How to Win in VC & PE | Oriol Pinya (Abac Capital Founder) | Ep 21

Oriol co-founded Abac Capital in 2014. Before Abac, he worked at Apax Partners for 15 years as an Equity Partner, Head of the Spanish office and Co-Head of the global retail & consumer team. Prior to Apax, he worked at Merrill Lynch and at the Boston Consulting Group. He is the Chairman of SpainCap, the Spanish VC & PE Association. He currently collaborates with and is a board member of several non-profit organizations, including the Barcelona School of Economics, the HBS Club de Barcelona of which he is President, Barcelona Global and FemCat of which he is Vice President, the Pere Tarrés Foundation, and ACG. Oriol holds a degree in Business Administration from ESADE (Barcelona), a CEMS Master from HEC (Paris) and an MBA from Harvard Business School (Boston), where he was a Fulbright Scholar.

Personable is a podcast dedicated to helping listeners become the best they can be by learning from the world’s best in their respective fields. This mission is inspired by my mother, Louise, who encouraged me to become the best version of myself before she passed away from cancer in 2023.

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Transcript

Speaker 1: 0:00

Hello and welcome to episode 21 of Personal. This is the podcast where you listen to the world's best, enabling you to become the best that you can be. Today, I'm honored to be joined by Oriol Pina. Oriol is the founder of ABAC Capital back in 2014. Prior to that, he worked at ABAC's partners for 15 years, being an equity partner. He was the head of the Spanish office and co-head of global retail and consumer, before that working at both Merrill Lynch and Boston Consulting Group, and is now the chairman of SpainCAP, which is the Spanish VC and PE Association. He is also highly involved in lots of different means of philanthropy. So, oriol, thank you so much for joining me today. I want to get started by asking if you could sum up who you are for those that have never met or heard of you before.

Speaker 2: 0:49

Good morning. Thank you for inviting me, harvey. It's a pleasure to be here with you. So who am I? I never asked this question before, so I'm 52. I'm from Barcelona, barcelona Football Fan, as you can imagine. Father of three, happily married. I met my wife during business school in the US, lived in many different places, worked in private equity and probably, if you ask me today, who am I? I'm a frustrated marathon runner. So I do run, but I'm not great at doing it. But I enjoy it and that's something that I think you have to do in life you have to enjoy what you do.

Speaker 1: 1:24

How did you get into what you do now? Because you've gone through quite a long career path, working at some incredible firms and, you know, attending Harvard Business School, etc. But what was that sort of path like, from where you are now to where you started?

Speaker 2: 1:42

Okay. So, as you said, after undergrad, I did my undergrad at the University College here in Barcelona and I started at BCG, which is consulting. What you do today is basically strategy. After that I went to business school, to HBS, and while I was at HBS I was thinking what do I want to do with my life? And for me I had sort of two or three different passions. On one hand, I knew that I liked strategy, which is what I was doing at BCG, but I also liked finance and the adrenaline that you get when you do a deal, and that's something that when you are in consulting you don't necessarily get. So I was debating myself about what to do, because my summer I spent it at Merrill Lynch, where I was doing a little bit of finance, and I was thinking what do I do? Do I do back to consulting or I go into banking? But I also get this feeling.

Speaker 2: 2:35

My family they own a very small business here in Barcelona, the text labs and I wanted to be a little bit an entrepreneur like my father.

Speaker 2: 2:44

So when I got to meet the people at APEX, I thought this is a fantastic combination because I can get the three at the same time. Because, on one hand, when you do private equity, venture capital, there is a lot of strategy involved, but also you have the ability of doing deals and the action of doing deals, which is very exciting, and you are an entrepreneur because, as you do, you help create companies and then you have to manage them. So I thought it was a nice combination. That's how I ended up, at first at APEX, whereas you said, I spent 15 years at APEX in a variety of roles, in Spain, but also in London and traveling to many different countries trying to find the best deals wherever they were. And it came a point in my life where I had to decide whether we would move to London or we started something different and we decided to start a smaller private equity based in Barcelona, which is our, and hence that's where we hit today.

Speaker 1: 3:37

When you start at APEX, because I've heard of private equity but I'm still not sure in terms of the exact ins and outs of it. So you're buying either a whole company or a large proportion of it. But how would you go from a company being valued at let's make them a number like 10 euros or $10, whatever and how would you then go about increasing its value? Are you taking out staff? What's your approach after you've initially made an investment in a company to then try to provide value? How does that look?

Speaker 2: 4:08

Okay, look, I think first we need to understand a little bit. Maybe go to private equity, venture capital 101 so that we'll understand what is it that we do. So, basically what we do, we manage third party money from institutional investors from all over the world. So basically, we ask for this money, we set up a fund, which normally has a life of 10 years, and then we invest this money in private companies. If what we do is we invest in startups that's called venture capital and basically in a startup, what happens is that you come with three or four friends of yours from Duke that you have a fantastic idea. We want to set up this new company. We need some financing to get us started. You'll say the pre-man evaluation of the company is one million to million, depending whether you have a prototype or you're already up and running. And then we put in some capital let's say half a million, one million in exchange for a percentage of your company. And then what you try to do is grow as fast as possible and you do different capital raisings over the course of the next coming months, years, so that you you know very quickly. That's the world of venture capital.

