pain that you are solving, how big is your market Kind of the addressable market and if it's really a big solution or something that's going to be having an impact. And then the team. So for me it's the three things that we validate.
Àlex Rodríguez Bacardit:Funny, because Capietes doesn't want to see stuff that's on Wikipedia, right, it's like I know how many people live in China, but they'll exercise. And how about, like you get three different funds, how do you ensure there's no conflict of interest between the three of them? Because I assume you have invested in a fair amount of companies and well, we'll get into like pivots later on, but like initially, how do you separate which one gets which?
Mercè Tell:it's pretty easy because we've been forced, even we have, so we're regulated and the regulator comes into, down into it, into it. Uh, so actually for the palladium fund it's a good pPC. It's only travel, even if it's six states, and we can co-invest with the other funds. But with the other ones there's one that invests in everything that comes out from Nucleo and the other one anything that is out of Nucleo. So we can not co-invest between the two later funds.
Mercè Tell:Okay, yeah, okay so, but, however, if, like, there was some company that but we have to invest in the same state, same moment, same financing round. So if there's a company that's been invested already in a fund, I cannot come afterwards on board, except if there's someone that is leading. That is not me.
Àlex Rodríguez Bacardit:Okay, what happens if, like a company that's not on the travel sector, for instance pivots, and now there's travel, and then it would probably like how do I invest here, Like from the fund that is already invested in, or I can invest from Palladium as well?
Mercè Tell:That's easy because Palladium actually is a corporate VC, so we look for fitting with the corporate Anything that comes on travel. We first validate if they may be doing something with the corporate.
Àlex Rodríguez Bacardit:If they are not interested in that, then it comes to the elephant and circling back to M&A, because it's something that should be in everybody's heads right now, because otherwise you're not going to make any fucking money. If you create a startup, it's like sell the company, right? So are you operational on the companies that you have invested in? How do you help them? Is there any sort of like services that you offer to the companies?
Mercè Tell:I said I started divesting. So actually I inherited a portfolio of 10 companies and I had a mandate from the LPs saying you have to divest. So you have to go and work with the founders because some of them were really accommodated. It wasn't a great portfolio. There were good companies but there was a bunch of very difficult companies to exit Any particularly good.
Mercè Tell:Good, there was Smatics which is an ad tech, it was pretty good. But then I had companies on biotech, which I don't know too much, and there were companies that were kind of the zombies, so companies that were with nice revenues, nothing exciting for someone to even.
Àlex Rodríguez Bacardit:Now that you like that, because we know it. It's kind of like an unspoken truth about VCs, which is, you know, initially they're all treated equally. You invest in all of them, but you see, the best performing ones are like fuck it, we're going to double down on these ones. The other ones, no one says publicly, we'll let them fall, but this is what happens.
Mercè Tell:And everyone's got different strategies. So don't take it for granted that the whole sector works as we work. There's people that decide okay, those ones that are not going to be giving more, I'm going to be spending too much time for a very low return. They just leave it at them down there. Or even we have a put option to give our shares to the founder by one euro.
Mercè Tell:So this type of things happen a lot. That's through the different strategies that when you see that you may be recovering at least what you invested, then you have to consider if it's worthy to help on the company to exit and struggle on finding solutions. And I'll put you an example, because I'm of this type of investor that works and tries to exit any single company, Doing things like working with the founders, identifying if their technology is applicable to another sector or another vertical, creating a second company or a spin-off of the company, selling that asset, let's say, getting liquidity in the company and being the founders in the same company, being able to repurchase our shares. So these type of things, that means the VC working with you to create a path to the exit.
Àlex Rodríguez Bacardit:But what kind of people do you have in the fund to be able to execute on this? Because you need to have, like some, you know, founding experience. Not being purely an analyst coming out of BCG or McKinsey and stuff like that, but having like some real founder or banking, even banking strategy.
Mercè Tell:That's kind of the profiles that we combine, so having banking profiles or M&A activity profiles with people. That is basically entrepreneurs we have. Apart from the four entrepreneurs that we are leading the company, there's a bunch of venture partners, that it's people that actually helps on following up the companies. Just for instance, in this Encomenda 2 fund, we are planning to have 40 companies in portfolio For the three of us. That's a lot of companies that we should be following up from different verticals and different technologies. What we've done is creating a network of people that helps us and then even does that the follow-up of the companies, or is the board member that represents the fund?
