E393 | Itxaso del Palacio⁠ (Notion Capital), ⁠⁠Nico Goulet⁠ (Adara Ventures⁠⁠) & Stefan Mores⁠ (⁠Indico Capital Partners): Investing and scaling in Portugal

0:00All right, all right, all right. My name is Dan Taylor. I am Director of Communications at CEW. Thank you for joining us this morning for this webinar. Andrea sends his apologies. I guess being a dad and being a full-time hustler is a tricky thing to balance. So he's asked me to step in. Today we are going to be talking about investing and scaling in Iberia, a European perspective. Now, obviously, Iberia, we're going to be talking about the dynamic ecosystems of Portugal and Spain, and hopefully exploring their roles within the broader European venture landscape. You don't need me to tell you that the market right now is, well, as Stefan and I were discussing before this show, surfing choppy waters.

0:44Maybe it's good for Stefan. We're going to find out. But Iberia continues to emerge as a hotspot of innovation and investment. Today's discussion, I have to do the shout out. It is part of a deal. It is part of the Co-Investing Project, an EU-funded initiative aimed at connecting and enhancing transparency across Europe's diverse investment ecosystems. Hopefully I got that right. They're the ones funding this. So, yeah, let's hope that I got the words right. Obviously, you can see our esteemed panelists that have joined us today. I'll let them give a brief introduction. but we've got Nico Goulet from Adara Ventures, Ichazo de Palacio from Notion, and Stepan Mores from Indico.

1:30Ichazo, can you give us a 10 second intro of who you are, what you do, all the fun stuff? I'm amazed how well you pronounce my name. I don't think ever, apart from Stephan who also did another interview with me, obviously pronouncing it so properly. But yeah, my name is Ichazo. I'm a general partner at notion notion capital we are a specialist fund based in london we invest in b2b software we've been doing this for 15 years so we pioneered a little bit the b2b support investment in europe we are entrepreneurial and an operator mindset fund everyone within the company had either and operating or entrepreneurial background before joining Notion.

2:19And I'll probably add to that that we come as a team because when you get an investment from Notion, you don't only get an investor who sits on the board, but rather you get an investor with a platform team and go-to-market team. And so we try to really be there in good times and in bad times and support you and guide you through the journey. Just from this conversation, just to frame it, even though we are in London, myself, I'm Spanish. You already figured that out from my accent, right? I can't hide that one. My name is different because I'm from Basque country, so my name is Basque. And we've done a couple of investments in Iberia, including Kobe that we sold a couple of months ago, a month ago or so, to Plexi, maybe a bubble in Portugal that we'll talk about in a little bit.

3:10and Kledara, which is a Spanish founder. And then we have a bunch of small investments here and there in the earlier stages. Lovely, lovely. Thank you for that. Nico, can you, do you want to jump in? Yep, Nico Goulet, one of the founding partners of Adara Ventures. We've been around for about 20 years. In fact, next year is our 20 years. It's the first closing of our first fund. Investing out of Spain, Madrid, mainly in b2b enterprise plays so a lot of cyber security a lot of data plays more recently some digital health currently raising our fourth generation of funds which is going to be actually divided in two segments one is going to be a an energy fund and the other is going to be a more traditional flagship looking at the same sectors as we've done traditionally we already have the closing on the energy fund and we should be moving towards a closing on the on the flagship fund within the next few weeks which is which we are hopeful for our focus over the last 20 years has really been on companies that were globalizing quickly uh originally out of spain but very quickly we started doing stuff also in other european countries including portugal including the uk where about 25 to 30 percent of our dollars get invested.

4:37And looking at companies where the origin of the company can be in a given country, but very quickly they become global players. So the notion of where a company is is a little bit diffused. We can talk about where companies were born and what that impact might have on them going forward or what sort of attributes it gives them. But at the end of the day, I think all of us here are involved in companies where the whole point is for them to be increasingly global from day one. And that's definitely a trend we've seen over the last 20 years, more and more, and particularly in companies coming from Portugal, coming from Spain.

5:16The ability to be global from day one is markedly different from what it was 20 years ago. we have a small team growing actually but small about 15 people out of Madrid and and we are quite international in the team I would say we have about seven nationalities involved people from Scotland people from France a few Spaniards to keep to keep our national flag going there but all in all I think our objective is to become one of the, I wouldn't say a pan-European but a specialist fund that operates in the five countries that are our focus which are Spain, Portugal, France Italy and the UK Awesome, awesome Great, Stefan, wrap us up I mean that's it, you know one of the reasons that I ask panelists to introduce themselves is because it gives me a sense of how well you prepared for this panel and I think you've actually just covered questions 4, 6 and 12 just in those intros.