Speaker 2: 5:11

The other goal is with the world's private equity. Private equity is when there is a company which is normally significantly larger, a company that has had revenues and profits for many years, and there is a seller that normally wants to sell control. So this person or this entity wants to sell at least 50% of the company to a new buyer, for a variety of reasons that we can discuss. In this case it's not so much about the growth of the company Obviously there is some growth but it's more about substituting a shareholder that wants to live and I come in as a new shareholder. That's called private equity. So these are two.

Speaker 1: 5:49

So it's about they could go public, but you're just offering them an alternative to that. Is that what you're saying? It's another form of exit opportunity.

Speaker 2: 5:57

For instance that happens in big companies, that sometimes they can either go public and then they sell their shares once they are public. But being a public company entails some difficulties, so it's not a straightforward journey. So some people what they say is, instead of going public, I would rather sell it on a private basis to a fund that wants to buy my company or stake in my company. It doesn't have to be 100% of it, and normally this tends to happen with more mature businesses, so the businesses that have been in the market for many, many years. So the dynamics of what is called venture capital, which is I'm buying a minority stake in a company that is relatively new, one, two years old max, that is growing very fast. This is one type of venture capital, one type of investment decision. The other one is when the company has already been established for many, many years and then I go and buy it.

Speaker 1: 6:52

And so now going back to that original question, once you've made that investment, does it completely differ about what sort of involvement you might have? Like, how does the game plan work, from having invested in the company to trying to provide future value?

Speaker 2: 7:06

Okay. So normally the way it works is that we invest in a company with an investment horizon of about five years roughly. So we want to be in that company for between four, six years and the way we try to help the company and now we'll be talking more about private equity, and then, if you want, we can go back to venture capital. So in private equity, we buy a company that, let's say, is making 10 million in beta. 10 million in beta is like saying 10 millions of profits. To simplify, and to buy this company, let's say we pay 80 million. Okay, for this 80 million, instead of putting myself the 80 million, what I do is I go to a bank and I ask for 40 million and my fund will be putting in 40 million. And it's like buying a house with a mortgage where I put some equity and the bank puts the rest. So it's the same thing. So I bought the company for 80 million with profits of 10 million. So then what is it that I try to do? So we'll try, in the course of the next five years, that this 10 million of profits go, let's say, to 15 million, 20 million, so to increase the profit by, let's say, 50%, and during these five years we also try to reduce, to pay back the bank a little bit. So then, in five years from now, we'll be taking this company that now has profits of 15 million. We'll be selling, let's say, at the same multiples.

Speaker 2: 8:27

So before we paid, eight times, so 80 divided by 10. So you do 80 divided by 8 times 15. So it's 120. So what you see, the magic here is I paid 80. I sell it for 120. But 40 million was the bank and I was putting in just 40 million. So by the time I sell the company, 120 minus whatever is left that I still owe to the bank, let's say 30. That's 90. 90 would go to me and I usually put 40. So I've made 90 divided by 40, 2.2 times my money. So that's a little bit of magic. So how do we do this? So this is the mathematical example of what we try to do, so that, increasing the profits from 10 to 15, reducing the debt a little bit, we sell the company for the same multiple of earnings and we make some money. To do that. It's not so simple, as you can imagine. Sounds great.

Speaker 1: 9:23

It sounds great, exactly.

Speaker 2: 9:25

So the first thing we need to do is to have the right jockey at the company. So we need to make sure that we have the right manager. In some cases, when buying a company, it has a perfect manager and it's simply that the shareholder is retiring and there is already a professional management team in there and the only thing we need to do is back this management team and they continue to run the companies. In other situations, the founder retires and he was the manager of the company and we have to find a replacement. So that's part of what we do. So try to find a new coach for that team, because the coach is the most important decision that you make in a team, as you know very well. So, if you like soccer, the one decision where you influence the result of the team is the coach. If you have Guardiola as a coach, who is also from Barcelona, you'll get a team that will play very well, even if they're not the best players, but they play very well because the coach is great. So it's the same in a company. So find the right coach. Once you have the right coach, then you need to set objectives, and the sky is the limit. You need to decide what you want to play the Champions League, the Premier League or the Liga, and they are all fantastic tournaments, but you need to decide which one you want to play. And you need to decide what you want to play football or basketball. What are the rules of the game? So you're going to make decisions here. So you need to put in place the governance of the company.

Speaker 2: 10:42

So how are we going to make decisions? Because our life is not linear and you're going to have bumps along the road, and when you have these bumps along the road, you need to think how you're going to decide. So that's the thing that we do. And once we have decided the governance, you need to have very concrete APIs, the grades. So now you've taken some subjects at Duke and then you have some great at the end of the term that will measure whether you've made the right progress or not.

Speaker 2: 11:09

Sometimes it's not 100% fair, but normally it is pretty, pretty accurate estimate of what you're doing and what you're studying or what you're sleeping while at Duke. So it's a similar thing. So we put this as of KPI is in place so that we can track performance during these coming four or five years. And then the other thing we do is we try to decide the strategy. So how is it that we're going to achieve our goals? What is it that we're going to be doing? And that's something that we discuss at the board with the management team, and we try to have some significant alternatives and decide collectively where we think the company should go so that in five years from now it's worth more money than what it is today.

Speaker 1: 11:52

I don't know if you had any specific sectors that you invested in, but looking at your, the brief look I had over the investments that you made, they seem to be in lots of different areas. So, although you have that sort of I mean you've done that down a lot. So thank you very much. In terms of the simplistic KPI is the strategy for each business, for each business is very different. So how do you go about picking the perfect strategy for each of these businesses and why do you think that you guys are able to come in having not been in this business you know the founder or whatever has already been in this business and suddenly be able to come in and be like do this strategy, do these KPIs, and be able to offer this growth? I think the answer to this, and you absolutely right is a very good question.