Àlex Rodríguez Bacardit:and how about in terms of the competition that so traditionally? We all know the? We all know the story that um visas. In Spain, they used to be like really traditional, conservative, old-fashioned, if you will, just recycled bankers. But with the coming of international VCs, you know so Atomico, while they didn't have they've never had an office in Spain, they had some people on the ground, in Madrid, for instance. So Target Global has had an office in Barcelona. Briga right now has an office in Barcelona. So if these international players start coming here investing Creandum, what's the other ones? Indico, probably A bunch of others, like from Typeform, travelberg, all of these companies created by or co-founded by an expert. They brought international investment, so they reshaped the rules of VC in Spain. How do you see this competition from your perspective of being a local?
Mercè Tell:We actually love it Okay, we love to coinvest.
Àlex Rodríguez Bacardit:It's more expensive for you, though, right.
Mercè Tell:It's more expensive. But we love to co-invest with partners from other countries. That brings a lot of value, having kind of the national player with the investor from another, because we can help the companies here. Being realistic, we can be helpful, opening doors and introducing a customer, introducing someone to hire here in Spain but not abroad. So having another fund co-investing with them, that's great. And actually the ones you mentioned we try to share with them and we share a lot of deal flow opportunities. So that's really on the other side. So, and we try to foster that actually ourselves, we create investor meetups and we go to different countries in Europe to have meetups with other VCs, actually to try to force that we co-invest a bit more.
Àlex Rodríguez Bacardit:Yeah, because some funds are maybe not used, but they collaborate really closely with bigger funds as sort of like sourcing funds.
Mercè Tell:Right, we're kind of the sourcing for them. Again, we are here on the ground, let's say so. We know and we may have some link to entrepreneurs, we may have some references from the entrepreneurs that they may not. And we actually, when we invest actually out of Spain, we do the same. We invest mainly in Portugal and south of France as well, and actually when we do that, we also try to find someone that leads in the country. So we are kind of this sourcing for them.
Àlex Rodríguez Bacardit:So when you really want to get into a company and the company is so hot and you want to get into it, do you actually use the reference like oh, we actually source for this, like Sequoia, for instance. Or you don't do that, you don't drop names, we don't do it Sequoia, for instance or you don't do that you don't drop names.
Mercè Tell:We don't do it. It's actually it comes, it's case by case. It's quite tailor-made. It depends on the on the company we try to. What we struggle is to identify which is the best partner on a company If. If we are leading, then we try to to have someone joining I know who with who I want to co-invest. It's 20 years in the sector, so actually I know and I've been co-investing with many people, and there's someone that I know it's difficult or it's tougher to be on the board with than otherwise. So actually we are the ones deciding and trying to make for each of the cases which is the best partner and trying to bring different expertise, because for having someone that does sit in Spain exactly as ourselves and probably has the same network, doesn't make any difference to the company.
Àlex Rodríguez Bacardit:Yeah right, one of the things that I really noticed that kind of like changed the rules is traditionally in Spain all VCs had never operated a company or they were really small companies. There was never a VC in Spain with a really big exit. Probably the only one up until relatively recently was All Ivan right Because they sold tickets. Yeah, actually Antemipata which was a Navidad.
Mercè Tell:Roja ice cream.
Àlex Rodríguez Bacardit:Yeah, exactly A little bit later. But compared to other countries, when you see, like traditionally I don't know, it's kind of like maybe it's in the dna of the us some founders create three, four companies, sell them, become vcs themselves and they kind of like want to give back, whereas here's like I make good money, I sell the fucking company and I retire and I just invest in real estate. That's something much more spanish. How do you convince people with big exits to join a vc?
