"We need to strengthen support for technology-based entrepreneurship."

BBVA and Basque Government agree on the need to facilitate access to financing for industrial startups

The round table addressed the current situation of the startup ecosystem and its funding challenges. Maika Salguero


Jorge Murcia

Monday, March 27th, 2023, 09:06 am

Setting up a business has always been a challenge with uncertain results, a coin flip that can fall on its head if, for example, public institutions and banks do their job: establish a favorable legislative framework and inject financing.

This entrepreneurial spirit takes on greater importance when it is oriented towards the creation of technology-based companies, which are the ones that offer a plus of competitiveness to a territory. These projects face numerous barriers in their early stages. One of them is financing. And even more so when the 'startups' are of an industrial nature, with a slower maturation process.

Fortunately this scenario is changing and banks are beginning to understand and specialize in the financing needs of young companies. This was confirmed by the participants of the forum 'Challenges of the entrepreneurial ecosystem', organized by BBVA Spark and EL CORREO, which was held on the 16th at B Accelerator Tower, the former tower of the Basque bank.

The round table brought together Peio Belausteguigoitia (Country Manager of BBVA Spain) and Roberto Albadalejo (head of BBVA Spark) on the financial side. The institutional part was represented by Leyre Madariaga, Director of Digital Transformation and Entrepreneurship of the Basque Government. Patricia Astrain (CEO and founder of Recircular) and Pedro Silva (creator and head of BeGas) provided the business point of view. Manu Alvarez, economic correspondent of EL CORREO, acted as moderator. Among the audience were the general deputy of Bizkaia, Unai Rementeria, and the deputy of Economic Promotion, Ainara Basurko.

The Basque Country is an attractive place for foreign investment and a "pole of excellence" in innovation due to its "solid industrial base, technological penetration in industry, public impulse and private investment in innovation," Belausteguigoitia recalled.

This privileged position is the result of "the culture of entrepreneurship, innovation and industrialization" that the region has always boasted, and which, in the opinion of the head of BBVA in Spain, "has a lot to do with education -with three very powerful universities- and the commitment of public institutions".

Leyre Madariaga, from the Basque Government, highlighted two great strengths of the Basque entrepreneurial ecosystem. On the one hand, specialization in competition between territories and companies, and on the other hand, the commitment to technology, science and innovation.

Some "accommodation"

However, Madariaga observes in the autonomous community "a certain degree of accommodation" of the entrepreneurial spirit, something that "we cannot lose". The representative of the Basque Executive considers that it is necessary to encourage this entrepreneurship, and especially "the one of technological base", which represents "an element of competitiveness for the Basque company and industry".

It also happens that many of the startups that emerge in the Basque Country are linked to something as traditional in the territory as industry. And the companies in this ecosystem "do not grow quickly, they do not generate jobs in a crazy way. They are not the world of the 'app' and the web".

It is a "particular" venture that has the support of "more than one hundred public and private agents". However, it is difficult to accompany young companies in the "valley of death", that moment in which the startup has not yet managed to make its activity profitable and where expenses are usually higher than income.

BeGas is a manufacturer of engines that run on autogas or biogas, and a paradigmatic example of what happens with this type of startups. With eight years of activity, they have had to invest 20 million euros to achieve a positive ebitda.

Obtaining financing to get through this long journey has been complicated, acknowledged the company's CEO, Pedro Silva. However, he admitted, the situation "fortunately is changing". He asked the banks "to be patient, to look not so much to the past as to the future" of companies that, like his, make "impact investments".

This category of startups also includes Recircular, a company that "helps others to give a second life to what they have left over, their waste and residues". Through a digital platform, Recircular connects these resources with companies capable of reusing them. That is why it fulfills three purposes: "savings, environmental sustainability and circular economy," said its founder, Patricia Astrain.

Growing "slower"

A "nice but hard" project, with continuous challenges such as those faced by "companies set up from scratch" and with the added bonus of having been created by a single person, "and a woman, to boot". Recircular has never received external investment, so its growth has been "slower and more organic" than is usual in startups.

However, to scale "to the next level" it may need money from outside. Astrain encourages the understanding that companies like his "have different growth rates, but that does not mean they are any less profitable".

In Spain there is an industry, made up of young companies, "very neglected by the financial sector," admits Roberto Albadalejo. He is the head of Spark, the BBVA division that provides financial services to innovative companies. He acknowledges that "it is difficult to fit these companies into the seams of the bank because they have different operating dynamics".

A "vicious circle"

Albadalejo is aware that investment in innovation is growing "exponentially" not only in the most powerful poles, such as the United States and China. It is also "a reality" in the markets in which BBVA operates, where "investment, talent, universities, engineers and a favorable public environment" come together to generate "a virtuous circle".

BBVA's response to this scenario was the launch of Spark, whose activity has three legs: one for banking, another as an 'ambassador' for innovative companies to the bank - "we are a fantastic entry portal" - and others for investment in venture capital.

In the end it is a "not so innovative" proposal, says Albadalejo. "We do what we did 150 years ago: support companies in their first steps. We offer the usual banking service of opening an account, payroll, providing a POS...", he lists.

The institutions -at least as far as the Basque Government is concerned- have to act as a 'lobby' that supports entrepreneurial projects. "First, setting an example," says Leyre Madariaga, which translates into "assuming the risk of non-refundable subsidies. Trying to minimize it as much as possible, of course".

BBVA Spark's specialized financing

BBVA Spark was created to respond to the financing needs of innovative companies in all stages of growth. This is an activity that involves a higher risk than lending money to traditional companies. Hence the importance of having managers "who are dedicated exclusively to this type of client," says Peio Belausteguigoitia.

"Another attribute," he adds, "is specialization, especially in terms of 'nose'. It is a question of knowing the needs of the companies "in each of the life cycles and for each specific case". And to set "limits in terms of volume and concentration, so as not to focus on the same sectors".

That 'nose' to which Belausteguigoitia alludes "is trained," adds Roberto Albadalejo, head of BBVA Spark. "This is about having established frameworks and putting people in place who know the customers. Teams that try to understand the industry and its trends," he adds. This strategy requires looking at the business "with different glasses. Even if the company has a negative ebitda, if there are customers and an attractive and strong market, the analysis is already very different".

"Another attribute," he adds, "is specialization, especially in terms of 'nose'. It is a question of knowing the needs of the companies "in each of the life cycles and for each specific case". And to set "limits in terms of volume and concentration, so as not to focus on the same sectors".