Speaker 2: 12:34

The answer is asking lots of questions. So we don't know the answers. And, as you said in our case, so you have different type of private entity funds. Some funds they are specialized in a particular vertical where they say I'm a fan specialized in media, I'm a fan specialized in energy investments, in telco, in biotech, whatever Other funds, like it's my case today. When I was at eight, it used to be more industry focused. For example, in my case I was the head of retail and consumer, so we had this vertical of retail and consumer investments.

Speaker 2: 13:05

Today, at ABAC, we invest basically in Spanish businesses where we do have a very strong connection to the people that are in those businesses. So it's more that we know that it's a small country compared to others. So we know the people, we know the markets and if we find an opportunity where we think we can help the company transition from old school to new school, from family owned to professionally run, so if we think we can help there, that's what we do. But to your question, I think that the real answer is not giving answers but asking questions, because the ones that really know the answers to the questions are the managers, are the founders, so part of our role is the Socratic method, if you go back to the the ancient. So we need to be able to ask the right questions, the profound questions, that then the people that know about the businesses they'll reflect on our questions and they'll say OK, let me think about what you just asked. So, yes, I should be focusing more on the customers, or we should be opening a subsidiary in the UK, or we should be launching a new product or whatever. But they are the ones that know the answers.

Speaker 2: 14:12

And it was interesting and that's something that I've seen over and over is that when you're running a business, you have many urgent things that make you not to focus on the priorities. And I think that the fact that you have poor meetings every month and that you sit down with people that are more or less smart and that you take two, three, four hours to reflect, to pause yourself and think about OK, what's next, what do we need to do now? They find the answers. They are already there in their souls, in their minds, and our role is to ask those questions.

Speaker 2: 14:44

I would be too pretentious if I was to tell you that I knew the answers in all the different business we have invested, that, as you said, they had nothing to do with each other. But it is true that from time to time what you see, you see patterns, and then what you do, you ask hey, harry, have you thought about this? That is on these other business, do you think it could potentially apply to your business? Or maybe yes, maybe no, and then they reflect on it. I think it might be a bit different now that you've.

Speaker 1: 15:10

I mean, you'll actually had the same Spanish VC and P association. So you've got this reputation now, but I mean, even now, how do you go about finding deals? And then also, on top of that, if there is a good deal out there, I'm going to make a presumption that a lot of other firms would also like to make an investment in that firm. But there isn't an unlimited amount of equity in a business. So both, how do you go about finding your deals and also how do you differentiate yourself to make sure that the business wants to work with you as much as you want to work with them? Okay, so look the first question.

Speaker 2: 15:44

We do two things hunting and farming. So basically, the farming is that we have some areas of investment that we like, that we think that because we see some macro trends, secular growth trends, that we think is going to be some growth in a particular space, I think it would be interesting to invest in those areas. So what we then do? We identify companies with the same growth, we identify companies within those spaces and then we go and visit them and we tell them hey, we think you are a great company, it's very interesting what you do and we would be honored if you guys would let us invest in your company. As you can imagine, the first day you knock on the door they tell you thank you very much, but we're not interested. So you simply you plan the seed and you wait and you wait. So that's the farming part. The hunting part is that you have a rifle and there are lots of intermediaries around and these intermediaries what they do? The same way that you have real estate agents that they buy and sell houses, the same happens with companies. So you have M&A boutiques, corporate finance houses, banks, etc. All sorts of intermediaries lawyers, accountants that they happen to know that there is this company that is up for sale, and then they may either introduce it to you on a sort of a one-to-one basis or they run an auction and then in this auction you may decide to participate or not, depending whether you have something to bring to the table or not, which is your second question. So ideally, what we try to do is go from bilateral situations where there is no competition and it's a one-to-one discussion where I agree to buy your house and, after a little bit of discussions on the pricing and the conditions, we agree on it. That's the ideal scenario, but unfortunately that's not always the case.

Speaker 2: 17:31

When you go into a more competitive situation without funds, what you need to have is conviction. Conviction why? Because you need to pay a little bit more than your neighbor. And if you need to pay a little bit more to get the asset, that means that you need to have more conviction about what you're going to do next with the asset. Because if I think that I can take the profits from 10 million taking my previous example to 16, and you think that you can take it from 10 to 14, guess what? I'll be paying a little bit more than you for the asset, because I have the conviction that you don't have that. I can take it from 10 to 16. Oh, your pass. Yeah, it's not that I'm bad, it's maybe or maybe I'm. There's something I'm missing. Maybe you've seen something that you dirigeants, a risk that they have not identified, and then you are more prudent than I am, so you never know. I mean you know it afterwards, after four or five years time will tell whether I was right or you were right.

Speaker 2: 18:27

But what I try to do during this exercise, when we are competing for the same asset, I try to do a lot of work in terms of understanding the asset. So that means understanding the risks of the asset, but also the opportunities or what can be done with this asset. I try to surround myself with people that know about that industry and that ideally, they know about this concrete company, and with that I create a business plan of the things that we would do with this asset if it was ours, and that helped me set the price. And if I'm aggressive enough because I at least there needs to be some fundamentals to it, and if I can find a business plan that is more aggressive than yours, then I'll be paying a little more and I get the asset.