Mercè Tell:actually that was what happened. We have uh with in fund I have. So it's great to have Javier de Riva, which is the CEO of UserZoom. Actually, it was the case. He actually sold the company two years ago and he was mainly investing in real estate until he said okay, I'm getting bored, I want to do something, but I don't want to come back to having the whole pressure of being an entrepreneur. So I think VC is a good path for them. It's not actually that we have to convince them. It's something that comes quite naturally for successful entrepreneurs, really very successful entrepreneurs that want to be in contact with other entrepreneurs but don't want to have the pressure of being in front of you.
Àlex Rodríguez Bacardit:Okay, a couple of quick questions before we wrap it up. One of them is like what is any notable mention in your anti-portfolio? So, for those who don't know, anti-portfolio is a company you passed on and has made it really big right and you want to be proud of.
Mercè Tell:I almost invested in Uber that I passed on uber right so, but I had the chance to actually there's a lot of them, um, but, but it was not so much my anti-portfolio, it's not so much so my, my anti-portfolio. But I wasn't able to convince my bosses there because I wasn't deciding the decision, uh, but actually in la nevera rojo. So the guys of Samaipata were good friends since I was an analyst back in so many years ago. I tried probably not too much. I put in too much effort to that because actually never succeeded on convincing the partners of the fund to invest in them. So that's one of the biggest anti-portfolio I've got. Trovit is another one I invested in. The competitor, it's Nuruam. That's the company that I said I had to struggle to make a spin-off and getting out of the company. Actually it was wrong investment. They were great guys. I'm still good friends with them, but actually Trawit was the one making a lot of money and they were just doing good.
Àlex Rodríguez Bacardit:What's the kind of company that has got a terrible, fucking terrible website and you're like this is never going to work. And then they, they sell for so many millions. It's not even funny, Right Like Craigslist in the U? S.
Mercè Tell:But you know, yeah, I don't know which one to say there was a no there was another one here that sold to eBay.
Àlex Rodríguez Bacardit:If I remember correctly, there was something like, something like what was it? Another Craigslist in Spain. Maybe somebody can help me, but anyways, don't worry. The other thing is, there's another question we always ask to everybody is what has been your most expensive fuck up, and can you quantify?
Speaker 4:it with money? Here's another question.
Àlex Rodríguez Bacardit:We always ask to everybody is what has been your most expensive fuck up.
Mercè Tell:And can you?
Àlex Rodríguez Bacardit:quantify it with money?
Mercè Tell:Yes, the second part is the best. I said I created the company eight years ago. For the first five years, I think, we invested in another company. So as an entrepreneur, I invested in the company alongside with my two partners and we invested between the three of us half a million euros. So we get debt for that. I don't have such a big amount. We created a whole bunch of teams. We created so big overheads in the company because, I said, we raised 40 million euros and we misconsidered all the legal stuff we had.
Mercè Tell:It was for a fun investing in Spain and the UK. So we created offices in Spain and UK. We had team in the two countries, so working remotely with the guys in the UK, we started the scouting opportunities and then Brexit came. In the UK we started the scouting opportunities and then Brexit came and then some of those LPs decided that we weren't too British to invest in us if we separated into two funds, in the Spanish fund or the British fund, then we weren't too British to be there and we weren't too Spanish to be here because we had the whole team in the UK. So that led to not creating the fan and we spent a lot of money.
Àlex Rodríguez Bacardit:How much money Come on share?
Mercè Tell:I mean, I've been drinking a little, Half a million, half a million.
Àlex Rodríguez Bacardit:Jesus Wow Kate.
Mercè Tell:For a managing company. It's not a startup.
Àlex Rodríguez Bacardit:It doesn't make the top 10 of most expensive mistakes, but it's good. It's good, thanks for sharing. I mean it's important that we share. We don't. I mean we don't share this kind of stuff just to make fun. It's kind of like, hey, everybody fucks up, like everybody, even people who deal. That was the fee of the M&A boutique. Imagine how big the deal was to get that amount of money and they kind of like got drunk one night and they slept on it and it just slipped away, you know. So that went to kind of like top 10 of most expensive fuck-ups. So I mean, thank you for sharing.
