In recent years, the Spanish business landscape has undergone a notable evolution thanks to the increasingly significant presence of Venture Capital (“VC”) as a financing model. This investment mechanism has become a key element to boost the development and growth of companies that have just started operations in our country.
In this article, we will explore what Venture Capital is, what criteria guide the choice of a company to receive investment and how this form of financing is managed.
The role of Venture Capital Funds in the legal startup ecosystem
Venture Capital is a form of financing that involves investment in small or medium-sized companies, usually start-ups, with significant growth and expansion potential but with a certain risk of success associated with the early stage at which the investment is made.
Unlike other traditional forms of financing, VC involves the acquisition of part of the company’s share capital, giving investors a partner position in the project.
Venture Capital funds are investment vehicles that provide capital to emerging companies that are in early stages of development and often have difficulty obtaining financing through traditional sources but have great prospects for growth and profitability, assuming the risk associated with these investments. At the same time as making their investments, VC funds offer technical management and advisory support, participating in decision-making and providing ongoing support to the company.
The main objectives of Venture Capital funds
When a VC fund decides to invest in a startup, its main objectives are:
- long-term profitability
- support and growth of the startup
VC funds seek attractive financial returns over time. By investing in companies at early stages of development, they take a high risk, but also expect significant returns if the company achieves successful growth and eventually a sale or IPO takes place.
In addition to financial returns, VC funds also play an active role in the growth and development of the startup. These vehicles provide the company with certain additional resources, such as experience, expertise, connections and strategic advice, with the purpose of helping the company reach its full potential.
Stages of Venture Capital
The management process of a VC fund is structured in different stages, from the identification and selection of promising startups to the follow-up and eventual disinvestment in order to obtain a return on their investment.
VC funds have specialised teams that actively search for companies with innovative business models and high growth potential. Once a promising startup is identified, the fund proceeds to invest an agreed amount of capital in exchange for a stake in the company. Before making the investment, they carry out a thorough due diligence process to assess the financial, legal and operational status of the company in order to minimise the risks of their investment.
As mentioned above, these funds are not merely passive investors. They act as strategic partners and advisors to the startups they invest in, bringing their expertise and contacts to overcome obstacles and guide sustainable growth. They constantly monitor the progress of the companies in their portfolio, analysing key metrics and assessing whether previously established goals are being achieved.
The final stage of VC fund
The final stage of VC fund management is divestment. Once the startup reaches a stage of maturity and favourable valuation, the fund may choose to sell its stake to another investor, conduct an initial public offering (IPO) or, in some cases, buy back the startup’s shares.
Venture Capital has proven to be a powerful driver of the development and growth of startups and emerging companies in Spain. These funds provide financing and advice to these companies, key aspects that can make a big difference in the success of a company.
As the VC ecosystem continues to evolve in Spain, it is expected to continue to foster innovation and entrepreneurial development, thus contributing to the country’s overall economic progress. As professionals in the legal field, providing an informed understanding of Venture Capital to our clients, as well as early and ongoing advice can be of great value to their growth and success in the competitive business world.
Article written by
Attorney – Corporate and M&A
Metricson is a pioneer in legal services for innovative and technology companies. Since its inception in 2009, it has advised more than 1,400 companies from 14 different countries, including startups, investors, large corporations, universities, institutions and governments.
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