6:25So, Stefan, you might have seen some of these questions ahead of time. If you cover 2, 6 and 8, we can all go have lunch. Exactly, exactly. I'll try to do that a little bit in a shorter version maybe. So, Stefan Buraj, managing partner and founder of Indico Capital Partners, VC early stage fund based out of Lisbon. Been doing VC for about 10 years. been involved we've been involved in six unicorns and have about 50 companies in the portfolio we're currently in in our fifth fund and basically the companies have raised three billion and they're mostly b2b sas companies and a few marketplaces as well we started by focusing primarily in companies related to portugal and i say related because a lot of the portuguese founders are in the us and so we've invested quite a lot in the us and we've also invested obviously in Spain and more recently we've started investing in Italy as well.

7:20So I would say we are an early stage Southern European focused fund and we also have a blue fund which is kind of pan-European and even with investments in the US. And basically like my friends Nico and Ichazo said, we focus on companies that go global from day one because that's the only way to sort of make it happen in the global VC market. So that's basically it. Right, right. Excellent. Excellent. Okay, thank you for that. That gives me a bit more insight of exactly who I'm talking to. I did do my research as well, but hearing it straight from the horse's mouth is always best. Let's get the show rolling.

8:01This is for all of you. You know, all jokes aside, I mean, yes, we know the weather's great. We know the food is great. That's great. But that doesn't necessarily make for all things that an ecosystem desires and needs. So, again, for all of you, and I'll let you find out who goes first on this one, but what makes Portugal and Iberia an attractive tech hub within Europe? How? I mean, what? You know, there's Berlin, there's London. What makes it different and what makes it best or better? I can go. You can go. So, yeah, we all know, I think, if we look at those tech hubs rankings, we all know that cities like Madrid, Barcelona, and Lisbon have emerged very much on the top.

8:56And many times, in fact, they are in the top five after just London, Berlin, Paris, and Amsterdam. So, that's a reality. I think there are three things. I will mention three things. I'm pretty sure everybody else in the call will have some other ideas, but they will mention three things. One of them, and I think we all would agree, is the critical mass of talent. and that comes down to very good technical talent from good universities at a good price let's say great people that you can attract for an amazing quality of life come to Portugal come to Spain and they want to live well and you can hire really good talent either locals or coming from abroad The second thing is smart money.

9:49And I think this is very, very important. Smart money. In the last specifically 10 days, I know Nico has been operating for 20 years, but I'm pretty sure you were one of the only ones in Spain doing a little bit of venture at the time. In the last 10 years, a lot of funds have emerged and funds who understand the tech game, startup game. They understand what are the terms, the support that the founders need. They have empathy with the founders. They know that they cannot take a 30 to 40 percent of the business in a seed round because otherwise there is no way anybody invests there. And that was not happening before.

10:30So this is smart money. Those are investors who are pushing founders to go global from day one. They are not looking locally. They are looking to build big businesses. And I think that is absolutely important. Local funds, even though they are small, they are very good. And I think that's definitely we need to acknowledge that. And the third one I would probably say is the growth mindset. There is a clear growth mindset that you can see today in those Iberian cities, which I'm not sure if we could see it again seven, eight years ago. And that comes a lot from that critical mass of people who have worked at unicorns and other very fast growing businesses.

11:15They've been educating. They are the alumni of those businesses. They learn what it takes to build a big business. And they have gotten that virus of going global and going global fast. and I think those three things are very very important I would probably say

11:34building up the building up the flywheel yeah if I could add if I could add to that I mean I totally agree with the chess so that's exactly what it is you know great technical flexible and hard-working local talent that's really really key then something related to the to the food and sunshine, you know, very easy to attract great foreign talent. I think one thing you saw maybe 10 years ago was, you know, great technical talent, but maybe not so much in sort of sales and marketing. And now you can actually find in Iberia increasingly world-class talent in terms of sales and marketing and other functions that you need to grow your company.