Mercè Tell:No, I would be investing much more now on my fund. You know, the bad thing is that at the end you invest a lot. It's great because a great team came from that. Yeah, we were a good school, nico, which was the name that I created for the managing company. There was people that is now running their own funds, so they learn a lot. We paid great wages and we were a own funds, so they learn a lot. We paid the great wages and we went to school. So at the end, how about, like?
Àlex Rodríguez Bacardit:what is the strategy now for this year, seeing that in the last 24 months 30 something we've been having a changing landscape Every three months. There's something going on. There's a fucking war. There's like borders closing, there's a decline in the stock or like something in the market. There's something going on. There's a fucking war. There's like borders closing, there's a decline in the stock or like something in the market. There's a bank shutting down. How do you plan for that? What else? What else Like? How do you plan for that? And you make annual planning.
Mercè Tell:Not really, so now it's what I'm seeing. I started managing the travel tech fund before COVID, so all my portfolio was travel tech companies Good travel tech fund before COVID, so all my portfolio was travel tech companies. No one was traveling, so that's great.
Àlex Rodríguez Bacardit:So you had Exotica right on the fund. I have Exotica.
Mercè Tell:I've got Teamfly, which is for flights. All of them were great revenues. Next month, zero revenues. That's great for studying managing a fund. I created a fund and never predicted Brexit, so lockdown, so no word. Now that I've created this fund, so we've reached the first closing, we're giving an estimate of how many years we're going to be investing and how many years we're going to be divesting, but now we always put like a plus one, plus one on investing, plus one in divesting. So one more year maybe, because who knows?
Àlex Rodríguez Bacardit:There's the margin, definitely Okay. So kind of like the last two questions. First is how can we help you? In the spirit of startup brand, we always try to help everybody coming. How can we help Merced and Encomenda Capital Partners Spread the word and Encomenda Capital Partners Spread the word.
Mercè Tell:So, as there's a scarcity of funds, we have a pretty new fund just to be deployed during this year and the next two years. So anyone that and we invest in the really early stages and we love to see the prices when they are really really starting. We try to be helpful and try to validate with the market, which at least we think that it's quite win-win. We try to validate with the market, which at least we think that it's quite win-win. We try to identify a potential customer for you, try to validate it with them. It helps us on our due diligence but actually you may get a customer which at the end is better. If you can go through customers and never need an investor, that's amazing.
Àlex Rodríguez Bacardit:Yeah, I mean probably we share the vision and also remember the name.
Mercè Tell:So if you meet really someone with a high net worth person that needs to invest in a fund, I'm open to having someone joining to the fund.
Àlex Rodríguez Bacardit:There's a lot of these people here.
Mercè Tell:Obviously they want to invest in funds, yeah, but I know that's amazing guys, at least not for these funds, For the next ones they exit. They become high net worth individuals.
Àlex Rodríguez Bacardit:Just remember my name Get money from her sell your companies, make tons of millions and then invest in her next fund. Exactly, oh, pizza, okay. Last question, the question everybody has been waiting for, the question that we didn't prepare for. Nobody prepares for this question. It is everybody has got a useless superpower. It is a superpower. Purse for this question. It is everybody has got a useless superpower. It is superpower, it's unique to yourself it's fucking useless but you do it super fucking.
Mercè Tell:Well, what's yours okay? Uh, super fucking so useless, useless I know how to play piano, but I broke a finger. I was thinking about that, so I'm pretty good. I spent many years studying piano playing and after, when I was pregnant, I just pulled and broke my finger. So it's kind of a useless power right now.
Àlex Rodríguez Bacardit:So playing the piano with one finger, it's without that that's pretty difficult.
Mercè Tell:I would say We'll accept this one.
Àlex Rodríguez Bacardit:Everybody please give it up for Marce. Awesome Actually. It was pretty fucking intense. We went deep on certain things. Usually we don't get this technical. Somebody like we got a mic here.
Mercè Tell:It was pretty boring for them. I was only scared on that.
Àlex Rodríguez Bacardit:No, now we will get the real difficult questions from the audience. We're going to toss around this mic over here. I don't know if we can have the mic. Yeah, Somebody who wants the mic? Just toss it around. Rules are one question per person and otherwise we're going to boo you and say your name. Oh, it works Really. Like this Whoa, that's cool. There's no COVID anymore, don't worry Hi.
