The family business is always attentive to diversify in everything that means development and evolution of its business project. For this reason, you can find very interesting platforms in startups so that generations not incorporated into the government of the family business can gain experience. and are trained in business skills. In addition, for the emerging companies themselves, having the family business as a partner can provide them with greater stability thanks to their long-term vision, their strengths in terms of management and their proven experience. For all these reasons, José María Rojí, partner in the Corporate / M&A department of CMS Albiñana & Suárez de Lezo, believes that there is a clear opportunity for family businesses to participate in emerging companies.
This was revealed at the conference organized jointly with the Family Business Association of Madrid (ADEFAM) to analyze the investment processes of family businesses in the entrepreneurial ecosystem, in which he also participated as a speaker Alfonso Codes, Partner of the Department of Public Law and Regulated Sectors of CMS Albiñana & Suárez de Lezo.
Advantages for family businesses and startups
For Jose Maria Roji, Investing in start-ups, particularly if they operate in the same sector as the family business, can represent an opportunity for innovation and allow members of business families to accumulate governance and business development experiences and then contribute the acquired skills and knowledge to the family business, acting as a transmission belt between it and the emerging business. This link, in his opinion, could be exercised either by assuming the role of full-fledged administrator of the startup, or as an observer within the council, with voice but without vote or responsibility.
Investment in emerging companies, according to Rojí, opens the possibility for consolidated companies to make marginal investments in companies with high and rapid growth potentiallearn in contact with very innovative and creative teams, delve into the operation of models based on digitalization, which can later be replicated in the consolidated company, and imbue themselves with dynamics characterized by high competitiveness with highly competitive scalability, growth and internationalization models. ambitious.
Likewise, it considers that the importance that learning to manage in unstable and changing environments, demanding in terms of raising finance, cost control and treasury, as well as becoming familiar with raising operations should not be ignored. investors and mergers and acquisitions, which are part of the very idiosyncrasy of this ecosystem. And if necessary, obtain learning also with the experience of failure, frequent in emerging companies.
Investment with guarantees and “escape plan”
While investing in this type of company presents interesting opportunities, but also notable risks, experts advise adopting a series of precautions. In relation to this point, Alfonso Codes considered it very important identify a rising sector first and then carefully analyze the startup in which you plan to invest, in order to know in detail how it works and who its founders are, since they will determine the future strategy of the company.
Likewise, he pointed out that it is vital to know in advance the temporal and material route of the startup. “These are essential aspects, since investors do not enter into a business of this type if they do not see the possibility of multiplying their contribution by ten in a very short period of time and then sell”. In relation to this point, he explained that the usual form of financing for this type of company It is not usually the issuance of debt, but rather the raising of capital, and it is important to take into account the high risk of dilution of the investment if the successive capital increases that the development of the project itself requires are not resorted to.
Codes assured that family business investments in startups are going to occur more and more frequently in Spain, although, in order for them to be carried out with the maximum guarantees of success, advised to seek legal advice and financial and get involved in its management in order to gain knowledge and experience about its operation. “If these premises are met, synergies can be produced between family businesses and startups”, he assured.
However, as the environment in which these types of companies operate is usually quite volatile, both from the point of view of management and their approach to the market, the experts advised devise an “escape plan” for those cases in which there is a management deficit, a change of activity or risks and responsibilities are incurred that may imply a negative reputational impact that it is important to avoid.
In this regard, José María Rojí advised anticipate these situations through prior agreements, since the separation or unilateral put options are penalized in price. On the other hand, if the separation occurs due to previously assessed causes, such as a change in the corporate purpose, previously negotiated protection systems can be activated, such as joint sale rights, drag rights, sales mandates to third parties, majority agreements in the case of non-compliance with the previous conditions, unlocking systems or internal auctions, among others.