Speaker 2: 19:09

Many times I lose, sometimes I win. So, to give you an idea, every year we look at around a hundred deals. We do too. So there are 98 situations where, for a variety of reasons, we simply pass let's say in 90 or in 80, something we don't even start the work because it's an industry we don't like, we don't like the founder, we think it will be too expensive, it's not an asset based in Spain, for many different reasons. And then there may be 10 situations that we think it's worth spending time. And of those 10 situations where we do spend time and money doing the due diligence and really competing for the asset, we end up doing a couple.

Speaker 1: 19:55

Yeah, even with that hunting and farming example, with the hunting example being sort of deals that are out there and people competing for it and you've got to outbid others versus the farming example in which, just as you use the analogy of sort of planting a seed, I still don't get how you're finding these companies.

Speaker 1: 20:13

Because you know, for me, if I was to think about like big tech companies, obviously they're not private but you know the apples, the Amazons, the world but to me that's obvious because they're sort of products that I use on a day-to-day basis. So it seems obvious to me to sort of think, oh, perhaps that'd be a worthy investment or not. But to you, the companies that you're looking at I don't know if you're a customer of these companies I still don't really get how you're even going about finding them. And even so, with them being private companies, their finances aren't public either. So how do you even go about assessing whether they're profitable, whether they're doing revenue, or is this just like through industry knowledge and it becomes kind of obvious who's doing? Well, that you have lots of sources everywhere. What's the sort of process for even like the stage one of finding a company?

Speaker 2: 20:59

Okay. So, to start with, you have lots of databases that give you a lot of information on particular industries. So you say I like this particular t-shirt industry and that you can get a very long list of companies that they make t-shirts and, interestingly, even if they are private, at least in some countries, the numbers are public.

Speaker 2: 21:22

So in Spain, I can get the annual accounts of almost any business in the country because by law the annual accounts have to be filed and they have to be made public. That doesn't happen in all the jurisdictions, all the countries in the world, but in many countries it happens more and more. So as long as you have some money to pay for the databases where all these numbers have been filed, you can have access to this. So I can note the revenue and profits of almost any company in Spain, which almost is Euro. Now we're testing more in Spain. So to start with, we can sort of do a little bit of number crunching to see within that industry that I like, the t-shirt industry, I can see that this particular company is growing very fast. So then I think about this it's interesting.

Speaker 2: 22:05

Maybe I should be calling these guys because there must be something there because these guys, they're growing twice the speed at which any other company in the space is growing.

Speaker 2: 22:12

So that's giving already some information. So there is a lot of research that can be done and you would be amazed and you see that when you do any project at university that once you start digging into the internet and you want to learn about the industry and we have a team of 20 people just trying to find the right deals and we only have to do two deals a year. So we put out of effort all this research. That's one, and then the other one is what I said before about this networking. I mean, this is not about knowing people who know other people, and these people they make fees if they buy yourself a company. That's their business model. So when they get a commission on whatever is being bought or sold, like a real estate agent, as I said. So they talk again to many companies in the country in different industries and they learn about situations where there potentially could be a transaction and once they find one, they tell to people like us. So I think to find deals, it's not the issue. The real issue is to find the right deals and to know whether this is a company worth buying it or not, and on the venture capital site. So what I was talking more was the private equity company that, as I said before, it's already a big company with millions of revenues, millions of profits a starage company.

Speaker 2: 23:32

In the case of startups, it's even easier because these people, they are hunting for money, they are chasing for money, they need money to grow. So whenever they know that there is a venture capital firm, that that's what they do for living, they invest in companies they call you because they need the money. In the case of private equity, you want to buy their shares. In the case of venture capital, they have a business plan and they need the money to make it real. So they call you and as long as you are in in the right forms, they just call you. They know that you are specializing in this particular sub-segment, that you've been successful in previous investments and that it's good to associate with yourself because that will help them be more successful, because you introduce them to people, to investors, to clients, to suppliers, that that will maximize their chances of making it.

Speaker 1: 24:22

What is the success? Because I remember looking at like I think it's like a bell curve or something with sort of VC investments, in that you could make 25 investments and maybe like something like 15 to 18 or do nothing, maybe like five or six I know I've got these numbers wrong but maybe like five or six will do like all right, maybe make a bit of money, and maybe like one will do like super well and make all your money back. But in the case of PE investments, what does the mindset look like that? Is it you aiming for a 100% success rate in terms of how much money you're making? Like what is? How does that risk versus reward balance look?

Speaker 2: 25:00

I think that. So, basically what people think and I think it's true In our case, we do both venture capital. We have a very small fund that we do venture capital, so pre-seed and seed rounds, where we invest 200,000, half a million euros here and there and a variety of companies, and then we do buyouts, with both things in separate vehicles. In the case of the VC fund, give you an idea and we'll more or less back the same numbers you just said. We invest in 21 companies in the first fund. Of these 21, we have five companies that we think will make very decent money and of these five, probably there is one or two where they're going to be blockbusters and each of these could return potentially the whole fund, while we have another eight, nine of the 21 that they will be write-offs. That means zero. They will get zero from this. And then we have another six or seven where we'll make some money. We'll lose a little bit here and there, but it's going to be a cage when you take all of it, the whole fund. It's a fund that can potentially return, say, three or four times, but it's very skewed to your point and that's venture capital.