Speaker 5:How much you invested in this startup you mentioned. On which one you say you mentioned like AI, early stage, no profit for now.
Mercè Tell:Yeah, in this company actually we wanted to invest 250,000 and the entrepreneur, the founder, has decided to let us only 50,000. Oh, wow. Yeah.
Àlex Rodríguez Bacardit:They're playing it hard. That happens Okay. Thank you, good question. That happens Okay.
Speaker 4:Thank you, good question Next up Okay, this question is not for Mercy, it's for Alex. Mercy, thank you for being brave enough with all these reverse solicitation rules, and you're in stage of closing funds. So, yeah, it's a brave one. But for Alex, I have a question. You said that for you, if VCs invest in a startup on pre-seed stage, it's like not good for you. Why?
Àlex Rodríguez Bacardit:For me it's a sign that they were not able to get only BAs, and usually for a business angel it's better if only business angels co-invest in the round If a VC gets in the mix. Not saying all the VCs are bad, just some right, I mean all of them.
Mercè Tell:But the other way around. If it's only business angels and I'm saying this exactly the same there's business angels that have no idea or tend to put valuation really high. So it's better when someone with a bit of idea on multiples on on something that is kind of the standard in the market for some type of businesses, makes sense that's a good point.
Àlex Rodríguez Bacardit:I would first see like, oh, these come like. For instance, I I said some companies in my portfolio. Some of them they're raised around right now. No, vcs are like good, some of them are like we had a VC, but it's this VC and the rest of Business Angels we're all really super fucking good, great. But if I decide to invest, I normally audit and check who the other investors are and I'm like I see no one I know and I check their LinkedIn profiles. I'm like you know mom and pop kind of investors that have some money but like they're really they are not well known. I don't know what kind of value they would add to the company. I will also not invest in this kind of company. So to your point yeah, some business angels are really good at checking and making like giving more authority to the deal.
Mercè Tell:And I've seen, probably from during the last year, business angels that are really well-known guys but that have never been business angels really active, big in value, but are big names that sound so much and it's pretty cool to have them on board. They try to kind of create an excitement and everyone wants to join, but actually never bring any value to the company or it's a small amount of their total capacity, so they are investing like peanuts for them or some really, really, really famous.
Àlex Rodríguez Bacardit:Be up, not gonna say names, um, but you see the cap table and they invested 300 euros. It was like motherfucker, like everybody could invest in the company like that. But just because they're super, famous.
Mercè Tell:I've seen that many times last year.
Àlex Rodríguez Bacardit:Many times. I'm not this, I'm just saying like it's kind of a trend. Or VAs that they invest and they sell services to the companies they invested in so they can like. So you know it's not like VAs could be bad.
Mercè Tell:Never give shares for any service.
Àlex Rodríguez Bacardit:No, exactly Just you know, oh no, exactly Just you know, oh no no people who just like that's people who pay for it. No, no, no. Like some people to like put money. They invest like 5,000, 10,000, whatever, but they're like day one they're like, oh, by the way, oh, you got to hire people. I got a pet hunting company, let's hire services from my company. So yeah, that was a really good question. Thank you for that Good. More questions Toss it around. Don't worry, it's not going to break.
Speaker 2:Hi, my name is George Pop. I would like to ask you, Merce, if I am a private person in Barcelona, why specifically would I invest in your fund and not some other investment vehicle? And let's say, take a five-year perspective what kind of returns do you realistically think I could expect?
Mercè Tell:So the reason to invest is basically the only thing that differentiates one VC from another one is the experience that the partners have. If you put the experience of the partners of this new fund all together so that combines my experience managing funds, carlos Blanco investments in the past and Javier Dariba investments in the past that means 250 companies that we invested investments in the past. That means 250 companies that we invested between the three of us and that makes a return of a 25% IRR for the company. So it's three times what we invested, is what we got in average. And if you put these companies in terms of every 10 years, so if you put kind of the bin dash for the companies on all of them, we have returns. So all those companies that invested from 2000 to 2010 and so on, we had returns. That doesn't mean that we that's what we're going to be getting on this fund, but it's what we try and that's what we are pitching to the investors that we're going to get three times what we invest.
