1Mby1M Virtual Accelerator Investor Forum: With Luis Gutierrez Roy of Telegraph Hill Capital (Part 2)

Sramana Mitra: In the history of venture capital, the traditional venture capital model has been that in your portfolio of ten companies, nine will fail and one is a homerun. That’s how you make your money.

Therefore, you are trying to find ten companies that you can somehow believe can be unicorns. Of course, nine out of ten are not going to succeed in doing that, but one will. That’s how you make your money. Today there are so many small funds like yourself.

The micro-VC category has exploded. I think there are quite a few investors who share my point of view. In that category, it is not necessary to play the unicorn game. You can make money with capital-efficient investment strategies and seeking early exits, and not put so much money into building a company.

Whether it will scale from zero to $100 million in five to seven years is a big question mark. That game is not necessary. Comment on that.

Luis Gutierrez Roy: I couldn’t agree more. There’s a lot of talk about unicorns. What’s important is what kind of cash and cash multiple we’re getting on our investment.

Again, dilution is very critical. There are companies that are acquired for less than $100 million. Our cash and cash returns can be double digit. We do not need to see unicorns. We do need to see companies that are capital-efficient and can build decent-sized businesses and get acquired eventually.

We’re not in the business of looking for the next unicorn. We are in the business of looking for the next company that will provide that kind of a multiple on our money. Most of the exits we’ve had have been five to eight times our invested capital. This is actually a great multiple. 

Sramana Mitra: Switching gears, tell me what’s going on in Barcelona. What do you see? How is the ecosystem developing? What trends are emerging?

Luis Gutierrez Roy: Barcelona is interesting. Five or six years ago, there were two primary problems here. There was little available capital for early-stage companies. It was difficult for players to compete versus other companies in other geographies and companies that were much better funded.

That has been solved. There is abundant capital these days in most of the big cities in Europe.

The other problem is, there was a bit of a mentality problem in the entrepreneurs. Many of them would just think locally. They would not think globally. This was a function of having limited capital. This has changed as well.

We are starting to see new entrepreneurs that can see that you can build sizable businesses out of Europe. You have the capital. You are in the position where you can compete with well-funded companies from other geographies like the US. This is not an issue anymore.

What’s still a question mark is, how long it will take for those companies to close the circle from funding to exit. With that regard, the European market is not as mature as the US market. We’re many years behind. We have not been able to close the circle.

It will be interesting to see how many of the companies including unicorns will make it to the finish line. We’ve seen some examples, mostly in the Nordic regions. We haven’t seen that many in Southern Europe.

Sramana Mitra: Has any Spanish company found an exit?

Luis Gutierrez Roy: None that I know of. There’re sub $100M deals. There’s a few in the several hundred million deals, but not too many. There’s probably a couple of them a year in the last four years. Social Point is an example in the gaming industry. They got acquired for about $200 million or $300 million. That’s an outlier. You have one to three of those in each of the last two or three years.

We have seen companies getting substantial funding. Those have not made it to the finish line yet. It’s just not a finished story yet. We’ll have to see what happens there. The new generation have what it takes to cross the finish line, but now they have to execute on that and deliver. We’ll have to wait and see if they are capable of doing that.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Luis Gutierrez Roy of Telegraph Hill Capital
1 2 3