Technological disruption, decarbonisation and financial control: key ways to attract investment in 2023

Obtaining capital to continue growing is one of the main challenges for any entrepreneur. It is even more relevant in complex economic contexts. In 2022, inflation and rising interest rates took their toll on the markets and, for 2023, forecasts are not optimistic.

In Spain, GDP growth is expected to be 1.3% lower than initially forecast, according to the analysis centre Funcas. In Latin America, the International Monetary Fund (IMF) highlights the resilience of the region’s economies during the past year, but predicts “a difficult year.”

In this context of uncertainty, entrepreneurs have a question: What is the best strategy for growth? Technological disruption and decarbonisation are the answer. “These are two global macro trends that, over the next few years, are going to radically change the economy and industry as we know it. They also represent an opportunity for innovation and entrepreneurship,” says Santiago Muguruza, Head of Venture Capital Investments at BBVA Spark. He and other experts offer top investment tips for 2023.

Investment tips for 2023: focus on decarbonisation and technological disruption

The emergence of generative artificial intelligence (AI) and the ‘deeptech’ or ‘cleantech’ sectors are some of the technological trends set to take centre stage in 2023 and which the investment ecosystem will drive. “In times of instability, opting for disruptive technologies can be a very good strategy. Furthermore, all those companies or technologies that are committed to sustainability have a promising future ahead of them,” says Almudena Trigo, founding partner and president of the investment fund BeAble Capital, which supports seed-stage companies, especially in scientific fields.

As an example, Trigo cites cases where this fund has invested, such as Next-Gen Leather, a company that has created a biomaterial that mimics the characteristics of leather and that in 2022 received 450,000 euros or ADParticles that develops and markets innovative products in the cosmetic sector and that at the end of 2021 closed an investment round of one million euros. “We believe that science can be key to the creation of a high-value industry,” notes the founder of this equity fund.

Ignacio Moro, managing partner of the Extension Investment Fund, also values those businesses with a focus on sustainability: “Companies that opt for solutions to major climate and energy challenges through new technologies and innovation will be well positioned to attract investor capital. In addition, from the consumers’ point of view, they feel more identified with brands and products that have a positive impact on society and the planet.”

BBVA also supports sustainable projects, investing in other firms such as Hy24, a clean hydrogen infrastructure investment fund, or Lowercarbon, a venture capital fund specialising in climate change and decarbonisation.

Recommendations for attracting investment

In periods of instability, investors tend to be cautious. In Latin America, in 2022, investments in ‘startups’ fell by 40% compared to 2021, according to a report prepared by Endeavor and Glisco Partners. In Spain, in 2022, venture capital executed 745 operations worth more than 1.4 billion euros when, a year earlier, 773 investments were made for a value of more than 2 billion euros, according to Spaincap, an association that brings together venture capital and private equity firms.

The investment experts consulted for this article provide some tips on how to raise capital in uncertain times:

• Monitor the cash burn rate. For Ignacio Moro, of Extension Fund, companies should pay special attention to this aspect: maintaining a controlled cash burn lets investors know if the company is prepared to face possible macroeconomic and financial difficulties.
• Build a solid team. “The team is the embryo and the strength of the project and more and more ‘due diligences’ [investigations or audits carried out by external consultants to learn about the business and make investment decisions] are being conducted on the teams and the people who lead them”, says Santiago Muguruza of BBVA Spark.
• Align with the objectives of the 2030 Agenda. Decarbonisation is emerging as an element that attracts capital and ensures the growth of startups. For this reason, Almudena Trigo, from BeAble Capital, stresses the need for projects to be in line with the goals set out in the 2030 Agenda to build scalable and innovative projects.

• Build a stable economic structure. “There is no need to grow at any cost.” The phrase was used by Oriol Fuertes, CEO of Qida, in one of the speeches that took place during the celebration of the last edition of 4YFN. The quote shows one of the realities of the entrepreneurial ecosystem: it is necessary to work on the search for business profitability. Santiago Muguruza, of BBVA Spark, states that “investment funds check the financial order of each project, so showing a solid economic structure is fundamental.”
• Pay attention to the runway. Ignacio Moro points out that, in periods of uncertainty, the study of investments tends to take longer than in other periods. For this reason, he points out the importance of monitoring another key aspect: ‘runway’. This concept refers to the margin of time the company has before running out of cash and is seen by the investment ecosystem as a key factor when it comes to investing.
• Set clear objectives. Santiago Muguruza sees a clear difference for companies that are in an early stage of growth and others with more mature growth stages. For the former, the head of venture capital investments at BBVA Spark recommends having a differentiated project and a roadmap with clear milestones based on metrics that allow the investor to assess whether the company is successfully executing its plan. For companies that have already achieved commercial traction, the important thing is to have good growth prospects and a credible plan to achieve profitability under different scenarios.

Looking to the past to prepare for the future

In 2023, even though the economic outlook invites us to look to the future with caution, the entrepreneurial ecosystem serves as a point for those seeking to break new ground and solve societal challenges. “If we look back at uncertain times in the past, companies that have great human talent, attractive business models, sustainable growth and that bring emerging technologies to relevant and global problems always have access to financing,” says Ignacio Moro.

Therefore, the investment field will reach out to all those entrepreneurs who decide to take a punt on their idea. “Private equity doesn’t just provide financing. It helps companies to be better managed, it contributes to achieving objectives more quickly and is essential for them to be better prepared when it comes to facing periods of crisis.” The union between entrepreneurs and investors is a gateway to get to horizons where technology and innovation contribute to create a better environment for everyone.