Àlex Rodríguez Bacardit:That's a good question, thank you. Next up, we have time for a couple more. There's one in the back, no too far away. Come on, toss it around, go ahead, it's not going to break. I mean you might break somebody, but Okay, ooh, we made it.
Speaker 5:Yes, yeah, amazing. Hi, my name is Duncan. You touched on market validation. My question is what advice do you have for validating a market where you're generating a lot of high resolution, very unique data that's generating value for a specific customer base that you can project, but there's sort of this wild card where, if you can combine that with other data sets, you could tap into a much, much bigger market, potentially much more valuable company, but that's less known. That only becomes relevant once you hit a certain size. What advice would you have for validating that type of market as a potential multiplier on what you're building?
Mercè Tell:Oh. Well.
Mercè Tell:Yeah, you're building. Oh, wow, yeah, you're going to be helping. Right now it's so deep, so deep on the question, because actually I guess you are thinking about a specific type of company building something. It's difficult because it's really tailor-made. So for each company, we try to identify every project that fits to us. Which is the potential customer. We struggle ourselves to think if it should be applied to other particles, sometimes even to consider if they're going to be getting in conflict or potential conflict in the future with other portfolio companies. So that's one of the things that we spend time on on trying to validate if their technology or their solution applies to other things.
Mercè Tell:In terms of validating the market, it also depends on which type of project. It's true that the single customer doesn't give us really the odds on how it's going to perform. That's why we try to contact the customers that the company provides us, the ones that are running pilots and trying to see which is their feedback, but also trying to identify ourselves potential customers for the company. That's what we do, and it depends on the person. For instance, one of the companies that we invested. They validated their market approach with providing with a freemium model to their customers. That's great. We've validated there's a market for that, but it's not a paying market. So now our validation goes on top of that, trying to validate that someone is going to be playing for the new features that they are launching. So it depends on each project how you validate that it's going to be big enough for us.
Àlex Rodríguez Bacardit:I think we can agree that all the questions have been super interesting. We can take one last one, really quick, really quick. You got 10 seconds to ask it. She's got 30 to answer 10 seconds. No, just let's bring the dice. Come on, come on, let's get it. I mean no pressure, but you're separating us from the beer and the food and I'm already getting anxious.
Speaker 4:Go ahead 10 seconds, very fast and simple. So everyone is talking about AI and like SaaS and whatever. Would you also give like more traditional companies a chance? Maybe a company like that or something?
Mercè Tell:We invest in traditional companies. Actually, with the fund that invests in the venture builder. They are launching projects that come from food tech, for instance, and I believe there's good opportunity there. There's a lot going on in terms of food tech, for instance. We don't invest in things like hardware because of the timing. I've said that we spend five to seven years to exit the company. If we go to the hardware or big not to say biotech or semiconductors, those types of things that it's far from the market, if there's a lot of research to be done, then it takes a lot of time for us to divest. That's why we're excluding that, because otherwise our funds would be lower than ours.
Àlex Rodríguez Bacardit:Thank you for the assist, because Henry is a little bit shy. He didn't want to ask why would a VC not invest in a company like this, right? So I can give you 10 reasons, but I want to hear one. Or why would you invest in a company like this? What are you looking specifically in a company like this, besides having a real business, by the way, I know.
Mercè Tell:Actually, if you cut the pattern and there's something that no one may be doing exactly the same, that would be an issue, but it's difficult to find barriers to entry At the end, anything that goes to customer and it depends a lot on market strategy and it may be even a trend that's difficult for us to invest.
Àlex Rodríguez Bacardit:Yeah, you would go more for like strategic investors, more like corporate. Exactly. Like maybe like Estrella Galicia, they have fund.
Mercè Tell:maybe like something like that yeah, exactly as well, as I was running the Paladin group, which is a corporate VC. They look for other things. They look for fitting, they look for bringing their channel of distribution to the companies. It happens the same thing with those ones that come from big productors.
Àlex Rodríguez Bacardit:Awesome. Well, thank you very much. Thank you, marce, it's been phenomenal.