12:12And that was not there before. This is, in general, accompanied by, you know, fairly lower costs compared to northern europe and certainly to to the us and that's important also um and and it comes from from having these sort of great universities and and great uh sort of living conditions that people want to have a balanced uh life and and to sort of make an impact in in the world the other thing uh which i also touched upon i wanted to reinforce is this mentality of of going global from day one and the reason is that when you have a fairly small this you see particularly in portugal but also increasingly in spain when you really don't have a local market and when people realize that the global market uh sometimes needs to start with the us because that's where the where you either sink or swim the fact that you have no local market is an advantage sometimes countries that are really big or kind of medium-sized big they fall the companies fall into the trap of staying local for a long time that does not happen with portuguese companies because they have no local market um and and increasingly doesn't happen with with the spanish companies that also have targeted many times the sort of latin america but when you look at the really big success cases and the younger generation of spanish companies they're actually targeting the US as well.

13:37Sure. Yep. Yep. Yep. I mean, just off the top of my head, we know when you when you were mentioning that it makes me think of France and Germany immediately. Huge home markets. I saw it day in, day out as a journalist. I see it day in, day out working in communications. French and German firms in particular tend to stay at home because, well, there's enough money there and they can get by and survive for quite some time. Stefan, let's talk about, and Nico, I do want to get your input on this, but I want to frame it a different way. Stefan, you're on the ground in Portugal. Sell me on Portugal.

14:18What strengths does the Portuguese ecosystem have that I'm not going to find in Spain and I'm certainly not going to find in Germany or for us? Look, I think that given the nature of the economy and sort of the hard times that we've had over the decades, it is true that a lot of people, when they graduate, they go abroad, but many come back and many stay. And increasingly they stay and increasingly they come back. And so there's this deep sense of nothing is taken for granted. I think you've seen recently the emergence of corporates with you know very big corporates u.s corporates paying well but traditionally you know the job market has not been so strong and that has created for the good and for the better certain hunger not literal but a certain hunger to sort of prove yourself and to work hard and make things happen and i think you know the the portuguese kind of ethos has always been of flexibility and where people sort of try to solve problems and i often say that in sort of in the industrial age, if you were a little bit too flexible and thinking outside of the norms, that was not good for your factory.

15:29You know, you just have to do your work and get it done A, B, C, A, B, C every day. But in the startup world and in a more flexible and creative economy, actually this mentality of solving problems and doing things differently, which sometimes is a hindrance when you want to do things always in the same way, in the startup economy, in the creative economy, it's actually a big plus. So that's why we've seen not only in the startup world, but in the creative industries, a lot of great companies coming out of Portugal, a lot of great events being born and happening here. And I think we really have a particular advantage of not having a market and at the same time, having very creative, but a very, very hardworking population that also tends to stay in the same job for a little longer.

16:18I think what we see, for example, in the US and in some European markets where there's a huge, huge turnover and people just stay on the job for three months, six months, one year and are constantly changing. You see, you don't see that as much in Portugal. And that's great. And then, of course, you know, Lisbon and the whole country has been a huge, huge magnet for a number of reasons. I'd say the only comparable place in Spain is like Barcelona and obviously bigger even than Lisbon and for longer. but you attract a large, large, you have a capacity to attract so much talent from abroad because of this idea of the lifestyle that you end up having a very, very diverse ecosystem.

17:00And I'd say that now Lisbon is like a mini London, really. There's people from all over the world. People keep on, you know, every week, there's people getting in touch saying, oh, I'm going to be moving to Lisbon. I'd love to speak to you. I'd love to sort of present my idea and raise capital and so on. And that's a huge advantage for the ecosystem. Yeah, yeah, yeah, I absolutely agree. I have a number of friends who have also relocated to Lisbon. Nico, I want to put you up, defend Spain. And I will say this as well. I mean, CEW's unfounded, Kathy White, she and her husband exited before the UK Brexited.

17:41So there was this mass immigration to Europe while we were still part of the European Union. So I know and have experienced firsthand the draw of Barcelona. Nico, talk to me, sell me on Spain. Why, you know, if I'm a, well, I am a top talent and I want to relocate, why should I be going to Spain over Portugal? Well, I don't think there's really a... I mean, other than other than other than I wouldn't, you know, I would say, you know, Spain has a lot of the characteristics that Stefan was was was was playing out. I'd say historically, you know, when we were investing way back 20 years ago, our thesis was basically very good engineers and very cheap.