Speaker 2: 26:11

In the case of private equity normally you don't invest in that many businesses. So in the case of venture capital, when you start it's a little bit spray and pray. So you invest in many different businesses, very small tickets, and when you see the very few that traction positively there you put more capital and you go on a follow-on round and you put a little bit more capital and you need to focus on the ones that will make it and then you have to get rid very quickly the ones that you see that they don't go anywhere. So because it's a collection of different options and in some options you'll make money, in others they'll go anywhere. So that's on veg On the private equity side. So we don't invest in 20-something. We invest in a fewer number of investments.

Speaker 2: 26:54

For instance, our first fund we invested in 10 companies. Of these 10 companies, we expect to make money in almost all of them and at least you want to recover capital. But the total payoff of the fund, instead of making between three and four times what in private equity, what people normally would be doing is between two and three times and that's okay. But the standard deviation that you have in private equity is lower than the standard deviation that you have in venture capital.

Speaker 2: 27:24

In venture capital you could say that there is an element of luck sometimes because it is a spray and pray and then you need to be smart, that within your very large portfolio you see a three or four that will make it and you need to see it and pack those and continue with those until they become the next Apple or the next Meta or whatever, or personal podcast, exactly exactly. While in the case of private equity you need to try to make money in each of the investments separately, even if you don't make that much money, because in a very established business to multiply investment by 10 times, that's extremely difficult because it's already established business, it's more mature, but that also works on the contrary that you shouldn't be. You shouldn't lose your money in established business if you know what you're buying. So the standard deviation is lower.

Speaker 1: 28:20

How does risk management play into your mind? I think we've been particularly nerve wracking when you open the fund versus now when you've got many more established and successful and not successful investments. But you've seen how it's played out. Yeah, how does risk management play into your mind? And also, what does it take to be a successful private equity or even venture capital investor over time?

Speaker 2: 28:47

So I think risk management has to do with the idea of things. The first one is you need to spend a lot of time thinking about the issues of a transaction not only about the things that will go well, but also the things that can go south and you need to identify the risks and try to see what are the elements that you can use to mitigate those risks. Normally, when a deal doesn't go well, it's not that risk that you identified. It's the one you didn't think about when you started. So it's important that you spend time thinking about risk. So that's the first thing I would tell you. The second one is trust your processes. So don't decide with your gut. So we have an investment process. So that means that you have a team, part of the investment team, that they will be analyzing this potential investment and then they'll do some new diligence. They'll write the paper, they'll go to committee where the partners will sit down. We'll discuss this transaction for many hours and then we'll say whether we like it or whether we don't like it and what we need to potentially, if we decide to go ahead, and the what conditions and the what conditions may mean. What is the price we're willing to pay. What is the structure of the transaction? So, how much equity, how much debt, a vendor loan, which is money put by the seller? Whether there is a price adjustment mechanism, what kind of warranties and revs in the transaction? I mean lots of different things, and sometimes we decide not to go ahead. And that goes to my final point.

Speaker 2: 30:28

To be able to make money in private equity, it's not only about doing the right deals, but about not doing the wrong ones. So you want to avoid doing the bad deals, and that means that sometimes you need to let pass good deals in order not to do the bad deals, and that's tricky. So, for example I'll give you an example In venture capital, one of the rules that we have is that we do not like investing in startups that run by a couple Husband and wife. Does this mean that these startups will always fail? No, I'm sure that there are situations where a couple have been very successful at starting their own business and growing it a lot and then selling it at a huge price.

Speaker 2: 31:20

I have no doubt. But I also know that there are many situations that can be very difficult to manage a company where you have invested money where, for instance, the husband is not doing a great job and you need to fire the husband, and what do you do with the wife and how do you deal with that? Or they divorce and they are major shareholders of the company. So there are many situations where something can go wrong. So we, as a fund, sometimes we are passing on this potential situation and with this decision that we've made, we think we are avoiding some risks. But it's also true that we are probably not investing in some situations that would get good deals. But that's a decision we've made.

Speaker 1: 32:04

Do you think about portfolio composition at all? Yeah, because you're thinking about, as you just said, the risk management that was more on a per investment basis, in terms of going to the committee and being prepared to give up certain good deals, even if they might be good deals, but if you have 100 million, 10 million whatever, and you're making 5% or 10% or 2% of using of your assets and the management in one investment.

Speaker 1: 32:34

How does that play into all the other investments that you might make? Do you plan out certain sectors that you might invest in? Do you plan out a time horizon that we're going to invest this much this year? How does that play into your mind?

Speaker 2: 32:47

It's a combination of what you just said. It looks like you could work for us. Yeah, you'll need to improve your Spanish, and then here you are.

Speaker 1: 32:58

I'm fluent, I'm fluent.

Speaker 2: 32:59

Yeah, okay, fantastic. So look, it's exactly what you said. So we have a methodology that we measure every quarter the portfolio risk and for that we look at. For instance, we look at the revenue split in different geographies so easy that we are selling. We look at our currency exposure, both from a revenue side and our cost side. We look at that commodity exposure, we look at our industry exposure. So that gives us a sort of framework to think about risk, exactly for what you said. And that means that we make decisions in terms of what's next for us.

Speaker 2: 33:39

For instance, now in our second fund. The other day we had a discussion where we said okay, we have four assets in this fund. Of these four assets, three they have some kind of industrial nature. So we said, maybe the next asset should not be an industrial asset, maybe we should be more into services so that we compensate for the kind of operating leverage that you have in a factory that you don't have in a services industry where the costs are more variable. So that's a discussion that definitely you want to be having, because you don't want to rely on all your eggs in the same basket.

