“Now there is money everywhere and if you have a quality company, you will have a lot of funds waiting”
Like scouts for football or basketball clubs, investment funds and large companies use a figure with the same purpose. They are the ‘scouts’ or startup scouts. Their mission: to find promising companies when they have not yet been discovered, to be the first or among the first to invest or collaborate with them. In silver, arrive before anyone else. “These ‘scout’ programs become popular during approximately 2021-2022, in the midst of valuation hysteria for technology companies. It is a time of prosperity for the funds, which begin to see that the companies’ income multiples begin to grow very quickly,” says Kintxo Cortés, referring to the fact that the investment enthusiasm resulted in the companies’ income having to be multiplied each time by a higher number (x4, then x6, then x11…) to arrive at your assessment. For reference, the current 5 trillion dollars of capitalization of Nvidia are equivalent to multiplying its annual income by 20. In the case of Alphabet, Google’s parent company, the figure would come from multiplying turnover by 11 and in that of Apple, by 10. “In venture capital what is happening is that money is a commodity. There are very good funds, so it is not only a race to see who finds the company that grows the best but also who enters a promising company the earliest,” explains Cortés, who has been a scout for four years. He currently collaborates with the Accel and Samaipata funds, in addition to working at the connectivity company Gigs. “Now there is money everywhere and if you are an entrepreneur and have a quality company, you will have a lot of funds that will want to put money into you.” In an environment like the one Cortés draws, investment funds can only be differentiated in two ways. One of them is with its team of professionals, capable of adequately supporting the startup. The other is with speed. Whoever gets to the entrepreneur first has an advantage when it comes to investing. So the funds have diversified their search for projects with potential. The objective is to enter capital very soon, even with a small position. And this is where the scouting activity unfolds. They are specialists and know the entrepreneurship ecosystem inside out in certain areas or niches. They allow the funds to gain capillarity that they do not have with their staff alone. This way they have access to a greater number of companies and can glimpse promising teams operating in interesting sectors as soon as possible. Although this scout profile is not the only one that scans the landscape in search of attractive startups. Gema García González, director of Open Innovation and Coporte Venturing at Repsol, is in charge of a team of ten people dedicated to reinforcing the company’s technological development with external resources. “We try to be flexible, we work with other research centers, with other corporations and, of course, with startups. The entrepreneurial ecosystem has many pieces, it has grown a lot in recent years and can contribute a lot to us in developments that we want to accelerate,” he explains. In this case the scouts are on staff. Thus, the company has invested in more than 35 startups and today works with 21 companies, detected by its analyst service. “We do not invest in what any investment fund can invest in, we invest in something that can be strategic for the company, in startups with which we want to collaborate,” says García González. Repsol scouts, working within the framework of its R&D center, Tech Lab, comb the entrepreneurial ecosystem in search of circular economy, energy optimization or renewable hydrogen projects. “My team has to dedicate part of its time to being very connected to the ecosystem. It needs to have a good network of contacts with other corporations, with other investment funds, go to conferences and startup events and see which platforms are the best to launch technological challenges,” explains García González. He clarifies that one of the formulas for finding interesting projects is the launch of contests and challenges that reward the best solutions to a given problem. Don’t let the next ‘PayPal Mafia’ escape The connection with the entrepreneurial world is essential. In the technology sector, a trend that has been seen for a few years has been accentuated. “There are companies that are doing very well in technology and have many employees who begin to set up other companies because they have access to liquidity, either because the company goes public or they can move shares in the secondary market,” says Cortés. “They find themselves with a lot of money and the desire to continue building things.” The phenomenon is not new and is reminiscent of the success of ‘PayPal Mafia’a symbol of that diaspora that sometimes occurs in technology companies. Many talented employees and deep pockets who decide to undertake can emerge from them. From the early days of PayPal came Elon Musk, the founder of LinkedIn Reid Hoffman and the investor Peter Thiel. And other employees started projects such as YouTube, Yelp or the social application Slide, acquired by Google. More recently, the brain drain at OpenAI also illustrates how talent within one startup ends up spawning other startups. That’s where the Amodei brothers came from.which they founded Anthropicformer chief scientist Ilya Sutskever (Safe Superintelligence) or former CTO Mira Murati (Thinking Machines Lab). The great value of Kintxo Cortés for the funds with which he collaborates is his network of contacts with employees and former employees of the companies where he has worked, especially Airbnb, Shopify and Trade Republic. That connection is key for investing entities, which do not have the structure on their own to delve into the ins and outs of the projects formed by former employees of the technology companies. Even fewer are able to discern which employees they should pay attention to, whether because they are the sharpest, most talented, or best positioned. A corporation like Repsol must also be clear about which … Read more