18:45So that has changed with the still high quality. And product of money. And talent is building increasingly.

19:06companies from day one in Spain. Part about Spain is indeed, part of it is the lifestyle. I think there are certain industries that benefit in Spain specifically. And this is an angle that we haven't talked about yet. But one of the things that we, one of the reasons we've done a lot of cybersecurity is that the reality is that, you know, a lot of the Spanish banking system actually had a very global footprint compared to even other European countries or very much so compared to the US companies. So the Spanish banks very quickly had a had a footprint which made their cyber risk profile extremely high.

19:43And these were essentially companies that were out there globally sourcing cyber solutions, which made local entrepreneurs in the cyberspace having to compete against global players very early on and created a very strong ecosystem of cybersecurity companies in Spain. and this effect of having strong global buyers of technology close by is very important. And I think Portugal has a strong, I mean, Portugal is a smaller country, as Stefan pointed out, and has been, you know, the notion of having to be global in Portugal is true not only for startups, it's true for the whole industrial, the whole industrial and commercial sort of footprint of Portugal.

20:27So Portugal is a very, very global country from day one, right, from the moment everybody's starting up their companies and even for the larger companies. And this phenomenon in Spain happens in certain industries very strongly, including the banking sector, including the utilities sector, including the telecom sector, which traditionally have been very, very expansive. it's true to Latin America and in our view one of the points that was made about the Latin American sort of growth axis from Spain, we think that the growth axis on the consumer side is a bit of a fallacy it's a it's basically something which has not necessarily worked out so well for a lot of companies but what is true is that the fact that a lot of the companies industrial companies so for b2b companies to be working with Santander you're going to have a very strong global exposure to all the affiliates of Santander if you're a b2b company working with Telefonica you're going to have an extremely high and strong global footprint and that makes it quite attractive because you do need to have customers strong powerful customers close by to be able to start up you know it's good you can sell to the US from Spain but if you can be in Madrid and sell to Madrid to a global footprint, it's even better.

21:50And I think that's the one thing that I would highlight about about Spain. And that's, you know, it's continuing and it's growing and it continues to be to be very strong on the weather. I think we're at a par if you depend with me. But I could add I could add something else, actually, Nico. Exactly. Here it's colder, but I can certainly add something in defense of Spain. I mean, if you look at the exits pattern, because also the VC industry in Spain is older and more mature. Number one, you have more funds which are with more capacity. So the bigger funds and older with more capacity, with more expertise.

22:25And then you have kind of an exit market, you know, particularly in small transactions. You've actually seen, you know, Spanish companies being sold locally. Not the huge transactions, but the little ones. And in Portugal, that is not possible because there's no buyers, right? So the Spanish market is more mature, has more volume. And therefore, yes, they need to go global, but you can start stronger locally and you can also sell your company locally if needed at a certain level. And you can't do that in Portugal. So you really have to do global and be huge or you'll go nowhere. Right. Okay, cool.

23:00Excellent. Excellent. Nico, you dropped out a little bit there. And I think actually that typifies the Spanish attitude. Folks, if you haven't figured out, Nico is actually still on holiday. I think hence the T-shirt and the... Nico, are you at the beach or are you in the mountain? Where are you? At the beach. Folks, if there were any doubt about why the Iberian ecosystem is the place to be, Nico just typified it through a technical error. But Ichazo, I see you closing a term sheet over there. So I want to loop you back in the conference. I can see you doing it. I know you're doing a multimillion dollar deal right now while we're live on air.

23:43It's fantastic. I want to get your opinion. Let's zoom out. Wow, I just used an industry buzzword. Let's zoom out while we circle back to a pan-European viewpoint. point, how does Iberia compare to the other markets that you engage with? Strengths, weaknesses, pluses, minuses. So I think obviously has some similar things and some differences. Clearly, I'm not at the beach. I'm in this little booth here. There is no sun outside. But I mean, it is similar in terms of I think the community everywhere in Europe is growing very fast, is moving very fast. I think there is a clear mobility and collaboration.

24:30I think Nico just mentioned some incredible corporates and multinationals based in Spain. And I think the mobility and the collaboration, some of those are the corporates that are moving faster and adopting technologies. I mean, Santander and BBVA, How many of us are looking at companies who are working in POC, selling to them? So they are the fast adopting corporates. And that's absolutely fantastic, right, in the mentality perspective in that way. I think in terms of differences, I would probably say that, apart from the sun and all of that that you already just mentioned and so on, I'd probably say that we could do with some larger funds that can follow up the investment of the earlier stage companies.