Speaker 1: 34:10

Yeah, how do you deal with a question I ask a lot of people, but I feel like in this particular thing it's somewhat more tough because, as an athlete, you know dealing with stress. You know playing a football match. You're only playing for what? 90 minutes and you've got to take a penalty. And then the penalty you either score or you miss, and then within those 90 minutes it's over, and then the nerves until the next week, whatever. But in this sort of case you're making investments, as you just mentioned, for over five years, as well as having to potentially make more investments in the future, with, hopefully, a lot of them going well, but also perhaps some not going as well. So, in your own personal keeping, well, you've got a family and hopefully a successful math and career in the future. How do you deal with stress and remaining calm and collected over the years?

Speaker 2: 35:06

I mean I would be lying if I mean, obviously, this is a stressful job and there are and things never go as planned, and I think that's something you need to, you need to embrace. So I think that it's foolish to think that it's going to be everything is going to be all right every day, and some days are better than others. I think that you need to start the match every day thinking that you're going to try to do a good job this particular day, and some days you go home and think this has been a bad day and it didn't work out well. Okay, tomorrow is going to be a better day, and I think that you need not to take it personally. I think you I mean this is I don't want to say the word it's a game. It's not a game because you're playing with money and with the people's lives, because we employ thousands of people. But the day after the day, we try to do a good job and we make our best to do a good job, and we try to make decisions, thinking a lot about the externalities of those decisions in a variety of ways, and we try to avoid being emotional. I think that's the one thing that we try to make professional that way.

Speaker 2: 36:22

I said what they said before about the process. So we have our decision making processes, which we take very seriously. We let many people opine in those meetings so that we can hear everyone's opinion, and then we try to make a fair decisions, and then we have to live with it and sometimes we make mistakes. Of course we don't make mistakes, but I think that you have to buy these golden rules that don't do to others what you don't know how to do to yourself, and that's what we try to do. But it's obviously and there's another one, which is have the right team. I think that you don't want to have a team where you start pointing others when there is a mistake. So I think that it's in our website, or it should be. We play together, we win and lose together, and that's very important.

Speaker 2: 37:13

So very silly, but it is not, because sometimes the way it works is that let's say we are three partners and one is making a proposal to invest in a company and the other two we have the committee, and then maybe that deal doesn't go well. I mean, we could either tell this guy, hey, was it a mistake? Or accept responsibility and say we made the decision together. I mean, you came with the idea, but we all decided collectively to invest in this company and this is the team. And then when we get into some kind of trouble which we do from time to time try to find the solutions together and not blaming each other. I mean there is no point in blaming and there is no point in sticking to your pride. If you've made a mistake, the sooner you admit it and you try to change it the better, because otherwise you start procrastinating and you avoid conflict and you avoid recognizing that you've made a mistake to start with. You'll never get out of the hole.

Speaker 1: 38:15

Sure, in a bull market, everyone looks like a genius, particularly in public markets. I made the right investment. Even I could be the CEO of your company in a bull market. Maybe in a bear as well, who knows, maybe in five years time. But on that sort of point, in a more of a private equity investment, as you were saying, where you own a much higher stake in the company, I think you have a much more. You have a higher chance at making a decision that you want to make because you have control of the company.

Speaker 1: 38:48

But in a VC investment, you could be one of many. So, particularly when things aren't going as well, how do you deal with the power dynamic between you being one of many? How do you even get your thoughts across and what you want to do? And then, on top of that, when you have potential sinking ships or not even sinking ships, when companies aren't doing as well, how do you go about saying it's worth investing our time in this, we can save it, or we can put it back on track, or we're like let's just get another investment, let's move on. So yeah, just to repeat that it was the power dynamic one versus many in a VC firm, and the other one was identifying sinking ships and identifying where to put your time and your efforts in companies.

Speaker 2: 39:31

The first question, the power dynamic between my VC and another VC in a particular portfolio company. That's what I understood. Yeah, I think that in this case it depends very much on who you are and whether you've built a reputation for yourself of knowing what you're talking about, in terms of both how to build a business and about that particular industry. So VC funds they tend to be more specialized than private entity funds, so they have an industry expertise and they know. Maybe it's a very narrow vertical, but they know quite a lot about that and I think that if you are good at that particular segment, the founder of the portfolio company will recognize this knowledge, that you have this experience, and he'll listen to you. Because at the board normally it's not about where you have four different VCs. It's not about I have a 4% stake and you have a 6, so he'll listen more to the 6 than to the 4. It's about people, and I think that some people have gravitas and other people don't have gravitas, and some people know what they're talking about and others don't, and it doesn't matter that much whether they have a backpack with millions or with billions. So it's more about the personalities and that I would say that the founders at the end of the journey, they listen to those that give better advices. At least in my experience, and I know a few that's the situation. So build your credibility over the years and always stay with the truth and don't play games. I think that if integrity is top of your list, people will notice this and trust you. That's for the advice. So that's the first question.

Speaker 2: 41:22

On the second one, it's a very painful decision what you ask, but it's what you need to do. So when you ask me the question about returns and I said look, I mean my portfolio of the 21, we have five that will give us the return and then the other 16 will make a little bit of money, but that's it. So the sooner you learn this. Obviously, if they call you, you reply to the phone call because you are polite, but in terms of what you have to spend most of your time and resources is in the winners, and that's something that, in venture, you see very quickly, whether the distraction or not.

