Spain was experiencing one of the most deadly outbreaks of the coronavirus in Europe when Aquilino Peña, co-founder and managing partner of venture capital firm Kibo Ventures, was named president of Spanish venture capital and private equity association ASCRI in May.
Private Equity International caught up with Peña to discuss how he assumed his role remotely in the middle of a pandemic and what the association’s goals are as the country recovers from covid-19.
What has been the main focus of ASCRI since the onset of the pandemic?
Our key objectives have not changed with the pandemic, but the tactics have. There was a lot of desire for knowledge from our members on what action we should taking as an industry. We have done webinars ranging from how to raise capital today, to dealing with bankruptcies, and getting funding from the EU as well as the Spanish government. This has taken up a lot of our time – we have done almost a webinar a day and attendance has ranged from 200 to 500 people. Everyone was eager to know how to cope with the crisis.
We have also managed to involve the top executives from Instituto de Crédito Oficial, which is the official trade bank here in Spain that has backed many domestic PE funds. Officials from the European Investment Fund; ENISA, which supports SMEs; Compañía Española de Financiación del Desarrollo, a state-owned trading company; as well as bankruptcy lawyers and health professionals focused on coping with stress have also joined our webinars.
We have been in an almost daily contact with government on two big issues – how to provide liquidity to start-ups and how to make sense of the new rules on non-EU investments on Spanish companies.
At the beginning we were pretty much focused on contingency planning with members, which included measures on social distancing in the firms and their portfolio companies. At first, it was really about damage control and then it became about liquidity.
For example, the ICO has set up a fund to help small and mid-cap businesses cope with the impact of the covid-19 crisis, whereby if an investor puts in 51 percent funding, they will invest the remaining 49 percent. This fund will likely be deployed in convertible loan format to firms that have been affected by covid-19.
What is the situation in Spain in terms of foreign acquisitions?
Spain has been in a state of alarm since the pandemic started, which means the central government has certain powers to restrict mobility and can impose restrictions on investments in companies affected by the crisis.
The need to authorise certain investments made by foreign investors is harmful to the industry. Most venture capital exits are to American and Chinese companies, so this legislation is a huge limitation. We have been making sure we understand the rationale of that regulation – to prevent valuable companies from being poached by non-European buyers – and we have been in dialogue with the government about it.
We understand the rationale behind the predatory takeovers of large domestic companies, but the law should not be applied to start-ups, as many of them get capital from US funds. The requirement for authorisation is also very low at €1 million and above 10 percent of the firm’s capital. We have been working with the Ministry of Industry to make sure the limits are increased and to make them more reasonable for non-EU investors.
“The more restrictions we have for investors, the worse for companies and the worse it will be for employment”
ASCRI has been making noise on this – the investment limits, the authorisation process and the sectors – and I think we are much more comfortable now than we were a month-and-a-half ago. We expect the legislation to be modified by parliament soon. We’ve seen several hundred authorisation proposals and only a handful of them have been returned with the requirement to be authorised, which is good news.
Another issue we are trying to clarify with the Ministry of Economy and Finance is the ownership of PE firms. Some Spanish GPs may have, for example, Chinese or US investors. Would such PE firms need approval from government every time they make an investment under the new rules? This is unreasonable and we have asked for official clarification on this issue.
We are certain that in a situation like this, we need investors to support our companies. The more restrictions we have for investors, the worse for companies and the worse it will be for employment. Employment is the ultimate goal that we have as a country, so people have disposable income and we do not run into a demand crisis.
For Spain’s recovery, the government needs to be pro-business in order to get employment figures up. In ASCRI we have more than 240 members, of which the majority are GPs. These funds have invested in circa 2,800 companies that employ about 600,000 people. We are trying to convince the government that the covid-19 economic response and recovery will also come from external investors like PE and VC firms. That is why we should be flexible, and we shouldn’t make investing in Spain harder than what it is.
PE firms have been criticised for trying to access government stimulus programmes. Do you think that’s justified?
I find the exclusion of PE-backed companies from accessing state aid in some geographies is extremely unfair. That implies shareholders are not treated equally. The reality is that PE-owned companies have been much more successful in navigating the crisis. Why? Because the most common liquidity measure has been support from equity holders or lenders.
I don’t understand why some governments are treating PE-backed businesses differently – it’s as if you are punishing the firms that are helping the economy.
How is ASCRI preparing GPs and their portfolio companies for recovery?
The two key words for me are liquidity and digitalisation, in terms of firms’ operations, client servicing and market opportunity.
What I am more worried about is that a lot of the investment theses of companies in Spain rely on globalisation. The pandemic has certainly killed tourism and that has affected spending and industrial exports. Added to this are increasing protectionism in the US and the longstanding trade war between China and the US.
Aquilino Peña, co-founder and managing partner of venture capital firm Kibo Ventures, is president of ASCRI from 2020-2022. He replaced Miguel Zurita, managing partner and co-CIO of Altamar Capital Partners.