25:25Not necessarily because it's necessary to stay in the country, but I do think that having some knowledge, right? I talk to companies and they are like, now I want some money, just more cash. And once we have the knowledge of the place, probably I just would need money. But in this case, they could provide some knowledge about the country. And there are many, I mean, I'm looking at companies right now in France and in Germany, and they are very attracted to work, in fact, with me because I know Spain and maybe closer to Italy and those markets where they want to enter them. And there are not that many investors who, in fact, understand that.

26:07So I think having more money, it is important. I think we also mentioned it a little bit, but one difference is the access, the very easy access to Latin America, to the Latam market, and to be able to sell there very, very quickly. Latam and Europe. So it's right in the middle for both of them. And then obviously they have the opportunity of the US, which is something that all the European countries have, right? and I probably say that lower cost of very talented people you are able to build that company I would probably say Europe in general is much more loyal than the US

26:53in terms of retention of employees and things like that so I think that's a difference maybe not with Europe in general but definitely with the US for sure. Okay, excellent. Thank you for that. I do want to touch on something here because it's been mentioned a couple of times and I've experienced it as well firsthand. Lisbon used to be cheap. It's not cheap anymore. Barcelona used to be tourist friendly. It's not so tourist friendly anymore. This is for all of you. Have the cost of living increases in in Lisbon and Portugal abroad, and the anti, I don't want to say anti-foreigner, because that, you know, we'll save that for Germany and their new government.

27:41So we'll say the anti-tourist movement in Barcelona. Have either of these movements, developments affected companies' ability to recruit, to grow, to scale?

27:57Stefan? I mean, not in my view. I think that, you know, ultimately the cost difference was quite large. It is now smaller compared to other markets, but the cost advantage is still there. And at the same time, really, I think it's part of our industry to sort of, in a way, contribute to the upgrading of the economy and the job creation. you know i mean these people here are just as good as people anywhere else so they should kind of obviously the salaries needed to increase i think this was a bigger problem in portugal the salaries were really low so they increased more and real estate prices as well with the particularly with the incoming foreigner population um but i still see uh startups relocating here and recruiting people locally and bringing sort of expats and people in here.

28:49So I think it was actually very positive for the economy and hopefully it will have a sort of a trickle down effect on other parts of the economy. So I don't think we've lost totally the competitive cost thing. And overall for the economy, it's really important that salaries go up and that, you know, the average level of salaries and of the economy goes up because, you know, we are South Europe, but we cannot be always behind the average or much lower than the Northern Europe. So I think it's good. Nico, any thoughts? I think there's still a massive differential between somebody the way somebody can live in Spain and the way in Portugal and the way somebody can live in in London.

29:31Right. To have the same quality of life, you probably have to pay them two to three times more for London than you do here. and we are seeing that in we see it not only in the portfolio companies we see it even with our own you know associates and principals we can bring in from business schools we're bringing people at salaries which each other would probably faint on compared to what you have to pay out there in London each other so so I think that the cost angle is still there But I think in the end, ours is not a cost business, right? Ours is about creating high quality companies and attracting not the most cost efficient, but the best talent ever for our companies.

30:19And I think that the attractiveness of Spain and Portugal is there. we see conversations happening all the time around portfolio companies talking to potential CEOs, to potential senior management team members with real interest from people for actually moving here again and again. And I think that that works well. I think Portugal actually has a benefit over Spain. Spain, we have this little thing here about Barcelona versus the rest of Spain. and that actually, in our opinion, has harmed the attractiveness. Barcelona's attractiveness over the last years has declined. We now see more difficulty in bringing senior members to the teams in Barcelona than we do in Madrid or in other areas because that kind of environment is not so productive and doesn't help around things like schools and all of those different elements.

31:25It just creates another noise level, which is not so helpful. Portugal has a very homogeneous and consistent offer. The water is a little bit colder in the south than in the north, contrary to what one would think. But I think when you can choose Porto, Lisbon, south, you know those are great places to be and with a very consistent offer and what they have what they do right so we have teams that are you know with with with people living in in the algaaf and portu and lisbon and and london and madrid and you know of course completely virtual and uh and the portuguese ones are the ones that are really um usually the most smiling ones on the come from schools.