Speaker 2: 42:00

If the company is struggling and they have a hard time raising additional capital and improving the concept, getting revenues, getting clients and improving the so that you have the MVP and you have to prove that there is a viable business model there. If they enable to do that relatively quickly, it's going to be very difficult. So I think they just spend your time somewhere else. And it's painful because these people they're trying very hard for them. It's their life. But you're managing a portfolio of 20 different assets 30 assets and it's unfair to our investors to spend the same amount of time in those that won't make it and those that will give you 10 times return on that investment. So in venture capital, you need to go for the winners.

Speaker 1: 42:48

I often like drawing a lot of parallels between what someone does and the rest of their life, or to other things, or to my own podcast and what I'm doing. But, as you mentioned before, in a VC, when they're highly specialized in one thing, I read a book like a year or two ago and I think it was cool, like the one thing. It was very simplistic, it was only two or 300 pages long. It was literally saying that if you focus on one thing, that's the key to success and the minute you drift off that and try and be your hands in many pies, then you won't be as successful as you would have been focusing on one thing. Do you find that that's the case both in private equity and in your own life and trying to get success? And for founders, that when they're obsessed and they're fully focused on just their company or just one thing, that they get this astronomical success? Or do you think there's also a case to say that you need balance? Or perhaps doing five different things could also lead to success?

Speaker 2: 43:44

I don't know if the book you read is called Outliers by Malcolm Gladwell.

Speaker 1: 43:49

It was literally called the One Thing.

Speaker 2: 43:51

Okay. So there's this other book that is the same idea, which is called Outliers, by Malcolm Gladwell, and he talks about, for instance, bill Gates and how Bill Gates spends. You need to spend at least 10,000 hours doing something to be good at it, so you can skip the other 200 pages. Just remember this. So, in whatever profession, hobby, whatever is it that you want to excel in life, you need to spend 10,000 hours, and that gives you the answer. I think that you need to specialize in something and try to be the best. So I couldn't be a good skier, runner and scuba diver at the same time. There is not enough time in life, so you need to focus on something and try to be good at it. If you try to be too broad, it can be difficult.

Speaker 1: 44:37

All right, so I just did the calculations. So I've got to do 979 more podcasts to become an expert, so maybe at some point we'll get that.

Speaker 2: 44:49

Yeah, I'm sure you will. I think you have pretty good already.

Speaker 1: 44:53

So you're going to be quick, stop it. I'm kidding, I skip the 200 pages.

Speaker 2: 44:58

But who knows?

Speaker 1: 44:58

I'd be curious. I mean, your breakdown and the ability for you to take a complex topic and to be able to break it down is really admirable, and I feel like I have learned so much in this time. We're not done just yet, don't worry, but I was wondering if you could tell me the story of when and how you decided to found our back capital, why you decided to leave the firm you were at, why didn't you continue and taking initiative to go and found your own company and then raise lots of money takes guts. So I was wondering if you could take me on that story.

Speaker 2: 45:39

So let's go back 10, 12 years ago, 2012. At the time I was working at Apex, I was a partner. I had been a partner for a few years and, unfortunately, for my personal life, my family was living in Barcelona and I was working in London. So I commuted every week for a few years and that's something that people say oh it's great, you travel every week. It sucks. And I had an apartment in London and I had a family in Barcelona.

Speaker 2: 46:16

So that was a tough period of my life on a personal level, because it requires a lot of will, if I say because you wonder yourself, why do you do that? And it came a point where, with my wife, we're debating so should we all move to London or we'll have to do something different with our lives? Because it was clear that within Apex, apex was becoming a more global organization and had quite a team in London and there was no real future for South European countries and smaller countries. So the action was going to be in London or in New York. So either we had to think about moving there or start something different. So that was ongoing for some time. Then, at some point, we discussed within Apex to do a Southern European mid-market fund based in Spain, also covering Italy, and we discussed that for many months. In the end, we couldn't agree the terms with my partners at Apex on the governance what I said before about the governance but we got excited. My Spanish partners and myself got excited about that idea and we thought, why not? Maybe it's going to be a small entity that being at Apex, where we had a fantastic run and we are extremely grateful to all the things we learned there and we said it's okay. So we then agreed on a deal within Apex. So let's start it on our own.

Speaker 2: 47:43

And we had learned the business for 15 years before we started and I think that's important. So it wasn't like when you start to start out that you know nothing about the space. I mean, we have been doing that same thing for 15 years, obviously with the great backing of our colleagues at Apex. But we knew that we were not starting naked the startup, that we had something to bring to the table. So in our business it's not that it's extremely capital intensive to start a GP. So obviously you need a lot of money, which is third party money.

Speaker 2: 48:16

But we knew a handful of investors that could help us and we started fundraising and I must admit that it was tougher than what I anticipated. To give you an idea, we had to visit 115 investors all around the world and 135 said no and 15 said yes. And 15 said yes mostly came at the end, not at the beginning. So resilience it's an important activity if you want to start a business, because it's not easy and you get setbacks along the way and frustration, and having the right partner is very important as well. In my case, I started with two partners Borja and Javier that we work together at Apex and it was fantastic to be the three of us, because there are days that you get up and you are a little bit down. Other days you are on a hike and they are way around and that compensates. And finally, we managed to raise our first fund and then the second, but it wasn't always easy.

Speaker 1: 49:23

In that time did you ever think am I doing the right thing? Should I go back? What was the time period? In that time as well, you've had 135 or 500x rejections. Did you ever think to yourself am I the right person to do this? Is this going to eventually work?

Speaker 2: 49:46

No, actually that's something that my parents have always told me that I had this say that failure was not an option, that maybe it's going to take a little bit longer, as if it did than what we expected. But failure was not an option, and the reason being because we had the track record. We had invested successfully at Apex, so we had made good money for our investors. We had the right resumes, so we had studied at the right universities, we had worked at the right places and we need the right investors. So we said, why not? It has to work and that, to me, is an important takeaway the power of the made up mind. So when you convince yourself that I will succeed at doing this, then your subconscious starts working in ways that you cannot even imagine and helps you get to the destiny of what you want to get. In our case, I promise I never thought we were going to fail. I saw they were taking longer than what I anticipated, but that's the way it is. But failure was not an option.

Speaker 1: 50:47

I can't pretend that he's maybe relatively successful, but my soon to be 18 year old younger brother. He's very determined, very focused and he says the same thing he's a hobby. What do you mean? You can't fail, you just keep going at something. I agree with him to the extent that if he lost all my money then I'd probably say he failed. But with anything else, I think the fact that if he just kept going, I think that's really good advice.

Speaker 1: 51:16

I would be curious as to advice for people like myself. I'm 19 years old, I'm a freshman in college and I've still got three, three and a half years left of school left and I'm constantly thinking about what my career should look like. And I feel like that, particularly before you've actually properly started your career, you're just thinking am I going to choose the right thing? As if it's a life or death sort of thing. You go through school constantly with grades and you're constantly being assessed onto the next stage, onto the next stage, high school through to university, through to perhaps a postgraduate. You're constantly being assessed, but in the real world it doesn't really look like that. But I would be particularly curious on your thoughts on startups At the end of the day, at some point in time, I want to found my own company.

Speaker 1: 52:01

Don't know if it'll be this year or in 50 years time, who knows but if that is my goal in who knows what industry, what's the best way for you to get exposure? Is it making my own startup? Is it joining one? Is it getting into a VC? Is it going into private equity? Is it going into industry? What's your thoughts? Is it doing all of them? What's your thoughts on your advice to an 18 or 19 year old person like myself on what the best path would be with that sort of long range, long term goal in mind?

Speaker 2: 52:35

I don't think there is a perfect answer to this because it depends a lot on your character and your personal situation. So, for instance, if you are the son of Bill Gates, you can do whatever you want anytime, and it's going to affect your future. So that's very clear. If you are the son of a normal citizen that needs to make some money for a living, then probably you want to think decisions twice before you make them. So that's the first principle I would say. The second thing I would say is what has worked to me, which is learn the business with someone else's money and then build your own business.

Speaker 2: 53:20

Also, in my case, when I was working at Apex and I was very happy there and spent 15 years I started a small notebook when I was maybe 2-3 years into it, drafting what my GP would look like if one day I was to find one, and every time I met someone that I thought this guy is a smart guy, maybe he could be my partner, I would write it down and I also set up what the strategy of the fund would be, etc. I still had it and I wrote it down for many years and that was something that was back of my mind, because when I started it, I had no intention at the time of leaving Apex and starting, but I had it there and I was sort of trying to learn from the things we're doing at Apex. I like this policy. I like the way we do HR reviews, I like the way we split the paycom it doesn't matter many different things, and I was writing it down and that was very personal. Actually. I don't think I ever showed this to anyone, but it helped me think how I would like my own venture to be one day, and for many years I had that.

Speaker 2: 54:35

And then there was this one day when the opportunity came, which, is the honest, I wasn't looking for that opportunity on that day, but we started these discussions and one thing brought to another one, and here we are. We have a capital, we raise a few funds. Now it's been almost 10 years. This area it's a 10th anniversary. So learning from others is very important, and I think that what you need to do is no matter what you do is sit next to smart people that can teach their business and then learn from these people, and then you have to create your own thing and don't try to decide today what it's going to be whatever you want to create in 10 years from now, because maybe it has not even been invented.

Speaker 2: 55:15

So just be patient, and there's going to be this one day that you see, look, I mean, this is the one, this is the one wave. If you surf, this is the one wave I want to surf. Don't be, don't, don't hurry the decision. I think you need to be patient, learn from others and be humble. Understand I don't know much about anything. Understand that you don't know much about anything. So try to learn from other people and surround yourself with smart people.

Speaker 1: 55:43

I know you're probably going to write this in your notebook afterwards, but I will accept your offer to lead with you in Fun 3.

Speaker 2: 55:49

I know you're probably going to wait to ask the podcast to ask.

Speaker 1: 55:51

But happily, you know, open up the Darm North Carolina office. That can be arranged. Yeah, okay, we can talk over there. I'll get my people to speak to your people and we can arrange that. What's one piece of advice that you would give someone listening to this podcast? Whether it be something you said or something you didn't say to a listener, what do you want them to take away from it?

Speaker 2: 56:17

Listen more than talk. Smart people listen more than talk, and that applies to many things in life.

Speaker 1: 56:27

Perfect. Well, thank you so much for the outro. Sorry for keeping you for so long. I was just encapsulated by our conversation. I wish the best with everything, and I hope anyone was able to learn a lot from that.